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Worldcom

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WorldCom

WorldCom An internal auditor can be an invaluable asset to any company. They can help uncover anything from small errors in which there were no bad intentions to issues such as fraud that can end up costing the company and those involved in it dearly. In the case of WorldCom, it was the internal audit department that uncovered one of the largest corporate financial scandals in history.
On June 25, 2002, WorldCom, a telecommunications company headed by CEO Bernie Ebbers and CFO Scott Sullivan, admitted to improperly classifying more than $3.8 billion in line costs, or the costs to use other companies’ networks, in current expenses as capital expenditures. The understatement in expenses caused an increase to assets and net income, making the company appear to be profitable. On July 21, WorldCom filed for bankruptcy and became one of the largest bankruptcies in U.S. history, even larger than the bankruptcy filed by Enron (Lyke, 2002). Due to increasing competition within the market, WorldCom began struggling to increase its revenues as its expenses were far outgrowing them. In 2000 they realized they were not going to make their targeted earnings for the year. Betty Vinson, WorldCom’s director of management reporting, and others in the accounting department were not able to find enough money to cover the deficit and were instructed by Scott Sullivan to decrease reserve accounts for the line costs. When the reserves were not enough to fix the problem, Sullivan then suggested switching line costs to capital expenditures. Vinson felt uncomfortable with both adjustments, but followed orders and made the entries for the transfers (Anderson, 2013). Cynthia Cooper began the internal audit department at WorldCom in 1994 by convincing Bernie Ebbers that operational audits could increase efficiency within the company. When she ended up saving the

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