Accounting Fraud at Worldcom
SUBJECT: Accounting fraud at WorldCom
Problem Statement
WorldCom penetrated the largest accounting fraud in U.S history by overstating its tax income between 1999 and 2002. The main players in WorldCom's accounting fraud included CFO Scott Sullivan, the General Accounting and Internal Audit departments, external auditor Arthur Andersen, and the board of directors. While individuals did have their own sins, employees cowardice and self-interested, the board passive and ineffective, external auditors preoccupied, and bankers permissive, WorldCom’s organization structure and culture should take most of the responsibility that Ebbers could cooked the book by misleading Wall Street and its own employees. How WorldCom’s organization structure and culture contributed to pressure and group thinking extending the long period that finally led to the fraud?
Analysis
The fraud heavily attributed to the way the CEO Ebbers ran the company.
First of all, WorldCom’s poor company culture led to a lack of a positive mechanism for employees to propose concerns and feedback and also effective communication between departments and between the board and employees. Ebbers individually determines the whole company’s value and standards; he demanded unrealistic revenue, limited inquiry, concealed information, mislead and threat employees but there is no specific governance on his own behavior, finally resulting in the corruption growing in the company.
Second, WorldCom lacked segregation duties and independence among related departments, which made the accounting tricks possible without detection.
Third and the most critically, WorldCom lacked a corporate code of conduct so that an unethical corporate culture was created throughout the company. WorldCom’s acquisition of more than 60 firms in the late 1990s increased the difficulties for Ebbers to effectively manage the company and maintain an ethical culture without a written policy. Scharff[1](2005) believes that the unethical
Problem Statement
WorldCom penetrated the largest accounting fraud in U.S history by overstating its tax income between 1999 and 2002. The main players in WorldCom's accounting fraud included CFO Scott Sullivan, the General Accounting and Internal Audit departments, external auditor Arthur Andersen, and the board of directors. While individuals did have their own sins, employees cowardice and self-interested, the board passive and ineffective, external auditors preoccupied, and bankers permissive, WorldCom’s organization structure and culture should take most of the responsibility that Ebbers could cooked the book by misleading Wall Street and its own employees. How WorldCom’s organization structure and culture contributed to pressure and group thinking extending the long period that finally led to the fraud?
Analysis
The fraud heavily attributed to the way the CEO Ebbers ran the company.
First of all, WorldCom’s poor company culture led to a lack of a positive mechanism for employees to propose concerns and feedback and also effective communication between departments and between the board and employees. Ebbers individually determines the whole company’s value and standards; he demanded unrealistic revenue, limited inquiry, concealed information, mislead and threat employees but there is no specific governance on his own behavior, finally resulting in the corruption growing in the company.
Second, WorldCom lacked segregation duties and independence among related departments, which made the accounting tricks possible without detection.
Third and the most critically, WorldCom lacked a corporate code of conduct so that an unethical corporate culture was created throughout the company. WorldCom’s acquisition of more than 60 firms in the late 1990s increased the difficulties for Ebbers to effectively manage the company and maintain an ethical culture without a written policy. Scharff[1](2005) believes that the unethical