Accounting Fraud at WorldCom
WorldCom began its operation in 1984, offering services to local retail and commercial customers within Southern states. During 1990s, the company performed well in the telecom industry when it initiated a frenzy of acquisition. It purchased more than sixty telecom firms since the year 1995 to 2000. The company later changed to a data and internet Communications Company. It handled 50% of the U.S internet traffic and emails. In 2000, the company ranked the second largest long distance carrier in the world, and it owned one third of US data cables (Kaplan & Kiron 1).
The WorldCom fraud scandal began in the year 2000 because of the downturn in the telecommunication industry. WorldCom was undergoing aggressive growth, but as the scandal emerged, the downturn forced it to seatback. The company’s stock declined, and this obliged the CEO to explain different issues regarding the situation. The CEO encountered pressure from banks because he had borrowed money to fund other businesses and failed to repay (Kaplan & Kiron 2).
The fraud at the WorldCom was more likely to occur than other industries because of dissimilar reasons. The company’s accounting department underreported the line costs with other telecommunication companies. The accounting department capitalized the balance sheet costs rather than expensing them. The company also inflated revenues with fraudulent accounting entries originating from corporate unallocated revenue accounts (Kaplan & Kiron 4). The chief financial officer of the company Scott Sullivan contributed towards the fraud. This occurred after the vice president of internal audit uncovered suspicious capitalizing of line costs, Scott Sullivan dismissed the issue, and convinced the internal audit department to postpone their allegations (Kaplan & Kiron 7). Many issues within WorldCom that were not in other industries fueled the accounting fraud. These include the company leaders introducing illegal culture to satisfy the business needs and paying less concern and worst services to its customers, employees and stakeholders (Kaplan & Kiron 8).
Work Cited
Kaplan, Robert & Kiron, David. Accounting Fraud at WorldCom. Harvard Business School.Vol. 9 104(071). 2007 p 1-18.
