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Rise and Fall Worldcom

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* From year 1999 to 2002, the company under Ebbers (CEO) and Sullivan (CFO)) used fraudulent accounting methods to cover its declining earnings by painting a false picture of financial growth and profitability to prop up the price of WorldCom’s stock. * The fraud was accomplished primarily in two ways: * Underreporting which is interconnection expenses with other telecommunication companies by capitalising these costs on the balance sheet rather than properly expensing them. * Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts".` * In 2002, a small team of internal auditors at WorldCom worked together, often at night and in secret, to investigate and found out $3.8 billion in fraud. Shortly thereafter, the company's audit committee and board of directors were notified of the fraud. * As the result, WorldCom has accumulated around $41 billion in debt. By the time it declared bankruptcy in 2002, the organization had combined loss of $73.7 billion.

Ebbers and Sullivan both had multiple power based from both their formal positions in the company (legitimate and coercive power) as well as power bases that were inherent in them as individuals (expert and referent power). There were also no contingencies to their power as they basically control absolute power over all employees from highly visible positions.

Legitimate Power – As the CEO and CFO of WorldCom, Bernie Ebbers and Scott Sullivan requested employees make fraudulent accounting entries using their positions in the company to get compliance from employees. They also used their power indirectly to prevent accounting staff from complaining, or knowing about the fraud by control the flow of financial information.

Coercive Power – Ebbers and Sullivan took a more coercive approach to achieve compliance. Employees will get punishment if they

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