An Arcticle Critique on Accounting Fraud at Worldcom

ACCOUNTING FRAUD AT WORLDCOM

Summary

Executives at telecommunications giant WorldCom perpetrated accounting fraud that led to the largest bankruptcy in history. The fraud was revealed to the public in June 2002 and WorldCom filed for bankruptcy on July 21, 2002. False or unsupported accounting entries were made in WorldCom’ s financial systems in order to achieve desired reported financial results. Most of

WorldCom’ s people did not know it was occurring, rather, the fraud occurred as a result of knowing misconduct directed by a few senior executives centered in its Clinton, Mississippi headquarters, and implemented by personnel in its financial and accounting departments in several locations. The fraud was the consequence of the way WorldCom’ s Chief Executive Officer, Bernard J. Ebbers, ran the Company. Though much of this report details the implementation of the fraud by others, he was the source of the culture, as well as much of the pressure, that gave birth to this fraud. That the fraud continued as long as it did was due to a lack of courage to blow the whistle or tell the WorldCom’ s financial and accounting departments; inadequate audits by Arthur Andersen; and a financial system whose controls were sorely deficient. The setting in which it occurred was marked by a serious corporate governance failure.

Analysis

The CEO, Bernard J. Ebbers thought that acquiring long-distance carrier companies is enough and the only strategy that grows its revenue and becomes No. 1 stock on Wall Street. In July, 2000, when he was not able to acquire Sprint, one of its major competitors, he lost a sense of direction and Worldcom began to drift. Scott Sullivan, the CFO made false reports to the Board and with the conspiracy of the senior executives made false statement to the SEC resulting them for lawsuit and were sentenced accordingly by U.S. federal government.

Conclusion

There was no adequate and effective corporate governance systems, policies,...