WorldCom Case
Beginning in 1983, the telecommunications company, WorldCom Group, grew to be one of the largest and most successful in the country. Like most other companies who ran into financial declines in the early 2000’s due to technological advances and a bad economy, WorldCom experienced large decreased sales. However, from looking at WorldCom’s financial statements during this period, one would have no inclination of these decreased revenues the company faced. This was because in an attempt to preserve the company and keep shareholders and buyers interest, the company made fraudulent representations of revenues and expenses. While trying to save the company for the short term, the company lost much more in the long run. WorldCom was able to get away with falsifying information on the financial statements because of the auditing process within the company. When reading this case, it was clear that while trying to save the company, CEO Bernard Ebbers and CFO Scott Sullivan granted very limited access to key financial data to both internal and external auditors. l In my opinion this should have been a red flag and immediately reported to the Board. However, the Board itself only had limited communications within the company and met very seldom with both CEO and CFO present. With Ebbers’s approval, Sullivan forced the general accounting department to release large amounts of accruals early as well as recording large amounts of false capital expenditures. In doing so, he was trying to keep the company’s Expense-to-Revenue ratio constant, when in reality it would be much higher and that would cause the company to lose investors. WorldCom’s external auditor, Arthuer Anderson, was also refused access to the general ledger of the company and therefore was unable to identify the fraudulent entries. Sullivan should never have been able to get away with these types of transactions however the culture of WorldCom allowed for this type of behavior to go on. The culture of WorldCom Group, in my opinion, resembled very closely to a dictatorship. WorldCom created harsh atmosphere with a systematic attitude displayed by top management. Basically, the culture was that employee’s should do what they are told with no questions asked. After numerous acquisitions and mergers there was a large variety of employee’s all with different professional backgrounds and so there was no uniformity. This led to the company being very segregated without a “tone at the top”, which is a necessity in any business. Each department had its own rules and management which meant everyone was doing different things throughout the business and no one was on the same page. When the company attempted to write a code of conduct and company policies, CEO Ebbers’ referred to it as a “colossal waste of time.” A company should have a CEO who should be admired and looked up to as a role model, however, CEO Bernard Ebbers, along with CFO Scott Sullivan were neither of those things. The two became very greedy and profit-driven and so that is how they conducted everyday business Employees had no independent outlet to express concerns. In my opinion it was definitely the business culture of WorldCom that led to the deficiency in accounting methods, due to the fact that it was management’s way or no way at all. The article gives the readers insight on key personnel involved throughout the whole debacle including senior manager of the general accounting