Case | HBS Case Collection | April 2004 (Revised September 2007)
Accounting Fraud at WorldCom
by Robert S. Kaplan and David Kiron
The principal 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. The case provides sufficient detail to allow for a full discussion of the pressures that lead executives and managers to "cook the books," the boundary between earnings smoothing or management and fraudulent reporting, the role for internal control systems and internal audit to prevent or rapidly detect accounting fraud, the expectations about governance processes performed by external auditors and the board of directors, and the pressure and consequences when middle managers follow orders that they know are wrong. Written from the public record, the case contains numerous quotes from an individual involved in the WorldCom fraud that were reported by the Investigative Committee and Wall Street Journal articles about several of the individuals caught up in the situation.
Keywords: Governance Controls; Governing and Advisory Boards; Crime and Corruption; Ethics; Financial Reporting; Organizational Culture; Corporate Governance; Accounting Audits;
Ethics Assignment: Worldcom Case
653 WordsMay 15th, 20143 Pages
Ethics Assignment: Worldcom case
Introduction: On 21 July 2002, WorldCom, Inc., the then-second largest telecommunications company in the U.S. filed bankruptcy protection. Its failure was due to its executives’ bad business behaviors to manipulate earnings with improper accounting entries. The key persons involved in the fraud were as follows; CEO Bernard Ebbers, CFO Scott Sullivan, the accountants were Bufford Yates (Director of General Accounting), David Meyers (Controller), Troy Norman (Director of Legal Entity Accounting), and Betty Vinson (Director of Management Reporting), pressured by CEO and CFO to prepare improper accounting entries. Those executives and accountants were convicted of securities fraud and received federal jail…show more content…
Also, her boss assured her that he would take full responsibility of her actions.
Contrast her behavior to that of Cynthia Cooper – what made them behave differently?
Betty Vinson did not have a fully developed her moral compass, which would have prompted her to either refuse to make the fraudulent entries, or leave her job immediately, if the first was not an option. Additional, Vinson had the moral reasoning of her family (husband and children) not follow ethically correct judgment.
On the other hand, Cynthia Cooper, another World Com veteran, headed WorldCom’s internal audit department, had a strong moral compass of what is wrong and what is right. Despite the fact that she was directly warned by the furious CFO to stay away from the suspicious wireless business unit, Cynthia did not end her investigation. Applying what we learned during the session 1, Cynthia Cooper was more duty-based or Deontologicalist, than Betty Vinson, in a way that she was more concerned with what people do, not with the consequences of their actions.
How do you think you would behave if you had the role of Betty at Worldcom?
If I were Betty, I would not accept the boss’s request when she was first asked to release $828 million of line accruals into the income statement. Not only it is morally wrong, doing so will risk my reputation for my entire life. Also as an accountant, I should have a clear