...Running head: WORLDCOM FAILURE RESHAPING BUSINESS WorldCom’s Chief Executive Officer’s Failure of Responsibilities Reshaping the Business Environment WorldCom’s Chief Executive Officer’s Failure of Responsibilities Reshaping Business Environment Bernie Ebbers’ leadership as Chief Executive Officer for WorldCom created the largest telecommunication bankruptcies and the largest bankruptcy in the corporate world. His unethical decisions to allow false financial reports to continue to be reported as inflated profits, where in reality WorldCom was losing profits while senior management was raping the money vaults. Bernie Ebbers’ action created change not only within the telecommunications world, but also within the views of responsibilities of Chief Executive Officers. In order to understand Mr. Ebbers’ shortcomings as the Chief Executive Officer of WorldCom, the role of Chief Executive Officer must be understood, in addition to basing his role against the ethical standards of today. David Elsum describes the corporate system by having three elements; a company board, a chairman, and a Chief Executive Officer. Chief Executive Officers have a unique role in today’s business. According to David Elsum, the “chief executives are responsible for company effectiveness, efficiency, profitability, and liquidity” (1988). In essence, the Chief Executive Officer should be highly effective to bring change and executing the company’s vision while being efficient...
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...Abstract Ebbers began his business career running a chain of motels in Mississippi then transformed a small discount phone business he started into the telecommunications giant WorldCom. After he resigned he was convicted of one of the largest accounting scandals in the United States that had happened while he was the CEO. As a defense Ebbers tried to say that he was unknowing and don't know about technology or finance and accounting. The jury did not buy into his theory and convicted him. . Should have Bernard Ebbers gone to jail? Background Bernard Ebbers was born August 27, 1941 in Edmonton, Alberta. He earned his degree is Physical Education at Mississippi College in 1967. He worked as milkman and bouncer when he was not in school. Ebbers first began a business career by operating a chain of motels in Mississippi. He began working in the telecommunications business in 1983 when he joined several other investors in the newly formed Long Distance Discount Services, Inc (LDDS) were he was named Chief Executive Officer (CEO) within 2 years. In 1995 the company was renamed WorldCom after it had acquired over 60 other telecommunications companies. In April 2002 Ebbers resigned as CEO and In June 2002 WorldCom releases that they had to recalculate earning figures for the last five quarters. In March 2004 he was indicted of fraud and conspiracy and in July 2005, he was convicted on all nine counts against him for the WorldCom accounting scandal that lost investors...
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...billions but is now merged with Verizon after bankruptcy due to fraudulent activities. The question is what caused one of the largest US corporations began a spiral into financial ruin. WorldCom according to John Sidgmore, a former top executive of WorldCom, stated that WorldCom generated annual revenues of over $30 billion a year, has more than 60,000 employees, over 20 million customers, and was one of the largest internet providers in the world. This made WorldCom a key component in the USA’s economy and communications infrastructure. Bernie Ebbers isn’t the founder of WorldCom but was a major factor in making LDDS which is a small start-up company in Mississipi that offered regional long distance discount services into a major global telecommunications company. Ebbers in 1997 stated that his goal was to be the number one stock on Wall Street. His plans were focused on mergers for growth relying on using WorldCom stock to finance the mergers. Ebbers acquired around 75 companies with the largest being MCI. This strategy of constant mergers for growth appeared to be working but making these mergers succeed is a difficult task. The main problem with mergers lies in the reorganization of the business to effectively incorporate the acquisitions. An area that suffered from these mergers was customer support and many began to wonder if WorldCom’s desire for acquisitions was greater than their ability to make acquisitions work. The beginning of WorldCom’s problems began with pressure...
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...Accounting Fraud at WorldCom 1) What are the pressures that lead executives and managers to “cook the books?” After the rapid evolution of the telecommunication industry in the 1990s, WorldCom shifted its strategy to focus on building revenues and acquiring capacity sufficient to handle expected growth. Their biggest goal was to be the No. 1 stock on Wall Street rather than capturing the market share. As a result, their Expense-to-Revenue (E/R) Ratio was their measurement for their main objective (increase revenues and become the No. 1 stock on Wall Street). Due to heightened competition, overcapacity and the reduced demand for telecommunication services at the onset of the economic recession and the aftermath of the dot-com bubble collapse, the telecommunication industry conditions began to deteriorate. Prices were falling and WorldCom had no option but to cut their prices as well. This action placed severe pressure on WorldCom’s most important measurement, the E/R ratio. The E/R ratio was being affected due to revenue and pricing pressures while the committed line cost was still the same. 2) Is there a boundary between earnings management and fraudulent reporting? If so, what is it? “Earnings Management is recognized as attempts by management to influence or manipulate reported earnings by using specific accounting methods (or changing methods), recognizing one-time non-recurring items, deferring or accelerating expense or revenue transactions, or using other...
