SUBJECT: Accounting fraud at WorldCom Problem Statement WorldCom penetrated the largest accounting fraud in U. S history by overstating its tax income between 1999 and 2002. The main players in WorldCom’s accounting fraud included CFO Scott Sullivan, the General Accounting and Internal Audit departments, external auditor Arthur Andersen, and the board of directors.
While individuals did have their own sins, employees cowardice and self-interested, the board passive and ineffective, external auditors preoccupied, and bankers permissive, WorldCom’s organization structure and culture should take most of the responsibility that Ebbers could cooked the book by misleading Wall Street and its own employees.
How WorldCom’s organization structure and culture contributed to pressure and group thinking extending the long period that finally led to the fraud? Analysis The fraud heavily attributed to the way the CEO Ebbers ran the company. First of all, WorldCom’s poor company culture led to a lack of a positive mechanism for employees to propose concerns and feedback and also effective communication between departments and between the board and employees.
WorldCom’s acquisition of more than 60 firms in the late 1990s increased the difficulties for Ebbers to effectively manage the company and maintain an ethical culture without a written policy. Scharff(2005) believes that the unethical behaviors and practices of Worldcom were created by groupthink, defined as a “mode of thinking that people engage in when they are deeply involved in a cohesive in-group, and the members override any motivation to appraise alternative courses of action”.
Instead of figure out their concerns, many executives like Vinson just follow suit. Recommendation(s) WorldCom should create a positive and healthy corporate culture building trust and also respect for each employees; especially middle-level managers should not be under pressure to make unethical decisions. Open, reliable and effective communication should be encouraged. Conflicts of interest should be avoided.
More importantly, a corporate code of conduct should be established to guide the behaviors of all employees, including CFO and CEO, in which there is not only principles providing basic guidelines to follow such as the consistency, sincerity and good faith applying to a company’s operation, but also rules providing specific boundaries which behavior is not allowed or will suffer from penalties that help maintain a healthy and ethical corporate culture. ———————–  http://www. helium. com/items/1411484-ethics-failure-and-accounting-fraud-at-worldcom? page=3