Accounting Fraud at WorldCom: Case Study

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Business Ethics

Accounting Fraud at WorldCom Case Study

Question 1

What are the ethical problems faced by Betty Vinson, a CPA and Director of WorldCom’s Management and Reporting Division?

Betty Vinson has a reputation as a hardworking, loyal employee who would do “anything you told her”. Problem came on October 2000, when the company profits had went down and her boss, Buford Yates, Jr. Director of General Accounting ask her and another manager Normand to release $828 million of line accruals into the income statement. This proposal is ethically wrong so the ethical dilemma is to obey the orders from her boss or not and to know the consequences for the choices she make.

If she does according to what her boss says, the company revenue will continue to be positive and therefore the company market value will continue to rise and it will maintain as one of the biggest companies in the stock market. The whole company from the top management to the lower level worker will continue to receive income for the time being until the fraud is revealed.

This action will be unethical and the consequences are, firstly, she might be placed in court and put to jail if caught. Secondly, her guilt might haunt her even if she is not caught. Thirdly, she might lose her reputation if she got caught and might not be able to find another job. Fourthly, if she is put to jail, her family will meet not only financial problems but also emotional problems like, her children might ask “why is mummy in jail?” and her children might even be looked down on because of what she had done. Fifthly, her husband, parents, relatives and friends might leave or despise her because of her unethical act. Sixthly, her husband’s friends might look down on him because his unethical wife. Seventhly, her husband, parents, relatives and friends might be ashamed and they might be looked down by their friends too. On top of that if the fraud is revealed, the reputation of the whole company WorldCom might be destroyed and might even be forced to close down and all the people in the company and the customers the company serves or have relation with might blame her for their lost.

If she reject the proposal and do what is ethical. The consequences are, firstly, she might lose her career that she had build up for 4 years and because it is in the midst of an economic downturn, there is a also a chance that she might not be able to find another job in her age. This will affect her family income and so might in turn affect her children education, her family spending budget.

What are the ethical problems faced by Cynthia Cooper, a CPA and manager of Internal Audit at WorldCom?

Cynthia Cooper is a strong-willed woman and she was the head of the 24 member internal audit department. CFO Sullivan asked Myers to restrict the scope of Cooper’s enquires. March 2002, Cooper’s team received a complained from the head of the wireless business unit for about a $400 million accrual in his business for expected future cash payments and bad debt expenses that had been transferred away to push up the company’s earnings. Sullivan and Arthur Anderson auditors had supported the transfer and when she approached Anderson, Anderson partner assures her that what they did is just aggressive accounting entries and will not explain to her the details unless it was a direct order from Sullivan. Cooper then brought the issue to WorldCom’s audit committee but was told by Sullivan to stay away from the wireless business unit.

At this point, Cooper had a dilemma, whether to continue to investigate or just drop the case as both Sullivan and Anderson had already supported this transfer.

If she chooses to continue the investigation, she might lose her job as a director of internal audit which might affect her financial wealth....
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