Case Stuby About Worldcom Fraud

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Case Study – WorldCom The situation - WorldCom is a telecommunications company which was lead by CEO, Bernard Ebbers, and CFO, Scott Sullivan. - In 1999, WorldCom was not meeting Wall Street‟s revenue and earnings expectations, and it appeared that the coming year would produce more bad news. - The CFO argued for setting realistic targets. However, the CEO insisted that the company needed double digit growth, and pushed for aggressive targets. These aggressive targets were not supported by historical data or strategic assessments. - In order to meet these targets, WorldCom began boosting its revenue through a wide range of accounting measures, including drawing down on reserves set aside for expenses. The economic situation at the time was not taken into account when implementing these aggressive accounting measures. Other similar companies were reporting declining revenues. - It was identified that the management who were making the aggressive accounting decisions, were also posting the journals to the general ledger, and reviewing and approving the reporting. - Pressure was placed on personnel who did not support the aggressive targets. - A great deal of focus was put on “team work” and being a strong “team player”, which is said to have been a strategy to reduce dissenting opinions, eventually leading the organisation to follow a “groupthink” attitude. - In 2000, the telecommunications industry entered a downturn and WorldCom‟s aggressive growth strategy suffered a serious set back. However, due to the accounting measures used, by Q3 in 2000, the company managed to meet the Wall Street expectations. - Finally, WorldCom‟s stock price started to plummet, and the CEO faced margin calls from his bankers, forcing him to either sell his shares or repay the loans. He did not want to sell his shares as his doing so would put further downward

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