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    Worldcom

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    Ghazanfar
    WorldCom was founded in 1983 and grew rapidly through acquisitions to become the second largest telecommunications company in the US. In 1999-2000, WorldCom fraudulently reported billions in line costs as capital expenditures and improperly moved funds to inflate revenue. This accounting fraud turned losses into profits. The fraud was discovered in 2002 and resulted in over $180 billion in shareholder losses, 57,000 job losses, and criminal charges for the CEO who was sentenced to 25 years in prison.

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    Worldcom

    Uploaded by

    Ghazanfar
    147 views9 pages
    WorldCom was founded in 1983 and grew rapidly through acquisitions to become the second largest telecommunications company in the US. In 1999-2000, WorldCom fraudulently reported billions in line costs as capital expenditures and improperly moved funds to inflate revenue. This accounting fraud turned losses into profits. The fraud was discovered in 2002 and resulted in over $180 billion in shareholder losses, 57,000 job losses, and criminal charges for the CEO who was sentenced to 25 years in prison.

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    WorldCom was founded in 1983 and grew rapidly through acquisitions to become the second largest telecommunications company in the US. In 1999-2000, WorldCom fraudulently reported billions in line costs as capital expenditures and improperly moved funds to inflate revenue. This accounting fraud turned losses into profits. The fraud was discovered in 2002 and resulted in over $180 billion in shareholder losses, 57,000 job losses, and criminal charges for the CEO who was sentenced to 25 years in prison.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    147 views9 pages

    Worldcom

    Uploaded by

    Ghazanfar
    WorldCom was founded in 1983 and grew rapidly through acquisitions to become the second largest telecommunications company in the US. In 1999-2000, WorldCom fraudulently reported billions in line costs as capital expenditures and improperly moved funds to inflate revenue. This accounting fraud turned losses into profits. The fraud was discovered in 2002 and resulted in over $180 billion in shareholder losses, 57,000 job losses, and criminal charges for the CEO who was sentenced to 25 years in prison.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 9

    WORLDCOM

    Accounting Fraud

    History of WorldCom
    WorldCom

    founded in 1983 in Hattiesburg. Initially called LDDS-Long Distance


    Discount Service.

    1996: Acquired MFS (Metropolitan Fiber Systems)Communications (internet


    backbone)
    MCI merger with LDDS(The largest merger in the US history because LDDS and
    MCI Communication announced their $37 billion merger to form MCI WorldCom.

    Almost 75 mergers and acquisitions of other small companies


    It has its operations running in more than 65 countries
    On 21 July 2002 the second largest telecommunications company in the U.S.

    Services
    It provides data transmission ,internet services
    for long distance businesses and various other
    phone services for a cheaper price than
    competitors.
    They are handling 50 percent of all United
    States Internet traffic and 50 percent of all emails worldwide.

    What Happened?
    In 1999 WorldCom attempt to buy Sprint worth
    $129 billion but Anti-trust regulations wouldnt
    allow Sprint acquisition in this way attempted
    amount crashed that impact declined in Stock
    price of WorldCom in 2000.

    So WorldCom has reduced reserve accounts


    held to cover liabilities of acquired companies.

    Fraud
    Fraud was accomplished in two main ways:
    Firstly, WorldCom's accounting
    underreported 'line costs' (expenses
    telecommunication companies) by
    these costs on the balance sheet
    properly expensing them.

    department
    with other
    capitalizing
    rather than

    Secondly, the company inflated revenues with


    bogus accounting entries from corporate
    unallocated revenue accounts

    What WorldCom did?


    Reduced the amount of money held in reserve by
    $2.8 billion and moved this money into the
    revenue line of its financial statements.
    In 2000, classified operating expenses as longterm capital investments ( $3.85 billion).
    These changes turned WorldCom's losses into
    profits. It also made WorldCom's assets appear
    more valuable.

    HOW WAS DISCOVER?


    The first discovery of illegal activity was by
    WorldCom's own internal audit department who
    uncovered $3.8 b. of the fraud in June 2002. The
    company's audit committee and board of directors were
    notified of the fraud.
    The Securities and Exchange Commission (SEC)
    launched an investigation. By the end of 2003, it was
    estimated that the company's total assets had been
    inflated by around $11 billion.

    Impact and Penalties


    Impact
    $ 180b of shareholder value lost

    $37.5b of debt and preferred stock


    value lost
    57,000 employees lost there job
    local employees retirement funds
    amount $300 m lost

    Penalties
    On March 15, 2005 Bernard Ebbers
    (CEO) was found guilty of all charges
    and convicted on fraud, conspiracy and
    filing false documents with regulators.
    He was sentenced to 25 years in prison

    Suggestion
    periodic surprise audits should be

    Trust, but Verify

    Unethical Work Culture should be control


    employees should not be Pressurise to manipulate accounts

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