Running Header: ACCOUNTING FRAUD AT WORLDCOM

Accounting Fraud at WorldCom

Accounting Fraud at WorldCom

Introduction

Fraudulent financial reporting is something that affects everyone: employees of the company, stockholders, and the surrounding community. There has been an increase of the magnitude dollars stolen by ways of financial reporting fraud. While the amount of cases where fraud was found were similar when compared to the report published ten years ago, the amount of dollars in error has changed drastically - moving from a mean per case of $25 million to a staggering mean of $400 million. Most cases of fraud come from an overstatement of assets or overstatement of revenues. For those engaging in fraud, the consequences and severity of the consequences vary from case to case. In half of the cases, the SEC barred individuals from serving as an officer or director from a public company. Civil fines were given to 65% of fraud cases - and the average fine was about 12.4 million. The possibility of indictment is also present; 21% of CEOs were indicted and 64% were charged with fraud. Most employees on the Board of Directors leave their job after fraud is found, so unemployment is an obvious consequence for committing fraud. Finally, companies can file bankruptcy and lose all assets as a result of fraudulent activity. Fraudulent financial reporting can happen to any company at any level. Fraud is committed in is widespread, with companies in virtually every sector committing fraud. In 72% and 65% of cases, CEOs and CFOs were found being associated with fraud, respectively. The cases of fraud continue to happen at an increasing rate and amount, which means that standards for corporate governance to stop fraud are not adequate enough. This paper aims to discuss the case of accounting fraud at World Com.

Discussion

World Com Accounting Fraud Case

WorldCom was founded in 1984 by Bernard Ebbers, when the ATT monopoly was divided into parts, providing business opportunities to entrepreneurs Ebbers style at that time owned a chain of motels in Mississippi. From this humble origin, the visionary Ebbers was building the company, joining the many firms that were acquired over nearly two decades. WorldCom went public in 1988 and the share price until 1991 remained below $ 5 began to climb to reach $ 80 in 1999. At this time, Ebbers absorbed MCI group and Bert C. Roberts, who was the CEO of MCI became non-executive chairman of WorldCom, Bernie Ebbers while maintaining as chief executive. From the time of the merger, the business of long-distance telephony, provided by MCI, began to decline, dragging down shares of WorldCom, to reach $ 10 in early 2002. During the early years of the technology bubble, an unknown Mississippi telephone company bursting onto the field. Thanks to an aggressive acquisition strategy and a series of large acquisitions, its founder, Bernard Ebbers, became, in less than two years, one of the most powerful businessmen in the corporate world and the great revolutionary of the telecommunications sector. In 1999, WorldCom became worth 180,000 million ...