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World Com Analysis
Print version essay is available for you! You can search Free Term Papers and College Essay Examples written by students!. Join Essays24.com and get instant access to World Com Analysis and over 30,000 other Papers and Essays Category: Business Autor: anton 20 March 2011 Words: 1446 | Pages: 6 There were several situations that lead the executives and managers of WorldCom to “cook the books.― Acquisition of other companies drove WorldCom to spend beyond their means; managers were told to spend whatever was necessary to increase revenue, even if it meant that long-term costs would outweigh the short-term gains. This fiscally unhealthy mentality led to a very bad decision to enter into long-term fixed rate leases for network capacity with extensive punitive termination provisions. Once the market for WorldCom’s services started to cool down, the expense to revenue ratio started to increase – as expenditures increased and revenue decreased, the percentage value would rise above the targeted 42% to a larger, more unfavorable percentage. Since the expense to revenue ratio was used as a performance indicator by analysts and industry observers, pressure was put on the senior managers and lead executives to find a way to become more profitable again. Each major player in player in WorldCom had their own pressures too. CEO Bernie Ebbers had taken loans against his WorldCom stock to support several personal business ventures. The success of WorldCom, as measured by its stock price, was vital to supporting his outside business. Thus, keeping the value of the company inflated would be to his benefit. CFO Scott Sullivan, a bright and ambitious man credited as engineering the successful MCI merger, wanted to find quick fixes to the expense to revenue ratio problems. Unfortunately, each action taken – whether it was the accrual releases or the expense capitalizations – caused a domino effect and caused the need for more cover-ups of each subsequent action taken. Pressure from Sullivan directly influenced the actions of controller David Myers and director of general accounting Buford Yates. Most of the instructions to incorrectly adjust the financial

Without the flow of information from employees to the auditors. the auditors relied on the information from General Accounting as being valid and did not question its numbers. If managers and employees did not directly receive orders from executive directors. Had any employee wished to take action on the false release. In retrospect. Vinson needed to keep her job and thus had motivation to work hard to make sure that none of the fraud was visible. Better – or perhaps independently run – accounting practices could have led to avoidance of the fraud. Since their trust in upper management was high. once they agreed to help. but would have indeed brought the fraud to light.information came directly from Sullivan. Increased transparency between offices could have perhaps made a difference. another more willing individual would then be sought out to make the “corrections. In the case of Vinson and Normand. in 2000 General Accounting released $281 million against line costs from accruals in the tax department. Myers and Yates. there are not many processes or systems that could have been put in place to prevent or detect quickly the types of actions that occurred in WorldCom. Unfortunately. there was a lack of transparency that made it hard to see that fraud was being committed. the tax department did not find out that the release was made until 2001. A system of checks and balances should be put into place to make sure that external audits are unbiased and not influenced by the auditor’s profit margins. more honest employees like Schneeman were unaware of the false accounting practices. By switching its traditional auditing practices to analytical reviews and risk assessments. Due to the size of the company. Arthur Anderson is also at fault for not detecting problems earlier. Lower level employees such as Betty Vinson and Troy Normand were directly pressured from these three individuals to do what they were told and not to ask questions at the risk of losing their jobs. inappropriate accounting systems. The accounting fixes themselves would have been more difficult to track. they conceded to fix the numbers just that one time. The more traditional audit would have been cumbersome due to the size of WorldCom. The actions taken by WorldCom managers were not detected earlier due to the many instances of deliberate misrepresentation. it would have been far too late to do anything by the time they realized what was going on.― By utilizing such underhanded work-arounds. managers and executive staff were quietly asked to fix numbers and accounting entries. . they became involved with a downward spiral of constantly having to fix the numbers in order to not be detected. such as in the case of David Schneeman. they were asked to participate in the fraud and were given assurances that it was a one-time situation. and flat out lying that took place within WorldCom and on the part of Arthur Anderson. actions taken would not be immediately visible. External auditors should have followed better guidelines and raised the risk rating and subsequent procedures. Within WorldCom. due to the nature of the release and the lack of information flow in WorldCom. As time went on the deception grew and WorldCom employees were instructed to not talk to the internal auditors under any circumstances. there would be less pressure to commit the fraud and perhaps report the indiscretions to an outside party. when an individual refused. For example.

withdrawing from others. and the board relied solely on the information Ebbers and Sullivan provided. to claim ignorance is a stretch as there were opportunities to have prevented or at least identify the problems sooner. While not necessarily a comfortable option. ignorance is not an excuse to absolve them of any wrong-doing. Along those same lines. she had the opportunity at the beginning to walk away and make the better moral decision not to participate. instead the firm operated on a seemingly “don’t ask. In situations where ethics are challenged. Read Full Essay . Because she valued employment with WorldCom higher than her responsibility to the truth. As in Venison’s case. Additionally. Anderson viewed its relationship with WorldCom in such a way that it was beneficial to Anderson for WorldCom to remain profitable. If she had turned in her resignation. and losing weight. don’t tell― policy where it assumed everything was fine. However. I do not believe her punishment should be as extensive as the other managers and executives.Both the external auditors and board of directors were blameworthy in this case. immediate and long-term consequences must be weighed. but the other negative consequences such as losing sleep. Venison would have been spared not only the legal issues of having participated in the fraud. I believe that criminal fraud charges should have been brought against her. it is necessary to live with the punishments if a poor choice is made. They approved the personal business loans and guarantees for Ebbers without securing any collateral from Ebbers himself. I believe that employees should react in an ethical and honest manner when ordered by their employer to do something they do not believe in or feel uncomfortable doing. Because the accounting firm considered WorldCom its flagship customer. and by the time the board decided to take action it was too late to salvage what remained of WorldCom. I believe that Betty Vinson was both a victim and a villain. They did not question Ebber’s use of funds. the monetary downside of making less money at another firm would have been greatly outweighed by not willingly participating in something you knew to be illegal. They too did not have a direct hand in the fraud. after being promised repeatedly that the fraud was a one-time event. there is always the option of seeking other employment. the pressure of keeping a positive relationship with WorldCom influenced the WorldCom Anderson team to assess the fraud risk incorrectly. No questions were ever asked regarding the validity of the information. Arthur Anderson’s auditing system did not have the ability to detect the fraud as they relied on the information being provided from General Accounting – numbers that were being fixed. Anderson did not press WorldCom to release the information it requested or communicate better. However. nor would it be reasonable for them to suspect any misdoings given that the information provided to them was falsified. If the employee is in a position such a Vinson was. the board of directors is also somewhat guilty of facilitating the fraudulent activities. she was forced to continue or else she could have lost her job. As mentioned above. She is clearly a victim in terms of being placed in a precarious position by her superiors. but an example should be made in order to dissuade others in the future from following in her footsteps. no concerns were ever raised. While the auditing company did not assist in the fraudulent accounting practices. Employees should be held to a high standard.

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