Rise and Fall

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Bernie Ebbers built WorldCom, Inc. (now part of Verizon, Inc.) into one of the world’s largest telecommunications firms. Yet he and chief financial officer (CFO) Scott Sullivan have become better known for creating a massive corporate accounting fraud that lead to the largest bankruptcy in U.S. history. Two investigate reports and subsequent court cases conclude that WorldCom executives were responsible for billions in fraudulent or unsupported accounting entries. How did this mammoth accounting scandal occur without anyone raising the alarm? Evidence suggests that Ebbers and Sullivan held considerable power and influence that prevented accounting staff from complaining, or even knowing, about the fraud. Ebber’s inner circle held tight control over the flow of all financial information. The geographically dispersed accounting groups were discouraged from sharing information. Ebbers’s group also restricted distribution of company-level financial reports and prevented sensitive reports from being prepared all. Accountants didn’t even have access to the computer files in which some of the largest fraudulent entries were made. As a result, employees had to rely on Ebbers’s executive team to justify the accounting entries that were requested. Another reason why employees complied with questionable accounting practices was that CFO Scott Sullivan wielded immense personal power. He was considered a “whiz kid” with impeccable integrity who had won the prestigious “CFO Excellence Award”. Thus, when Sullivan’s office asked staff to make questionable entries, some accountants assumed Sullivan had found an innovative –and legal-accounting loophole. If Sullivan’s influence didn’t work, other executive took more coercive approach. Employees cited incident where they were publicly berated for questioning headquarters’ decisions and intimidated if they asked for more information. When one employee at a branch refused to...
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