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...treatment of a $400M entry to re-class a reserve to income. She was dismissed by the CFO and by the external auditors, Arthur Andersen. Luckily she was not deterred and had her team continue to review the accounts. That’s how the largest part of the fraud was found. The CFO and CEO were involved in capitalizing network lease expenses as assets in WorldCom’s financials. So instead of reporting a $662M loss, they reported a $2.4B profit. She took her concerns to the audit committee and soon after the fraud was exposed. Before long, the company was bankrupt, the CEO and CFO and Controller were indicted and went to jail and Cynthia was seen as a pariah to most. Though in the end she did the right thing, this was before there were protections in place to protect whistleblowers from backlash. One of the biggest issues in this case were the lack of internal controls. The CEO, Bernie Ebbers, didn’t even want those words spoken in his presence. While internal controls may seem intrusive, they serve a very key purpose. Internal controls, as defined by COSO.org, are “processes, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1. Effectiveness and efficiency of operations. 2. Reliability of financial reporting. 3. Compliance with applicable laws and regulations”. Obviously this was a huge failure on the part of WorldCom. There was no sense of ethical responsibility...
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...diffen.com). Marketing expenses are usually operating expense unless it shown that it has long term benefits. Some believe that if a company is expected rapid growth the recording items as an operating expense is better. However, Bernard Golden from CIO.com believes otherwise. “Once you have purchased a capital good, you’re stuck with it, as anyone who has purchased a car understands; even if you’re no longer excited about owning it, the finance company still expects a monthly payment. By contrast if you rent a car, you are committed to it only as long as you want to use it and once you have paid for that use, you have no further financial obligation”. Companies usually want to direct their investment into generating revenue and this is why they would rather lease than purchase (Logicalis, 2013). Some expenditures for startup costs can be capitalized in the United States but not all countries allow this to occur. Capital items can create a tax savings because they depreciate and this lowers the income which in return lower the taxes. Synthetic leases would allow a company to reap these benefits and are included on an off-balance sheet. Operating expenses report profit and taxes for the earnings in reporting period. Capital investments are money...
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...Fraud at WolrdCom Introduction WorldCom, US second largest telecommunication company shocked the world by filing bankruptcy at 21 July 2002. The WorldCom filing surpassed Enron and became the largest bankruptcy filing in United States history. Due to its rapid growth, WorldCom is also heavily in debt as they finance the company growth with debt. The collapse of WorldCom did not just affect their employees, retailers, the government but also bankers. WorldCom was a multi-billion dollar telecommunications company that was founded in 1983. The company starts their business under the name 'Long Distance Discount Services' (LDDS), providing long distance telecommunication services. The venture was profitable right from the start. In 1985, Bernie Ebbers became the company's CEO. The company changes its name to WorldCom in...
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...9-104-071 REV: SEPTEMBER 14, 2007 ROBERT S. KAPLAN DAVID KIRON Accounting Fraud at WorldCom WorldCom could not have failed as a result of the actions of a limited number of individuals. Rather, there was a broad breakdown of the system of internal controls, corporate governance and individual responsibility, all of which worked together to create a culture in which few persons took responsibility until it was too late. — Richard Thornburgh, former U.S. attorney general1 On July 21, 2002, WorldCom Group, a telecommunications company with more than $30 billion in revenues, $104 billion in assets, and 60,000 employees, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Between 1999 and 2002, WorldCom had overstated its pretax income by at least $7 billion, a deliberate miscalculation that was, at the time, the largest in history. The company subsequently wrote down about $82 billion (more than 75%) of its reported assets.2 WorldCom’s stock, once valued at $180 billion, became nearly worthless. Seventeen thousand employees lost their jobs; many left the company with worthless retirement accounts. The company’s bankruptcy also jeopardized service to WorldCom’s 20 million retail customers and on government contracts affecting 80 million Social Security beneficiaries, air traffic control for the Federal Aviation Association, network management for the Department of Defense, and long-distance services for both houses of Congress and...
