World Com Fraud

In: Business and Management

Submitted By cjbroadway
Words 719
Pages 3
The accounting fraud at WorldCom was the result of corporate supremacy, individual liability, and an ultimate collapse of their system of in-house controls that can all be attributed to greed, manipulation and a lack of accountability for top executives. Bernie Ebbers, at the helm of it all, lacked focus, strategic direction, and led WorldCom with a consistently declining moral compass. It is thought that the ethical turn down of WorldCom’s top executives began with the U.S. Justice Department’s refusal to allow WorldCom’s 1999 attempted acquisition of Sprint. WorldCom senior management noted that large scale mergers no longer constituted feasible means of expansion and the company began to shift into an abyss of monumental proportions.

Operating major departments in various locations, WorldCom had no real continuity among its corporate offices. Its attorneys, upon whom they should have relied on for principled and legal counsel, were essentially without influence. Policies were not written and employees were dared to challenge their superiors. An environment of fear was established and maintained by the dictatorship of senior management.

From a financial standpoint, Ebbers and Scott Sullivan, the CFO, allowed salaries and bonuses above budgeted allowances and mismanaged compensation guidelines. Furthermore, WorldCom struggled to maintain its year 2000, first quarter 42% E/R ratio amidst revenue and pricing pressure brought on by a deteriorating industry and increased competition in the market. Their decline in business operations sparked Sullivan’s decision to use accounting entries to communicate the desired performance. This was done through accrual releases in 1999 and 2000 that Sullivan claimed were too high comparative to projected cash payments. Additionally, Sullivan authorized the capitalization of line costs in 2001 and 2002 which also resulted in…...

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