Worldcom: the Story of a Whistle-Blower

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Question 1
At the time Cynthia Cooper discovered the accounting fraud, WorldCom did not have a whistle-blower hotline process in place. Instead, Cynthia took on significant risks when she stepped over Scott Sullivan’s head and notified the audit committee chairman of her findings. Discuss the key criteria for the operation of an effective corporate whistle-blower hotline. Be sure to highlight potential pitfalls that should be avoided and reference professional codes, legislation and academic literature as appropriate.

A whistle-blower is an organisation member (former or current) who discloses illegal, immoral or illegitimate practices under the control of their employers, to other persons or organisations that may be able to take and effect action (Miceli & Near, 1984). In the case which is given to us, Cynthia Cooper, who worked in WorldCom, was the whistle-blower when she revealed the truth regarding the malpractice in some accounting treatment taking place in WorldCom. But we can see from the case that she had to face a lot of pressure exposing this error because her reporting boss Scott Sullivan, the CFO of the company, himself was involved in doing the fraud. So, for Cynthia, going against the fraud was like going against her boss. In her situation if there was a whistle-blower hotline system available in place then she would have been relieved from much of her pressure. Whistle-blowing hotline system is mainly having an independent reporting mechanism which uses employees to report any misconduct. This way any employee can expose any wrong practice going on in a company without being spotted as whistle-blower. An article of by John Carvel (May, 2009) says that “A survey of more than 5,000 nurses found 78% feared personal reprisals or a negative effect on their career if they reported concerns to their employers. It also found that 21% had been discouraged or told not to report concerns about what was going on in their workplace.” It also states that the Royal College of Nursing has set up a whistle-blowers’ hotline after having the evidences of members being victimised for voicing worries about NHS words’ unsafe practices. So it is clear that we sometimes do need to have outsiders’ help to solve our inside problems. But for the system or the hotline process to be effective there should be some key criteria or standards. In an article called “Best Practices in Whistleblower System” in Fulcrum Inquiry website on November 2005 it says, according to AICPA recommendation some important attributes of effective whistle-blower hotline solution should be as follows: It should be operated by an independent third party.  Employees or others who are willing to submit a complaint are more comfortable to do so if it is well known in the public that the system is operated independently. Instead of only fully automated systems, such as internet reporting, voice mail, etc. the system should have well trained interviewers available to handle complaints. It should have phone number solely for taking complaint, and also should accept complaints using fax, website, email address, and regular mail. And it should be available 24 hours a day though out the year. To provide support to complainants who are from different ethnic backgrounds or different countries, the solution should have multilingual capability. Complainants should have a way of either calling back later, or providing responses to investigators’ follow-up questions. The solution should have protocols for distribution of each type of complaint to appropriate individuals within the company based on the nature of the complaint.  Complaints involving senior management are automatically directed to the Audit Committee without filtering by management or other internal personnel. The existence of the system should be made known to employees, vendors, and other stakeholders in public documents, as well as in standard communications to each group....
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