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...University of New Hampshire University of New Hampshire Scholars' Repository Honors Theses Student Scholarship Fall 2012 An Analysis of Fraud: Causes, Prevention, and Notable Cases Kristin A. Kennedy University of New Hampshire - Main Campus, kaj79@wildcats.unh.edu Follow this and additional works at: http://scholars.unh.edu/honors Part of the Accounting Commons Recommended Citation Kennedy, Kristin A., "An Analysis of Fraud: Causes, Prevention, and Notable Cases" (2012). Honors Theses. Paper 100. This Senior Honors Thesis is brought to you for free and open access by the Student Scholarship at University of New Hampshire Scholars' Repository. It has been accepted for inclusion in Honors Theses by an authorized administrator of University of New Hampshire Scholars' Repository. For more information, please contact scholarly.communication@unh.edu. An Analysis of Fraud: Causes, Prevention, and Notable Cases University of New Hampshire Honors Thesis in Accounting Kristin Kennedy ADMN 799 Professor Le (Emily) Xu Fall 2012 Table of Contents I. II. III. IV. V. VI. VII. Background……………………………………………………………........1 a. What is accounting and what role does financial reporting serve?..........1 b. History of accounting standards………………………………………..2 c. Role of auditing………………………………………………………...5 Fraud……………………………………………………………………….6 a. Two types of fraud……………………………………………………..6 i. Misappropriation of Assets…………………………………….7 ii. Misrepresentation of Financial Statements…………………….7 b. Fraud...
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...NAME: HAMZA .S. MAKANDE STUDENT NUMBER: TP027192 INTAKE CODE: UC2F1501IBM BM061-3.5-2-BEG MODULE NAME: BUSINESS ETHICS GOVERNANCE TOPIC: BANK OF AMERICA’S MOST TOXIC ASSET (CASE B) INDIVIDUAL ASSIGNMENT LECTURER: FARAHIDA BINTI ABDUL JAAFAR DATE ASSIGNED: 06th MARCH 2015 DATE DUE: 17th APRIL 2015 Table of Contents INTRODUCTION. 3 Summary. 3 Ethical Dilemma. 3 Affected Stakeholders. 4 ANSWER FOR QUESTION 1. 4 ANSWER FOR QUESTION 2. 5 ANSWER FOR QUESTION 3. 6 ANSWER FOR QUESTION 4. 7 ANSWER FOR QUESTION 5. 8 ANSWER FOR QUESTION 6. 8 CONCLUSION. 9 REFERENCES. 10 BANK OF AMERICA’S MOST TOXIC ASSET (CASE B). INTRODUCTION. Summary. Ken Lewis was a Chief executive officer of Bank of America, he was appointed as American Banker’s "banker of the year "after purchasing Countrywide Financial and Merrill Lynch. The bank acquisition of Merrill Lynch in 2008 made Bank of America the world's largest wealth management Corporation and a major player in the investment banking market. The deals were applauded and made Ken Lewis even more worth being named as American Banker’s “banker of the year” During first week of January 2009 both Countrywide Financial and Merrill Lynch were bankrupt with assets in their balance sheet which set a new standard for toxicity in financial market, resulting in forfeiture for the bank and requiring financial assistance from the Federal Government. Bank of America was forced to welcoming U.S. taxpayers as the company’s largest...
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...Draft - Corporate Governance Considerations This material was prepared by Eliot H. Sherman – July 2005 FOCUS Learning Objectives By the end of this chapter, you should be able to: Understand the issues related to agency and delegated responsibility. Describe the similarities and the differences in the corporate scandals that have been identified in the past few years Identify the responsibilities of managers to the shareholders and other stakeholders associated with their corporations. OVERVIEW Corporate governance is not a new topic. It has been around for many years, often described as the “agency issue.” However, in recent years it has taken on increased significance, demanding increased attention. Since 2001, in particular, the corporate marketplace has seen a significant number of headline grabbing scandals involving major corporations. These scandals have raised new questions about corporate governance and, as a direct consequence of some of these situations, the U.S. Congress passed a very broad piece of legislation called the Sarbanes-Oxley Act of 2002. This law has had a wide range of consequences directly affecting large public corporations and public accounting firms and, less specifically, smaller public firms, private corporations, not-forprofit organizations and regulatory entities in many different ways. This law mandates some specific actions for large public corporations, many of these actions being required shortly after the legislation passed and others in...
