Worldcom Solutions Essay

1010 words - 5 pages

Capstone Case Analysis – Identifying the Problem or Issue
ACCT 480

Sue Miller

In publicly traded companies, stockholders and investors rely on accurate financial statements and on an outside auditor’s statement to determine if they have a good company to invest in. There were several merger and take overs in the telecommunication community by WorldCom. When mergers occur there many factors that affect the work of both employees and major management. This case analysis will point out problems and issues that were involved in the failure of WorldCom. It will describe how the mergers put stress on the company to show positive financial statements. (The WorldCom Accounting Scandal) How ...view middle of the document...

This when Ebbers was not able to figure out what the direction of the company should go and thus WorldCom started drifting.
The culture of the company was a mix of people and cultures. Communication with all offices and managers were spread all over the country. Nobody knew where the person they were talking to was located. Different departments of the company were also located over the country. These departments had their own rules and management. No two departments were operating on the same page. There was an attitude that employees should not question their superior and when they did, the employee was criticized and threatened. None of the company’s senior lawyers was located in Jackson where Ebbers was. He did not include them in his inner circle. I would think you would need them for advisement and have them nearby because of the size of the company. Employees felt they did not have a way to express concerns about company policies and behaviors. (Kaplan & Kiron, 2007).
The CFO Sullivan had the accounting staff release accruals that he claimed were too high when they in fact were not. The controller was instructed to deal with any resistance from senior managers regarding the accrual releases. David Schneeman the CFO of UUNET was one who refused to make an entry in the books for releasing accruals. Controls as to who can access the computers in certain areas was not sufficient enough to stop Betty Vinson and a lower analyst from releasing $370 million in accruals. This alone tells us they did not follow GAAP laws.
WorldCom treated operating expenses as capitalization expenses in order to bring the E/R ratio up to 42%. This treatment is not supported by GAAP regulations. Soon after Betty Vinson and her colleague were asked to transfer another $828 million of line accrual. This and other entries of capitalizations entries had been required of the department for months to follow.
When the internal audit department was trying to do a routine operational audit of the capital expenditures, they discovered entries for capital expenses and projects. There was also $400 million of accruals that had been...

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