Worldcom Case 3.4

Case 3.4 are: WorldCom the Story of a Whistleblower

-To understand the pressure a person faces when he or she becomes aware of accounting fraud

-It describes the possible actions a person can take when he or she suspect’s fraud may exist

-Recommend characteristics of an effective corporate whistleblower program

-Describe key requirements in the Sarbanes-Oxley Act related to whistleblower and code of ethics processes for public companies.

Required:

1-At the time Cynthia Cooper discovered the accounting fraud, WorldCom did not have a whistleblower hotline process in place. Instead, took on significant risks when she stepped over Scott Sullivan’s head and notified the audit committee chairman of her findings. Conduct an Internet search to locate a copy of the Sarbanes – Oxley Act of 2002. Summarize the requirements of section 301.4 of the Act.

A/ Section 301.4 of the Sarbanes-Oxley Act of 2002 requires the audit committee of a public company to establish procedures for the receipt, retention, and treatment of complaints received by the company regarding accounting, internal controls, or auditing matters. The audit committee is required to establish procedures for those complaints to be treated confidentially, and for the submission process to be anonymous for employees submitting the complaints about accounting or auditing matters. These procedures are often referred to as “whistleblowing” procedures.

2. Use the internet to conduct research related to whistleblower processes. Prepare a report summarizing key characteristics for the operation of an effective corporate whistleblower hotline. Be sure to highlight potential pitfalls that should be avoid.

A/ If effectively implemented, a whistleblower program can be a key defense against management override of internal control for purposes of engaging in fraud. According to survey results of the Association of Certified Fraud Examiners, almost 40 percent of frauds are detected through tips....