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...http://www.trinity.edu/rjensen/FraudAmericanHistory.htm History of Fraud in America (Edited for use in MBA 590_ NCSU) Bob Jensen at Trinity University Colonial History Earliest "business" fraud in America centered around phony heath cures. Armstrong and Armstrong (1991) document many of the snake oil ploys that commenced soon after the Pilgrims landed on Plymouth Rock. Medical frauds ranging from deceptive medicines to spiritual cures to bloodletting expanded over time to modern day cancer miracle cures and Internet charlatanism. Since early America was largely agricultural, various land schemes accompanied the growing market for deceptive rural living and farming products. As the original 13 colonies were established land was owned by men who had been granted land from the English King. They in turn sold land to individuals and established common areas. Although many of the early dealings were legitimate, it did not take long for land swindles to commence. Swindlers were either buyers or sellers of land. Victims were often new immigrants and Indians who lived on the land before Colonial times. One of the best known frauds was the 1626 purchase of Manhattan Island for trinkets valued at 60 guilders (approximately $24). In this case the Carnarsie Indians from Brooklyn perpetrated the fraud since their land was not even connected to Manhattan Island. But in most cases it was the white men who cheated the Indians and each other. Land swindling grew rampant as America expanded...
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...jon24565_ch05.qxd 11/2/05 1:22 PM Page 138 C H A P T E R 5 Business Ethics and the Legal Environment of Business Learning Objectives After studying this chapter you should be able to: 1. Understand the relationship between ethics and the law and appreciate why it is important to behave ethically. 2. Differentiate between the claims of the different stakeholder groups affected by a company’s actions. 3. Identify the four main sources of business ethics, and describe four rules that can be used to help companies and their employees behave ethically. 4. Describe some methods companies can use to strengthen their ethical rules and positions. 5. Appreciate the important ways in which a nation’s business laws and regulations affect business commerce, occupations, and organizations. WHY IS THIS IMPORTANT ? A friend who is an A-student has offered to write your paper, which is worth 25% of your grade, for $50. You need the course to graduate because you only have a low C average. You hate writing, do it very poorly, and know others have had good results submitting this student’s papers as their own. Will you pay the money and submit the paper or submit your own paper and pray for a good result? This chapter will help you learn how to act ethically when facing dilemmas in your business and personal life. This is important because the decisions you make will affect your own future and those of stakeholders of the organizations that...
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...C H A P T E R 5 Business Ethics and the Legal Environment of Business Learning Objectives After studying this chapter you should be able to: 1. Understand the relationship between ethics and the law and appreciate why it is important to behave ethically. 2. Differentiate between the claims of the different stakeholder groups affected by a company’s actions. 3. Identify the four main sources of business ethics, and describe four rules that can be used to help companies and their employees behave ethically. 4. Describe some methods companies can use to strengthen their ethical rules and positions. 5. Appreciate the important ways in which a nation’s business laws and regulations affect business commerce, occupations, and organizations. WHY IS THIS IMPORTANT ? A friend who is an A-student has offered to write your paper, which is worth 25% of your grade, for $50. You need the course to graduate because you only have a low C average. You hate writing, do it very poorly, and know others have had good results submitting this student’s papers as their own. Will you pay the money and submit the paper or submit your own paper and pray for a good result? This chapter will help you learn how to act ethically when facing dilemmas in your business and personal life. This is important because the decisions you make will affect your own future and those of stakeholders of the organizations that employ you. A Question of Business How Different Ethical Stances Can Help or Harm...
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...jon24565_ch05.qxd 11/2/05 1:22 PM Page 138 C H A P T E R 5 Business Ethics and the Legal Environment of Business Learning Objectives After studying this chapter you should be able to: 1. Understand the relationship between ethics and the law and appreciate why it is important to behave ethically. 2. Differentiate between the claims of the different stakeholder groups affected by a company’s actions. 3. Identify the four main sources of business ethics, and describe four rules that can be used to help companies and their employees behave ethically. 4. Describe some methods companies can use to strengthen their ethical rules and positions. 5. Appreciate the important ways in which a nation’s business laws and regulations affect business commerce, occupations, and organizations. WHY IS THIS IMPORTANT ? A friend who is an A-student has offered to write your paper, which is worth 25% of your grade, for $50. You need the course to graduate because you only have a low C average. You hate writing, do it very poorly, and know others have had good results submitting this student’s papers as their own. Will you pay the money and submit the paper or submit your own paper and pray for a good result? This chapter will help you learn how to act ethically when facing dilemmas in your business and personal life. This is important because the decisions you make will affect your own future and those of stakeholders of the organizations that...
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