Case Study On Worldcom

It was in 1983 that Mr. Ebbers founded a company “Long Distance Discount Services Inc.” (LDDS) that resold long distance phone service it purchased directly from AT&T. That small company steadily expanded, buying dozens of other companies. It eventually became WorldCom.

The company grew rapidly in the 1990s. Among the companies that were bought or merged with WorldCom were Advanced Communications Corp. (1992), Metromedia Communication Corp. (1993), Resurgens Communications Group (1993), IDB Communications Group Inc. (1994), Williams Technology Group, Inc. (1995), and MFS Communications Company (1996), and MCI in 1998.

On November 4, 1997, WorldCom and MCI Communications (the second biggest U.S. long-distance phone company) announced their

In reality, the appearance was nothing more than a perception. On June 25, 2002, the company revealed that it had been involved in fraudulent reporting of its numbers by stating a $3 billion profit when in fact it was a half-a-billion dollar loss. After an investigation was conducted, a total of $11 billion in misstatements was revealed.

A. What drives the perpetrators to commit the fraud? (violations of internal control)

1. Internal Environment Strategy

The executive and strategic decisions at WorldCom were characterized by rapid growth, founder wished to maintain the company's increasing revenue and income so that the company can show a positive financial picture to its investor.

The lack of internal controls allowed manual adjustments to be made in the system thereby minimizing any chance of detection. The absence of proper checks and balances and segregation of duties made it easier for fraudulent acts to be done.

2. Company Culture The consistent pressures from top management created an aggressive and competitive culture that did not contain any communication of the need for honesty or truthfulness or ethics within the company. The top management in WorldCom is unethical or believes it is ok to lie to the public and investors in order to make the company appear

When he was the CEO's of WorldCom, he was pledging his own WorldCom's stock to secure his personal loans to finance his personal business. To avoid margin calls from bank on his own stock, he was facing a lot of pressure to make sure WorldCom was doing well so that the stock price of the company will not go down. Because of this reason, he had resorted to fraudulently present the financial statements to show a continually growing net worth to avoid the margin