In a business world pressured to meet organizational objectives such as high revenue growth it is not alarming that conduct by decision makers may be deemed as questionable practices. These practices within the past two decades have resulted in a number of organizations finding themselves confronted with ethical dilemmas and the aftermath of stock price declination, corporate demise and costly litigation. Worldcom is one of those organizations that found itself in this predicament as it announced filing for bankruptcy in July of 2002. (Thibodeau and Freier)
Worldcom evolved from Long Distance Discount Services (LDDS), a long-distance provider that connected calls between local telephone companies. In 1996 the Telecommunications Act allowed long-distance service providers to enter the local telephone services and other telecommunications services, such as the Internet. During the next four years the company embarked on an aggressive acquisition strategy to expand into these markets.
The acquisitions included the following telecommunication companies: MFS and UUNET (1996), Brooks Fiber Properties, CompuServe Corporation, ANS Communications and MCI (1998); Skytel and Sprint (1999).
Although the Sprint merger failed, Worldcom became the second-largest telecommunications provider in the United States. During this time span year over year revenue growth was 50 percent in 16 of 23 quarters. (Thibodeau and Freier)
In 2000, Worldcom began to face challenges such as increased competition, decreased rate of growth, decline in stock prices and downturn in demand, particularly the Internet. The investment in network capacity outweighed consumer demand. The ratio of expenses to revenues increased as industry revenues and stock prices declined.
1. Middleton Clinic had total assets of 500,000 and an equity balance of 350,000 at the end of 2010. One year late, at the end of 2011, the clinic had 576,000$ in assets and 380,000 $ in equity. What was the clinic’s dollar growth in assets during 2011, and how was this growth financed? Clinic’s dollar growth from 2010 to 2011 = 576,000-500,000= 76,000 $ It was financed in increasing of Equity by ...
As a decision maker what takes place when faced with the dilemma of faltering as one of the top players within the industry or business world in general? According to Stephen A. Judge and Timothy A. Judge authors of Principles of Organizational Behavior, there are three types of criteria when faced with ethical decision making: utilitarianism, rights and justice. Utilitarianism is to provide the greatest good for the greatest number. This criterion tends to dominate business decision making when relating to efficiency, productivity and of course maximizing profits which correlates to Worldcom’s state. (Judge and Judge)
In spite of the telecommunications industry downturn, Worldcom continued to post impressive numbers as monthly financial statements reported positive revenue performance. However, the complete Corporate Unallocated schedule that detailed corporate level adjustments was only privy to CEO Bernie Ebbers, CFO Scott Sullivan and select employees. The revenue recorded in this schedule allowed the company to achieve double-digit growth reported between 1999 and 2001. It was later determined by investigators who found notes supporting top-side adjusting journal entries were posted to hit revenue growth targets. Actual notes and recorded messages support CEO Ebbers and CFO Sullivan’s knowledge and participation in unethical accounting practices. (Thibodeau and Freier)
The initial investigation was led by Cynthia Cooper an internal auditor who had previously contacted Worldcom’s accounting firm Authur Anderson reference an accounting issue and was undoubtedly brushed off. She and her colleagues became suspicious of peculiar financial transactions and opted to investigate. In spite of opposition, conflict and fear, Cynthia Cooper and her colleagues were undeterred in their efforts although their findings would be devastating to the company, employees and investors. Their investigation uncovered a series of clever manipulations intended to conceal approximately $4 billion in misallocated expenses and phony accounting entries; via the attempt to represent operating costs as capital expenditures, thus appearing more profitable. (Pelliam) The end result of loss to investors, employers and creditors.
Selecting Accounting Software is one of the most important and, potentially, one of the most costly decisions a business makes. The decision is important because if the right choice is made, internal control of most accounting functions will provide a lower risk of doing business. An accurate method of keeping track of the essential financial functions of the business also will result. However, ...
What was the purpose of contracted accounting firm Authur Anderson? What role did Authur Anderson play in the one of the largest accounting scandals? What did Authur Anderson know? According to Professor Roman Weil, University of Chicago Graduate School of Business, “It’s basic accounting stuff. An auditor who looked into this would say it’s wrong. Andersen said it wasn’t consulted.” (CRN News) Andersen maintains Worldcom held back critical data concerning financial transactions. However, requesting or demanding supporting documentation for transactions could have prevented missed audit opportunities. http://www.crn.com/news/channel-programs/18828554/arthur-andersen-at-center-of-scandal-again.htm
There are various measures that could have occurred in the effort to prevent this breach. In the case of Worldcom, the unethical decisions were originated and supported by then CEO Ebbers and CFO Sullivan. As CFO I would first and foremost ensure my decisions are based on an ethical premise versus unethical, thus setting the climate and expectation of the organization. I do realize this is easier said than done when not faced with a potential corporate failure. Clarification of ethical expectations would be promoted via a code of ethics distributed to employees for guidance pertaining to ethical behavior and decision making. In addition, I would institute an anonymous hotline to encourage and support reporting of questionable accounting controls not only for internal auditors but for the employees of the contracted accounting firm, in this case the employees of Authur Anderson. I would foster transparency of financial reports by pairing board members and executive team with internal auditors and external auditors to explain and clarify financial statements in entirety. The aforementioned would be implemented in the effort to promote best practices and in the event unethical transactions occurs it can be detected and reported whereas the company does not stray so far away from conducting business under ethical premises as in the case Worldcom.
1)Monsanto Company. The Missouri based agricultural company has been named world’s most unethical company. The company leads the world’s production of genetically modified foods. Monsanto is infamous for unfairly suing farmers who try to grow foods both ethically and organically. If the lawsuit is not ruled in Monsanto’s favour, they still achieve their desired results as the ...
Worldcom, Enron, Tyco International, Citigroup, Adelphia Communications, Sunbeam, and the list of additional companies involved in scandals that rocked public confidence in the world of finance appears to go on. Ethical dilemmas such as these resulted in the enactment of Sarbanes-Oxley Act of 2002 (SOX) whereas the Public Company Accounting Oversight Board (PCAOB) is now responsible for overseeing all auditing standards pertaining to audits of publicly traded companies, public accounting firms and management. (Thibodeau and Freier).
Furthermore under SOX, top management is responsible for the certification of financial statements or information and penalty for fraud is severe. It is the intent of the legislation and regulatory enactments to prevent an atmosphere of correction and determent of unethical behavior. However, it is my opinion it has not deterred the actions of decision makers as unethical breaches such as JPMorgan, Capital One and the Libor scandal continue to emerge.
I also believe there is enormous pressure placed on company executives to achieve and maintain objectives at whatever cost, therefore placing them in a compromising position pertaining to ethical decision making, whereas legal ramifications are not a factor or an afterthought. Worldcom, labeled as one of the largest accounting scandals, occurred due to unethical behavior that could have been prevented. What was the end result of the unethical decision making? The end results include the company filed for bankruptcy, employees lost pay and benefits, investors lost savings and former CEO Bernie Ebbers was sentenced to a 25 year prison sentence. In previous career related decision making cases, I ask the following three questions: “Is it good for the company? Is it good for the customer? Is it ethical?” If I could not answer yes to all three, a different course of action would be reviewed. It is my opinion the best practice of prevention is never to participate.