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Worldcom fraud - Coggle Diagram
Worldcom fraud
Adding a journal entry for $500 million in computer expenses without documentation supporting the corresponding expenses.
Reducing the amount of money it held in reserve by $2.8 billion and moved this money into the revenue line of its financial statements
classifying operating expenses on the lease phone network lines from other companies as long-term capital investments providing another $3.85 billion in assets.
WorldCom personnel made a number of other types of improper accounting adjustments with smaller effects on reported earnings.
Posting impressive revenue growth numbers, and assuring Wall Street that WorldCom could sustain that level of growth. In essence, WorldCom claimed it was successfully managing industry trends that were hurting all of its competitors.
The consequences of the fraud on the company and the individuals
The government enacted the Sarbanes-Oxley Act to increase investor confidence in financial markets and public companies
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Investors in WorldCom have suffered major losses as the market value of the company's common stock plunged from about $150 billion in January 2000 to less than $150 million as of July 1, 2002.
Bernard J. Ebbers was convicted on security fraud and sentenced to 25 years in jail.
Scott Sullivan were charged with fraud and violating securities laws. Sullivan pleaded guilty and took the stand against Ebbers in exchange for a more lenient sentence of five years.
The discovery of the fraud
Cynthia Cooper, Vice President of internal audit, uncovered suspicious capitalizing of line costs
Cooper brought the "accounting discrepancy" to the attention of Scott Sullivan, Chief Financial Officer at the time
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Cooper continued her investigation and presented her findings to Max Bobbitt, Head of Worldcom's Audit Committee
The flags of fraud that the auditors ignored
Outside comparisons: WorldCom was making a profit, while its competitors had loss in profit
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