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Worldcom Essay

In: Business and Management

Submitted By lizzybeth1980
Words 577
Pages 3
In this case, Cynthia Cooper, VP of Internal Audit blew the whistle on fraud she and her team found. Cynthia brought up concern over the accounting 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 from either the CEO or the CFO.
In reviewing the details of this case, it is clear that if Cynthia Cooper had been a person with a softer personality, who blindly followed orders and disregarded her gut instincts, this case would have...

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