CASE STUDY

ACCOUNTING FRAUD
AT WORLDCOM

PRESENTED BYRAHUL TREHAN(140201104)

LOUKIK HUILGOLKAR(140201070)
OMKAR PATNE(140201089)
MAYANK SITLANI(140201077)
RIDHIMA JAIN(140201112)

COMPANY OVERVIEW AND

HISTORY
TYPE OF
ORGANIZATION

Became a public company in 1989.

OBJECTIVE

To be number one stock on Wall street.

STRUCTURE

Became complex due to mergers and acquisitions.

CULTURE

Unhealthy work environment for the employees.

Strategy

After mergers and acquisitions , they lacked a

strategic sense.

Industry

Telecommunication

1983

CASE SUMMARY

Maintained E/R ratio at 42% to be No. 1 stock on Wall

Street
In 2000, during economic recession and after the dot
com bubble collapse it overstated its pre-tax income
by around $7 billion to maintain its E/R ratio by
deliberate miscalculations through
accrual releases
expense capitalization
Actual data to internal and outside auditors were not
revealed
In March 2002, SEC made a surprise request for
information.
Cynthia coopers whistle blowing
It went bankrupt and its stock once valued at $180

PROBLEMS
ORGANISATION STRUCTURE

Board Of Directors conducting meetings 5-6 times

an year and no exercise of power by them.
Incorrect flow of authority(division of work but no
delegation of power).
Legal system ineffective
Compensation granted beyond approved guidelines.
Audit committee members were not sufficiently
familiar and involved with companies internal
financial workings.
Incompatible financial systems of acquired
companies.

PROBLEMS
ETHICS

Misrepresentation, concealment and

tampering of facts by senior executives.
Pressuring employees to manipulate accounts
Employees who played along were rewarded ;
others were threatened.
Providing false information to the Board of
directors and the outside auditor
Ebbers financed other unrelated businesses by
loans secured by his personal Worldcom stock.

PROBLEMS
ORGANISATION CULTURE

There were no written policies and norms that

were to be followed.
Hodgepodge of departments , people and
culture.
Senior officials exercised undue
power(followed the boss is always right
policy).

SUGGESTIONS
Ethics
The top management should send clear and
pragmatic messages that good ethics is a basis of
good business.
To avoid problems like misrepresentation and
concealment of facts there should be a control mechanism itself which undergo
surprise audit.
It is done to make sure that internal audit and
control are functioning as well.
Healthy skepticism should be encouraged in the
work environment.

SUGGESTIONS
CULTURE

There should be proper written set of

policies and norms for the employees to
maintain a proper working culture.
A feedback mechanism should be
employed to keep the employees
satisfied and motivated.

SUGGESTIONS
STRUCTURE
The BoD should conduct regular meetings
and be more connected with the
organization.
The system should be transparent to earn
the confidence and loyalty of employees.
There should be a presence of well
structured legal system.
There should be a uniform system of
operations in the organizations.

THANK YOU