Worldcom

COURAGE: A CASE STUDY IN ACCOUNTING ETHICS AT WORLDCOM

David Christensen, Jeff Barnes, and David Rees

Southern Utah University

INTRODUCTION

On 21 July 2002 the second largest telecommunications company in the U.S., WorldCom, Inc., applied for bankruptcy protection. WorldCom failed because of the bad business decisions of its executives to manipulate earnings with improper accounting entries. The key executives involved in the fraud were CEO Bernard Ebbers and CFO Scott Sullivan. The accountants who were pressured by Ebbers and Sullivan to prepare improper accounting entries included Director of General Accounting Bufford Yates, Controller David Meyers, Director of Legal Entity Accounting Troy Norman, and Director of Management Reporting Betty Vinson. Each was convicted of securities fraud and received federal jail sentences, including billionaire Bernie Ebbers who received a 25-year sentence in federal prison. Betty Vinson received a 5-month jail sentence.

Another key player in this sad story of greed and conflicting loyalties is Vice President of Internal Audit Cynthia Cooper, a whistleblower who with two other internal auditors, Gene Morse and Glyn Smith, doggedly investigated and revealed the fraud to WorldCom’s audit committee.

In this case study you will read about the ethical pressure faced by Betty Vinson and Cythia Cooper as they each balanced conflicting loyalties between family, employer, and profession. Betty first balked then caved to the pressure and ruined her career; Cynthia did not cave and was named one of three “Persons of the Year” by Time Magazine in 2002 for her moral courage at WorldCom (Lacayo and Ripley 2002).

PART 1 - ACCOUNTING FRAUD AT WORLDCOM

Read “A Staffer Ordered To Commit Fraud Balked, Then Caved” (Susan Pulliam, The Wall Street Journal, 23 June 2003, p. A1), available online from ProQuest Newspapers at http://proquest.umi.com/pqdweb?did=350159681&sid=2&Fmt=3&clientId=1670&RQT=309&VName=PQD.

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