Cynthia Cooper was a typical accounting student as an undergraduate at Mississippi State University in the USA. Growing up in a family with a modest income, she attended the local high school and worked part-time as a waitress. After graduation, she went on to complete a Masters in Accounting at the University of Alabama and became a chartered public accountant. Like most, Cynthia never thought she would face the challenge of her lifetime before reaching the age of 40. However, a few short weeks in May and June of 2002 changed her life forever. The case summarises how she unravelled a $3.8 billion fraud that ultimately grew to over $11 billion and sent one of the USA’s largest and most visible companies to its knees in bankruptcy. Working for WorldCom
Cynthia joined the company that eventually became Worldcom after returning from Alabama to her hometown of Clinton, Mississippi in the early 1990s. WorldCom started as a small, closely held company in the early 1980s. Bernie Ebbers moved the headquarters to Clinton, Mississippi because it was the college town of his alma mater, Mississippi College. By 1997 the company had emerged within the telecom industry and caught the eye of many on Wall Street when it launched a bid to acquire the much larger and better know company MCI. Cynthia enjoyed the rising status of WorldCom’s growth in the business community. She was promoted to Vice President of internal audit in 1999, leading the internal audit function in what became the 25th largest company in the US. WorldCom’s stock price continued to rise through 2000, and she and her colleagues dreamed of retiring early and starting their own businesses. Establishing internal audit’s role in the company wasn’t easy. WorldCom’s CEO, Bernie Ebbers, was forceful in his dislike for the term “internal controls” and allegedly banned the use of the term in his presence. At one point, Cynthia called a meeting with her boss, WorldCom CFO Scott Sullivan, Bernie Ebbers and a few others to help them see how an internal audit department could help the company’s bottom line. Despite being almost 30 minutes late to the meeting, Ebbers was the last person to leave the meeting. At that point, internal audit’s focus on efficiency of operations became its primary focus, leaving the financial audit-related tasks in the hands of the external auditor, Arthur Anderson, LLP. Cynthia, as Vice President of Internal Audit, would report to the CFO, Scott Sullivan. While WorldCom’s growth skyrocketed throughout the 1990s, the telecom market was saturated by 2001 and WorldCom’s earnings began to fall. WorldCom executives began to feel enormous pressure to maintain their fantastic record of financial performance.
Unravelling of a Fraud
According to press reports, Cynthia and her internal audit team didn’t know about any unusual accounting manipulations until March 2002. It wasn’t until a worried executive in a division of WorldCom told Cynthia about the handling of certain expenses in his division. At that point, Cynthia learned that the corporate office accounting team had taken $400 million out of the division’s reserve account to boost WorldCom’s consolidated income. As Cynthia and her team pursued the matter with WorldCom’s CFO, Scott Sullivan, she immediately felt tremendous resistance and pressure. In fact, Sullivan informed Cynthia that there was no problem and that the internal audit shouldn’t be focused on the issue. She received a similar reaction when she approached the external auditors at Arthur Andersen, who told Cynthia there was no problem at all with the accounting treatment. Fortunately, Cynthia did not let the intimidation of her boss or the opposition of a major international accounting firm dampen her concerns about getting to the truth. In fact, Sullivan’s harsh reaction only increased her scepticism surrounding the matter. She and others within the internal audit team began to secretly work on the project...
Please join StudyMode to read the full document