Worldcom-Accounting-Fraud-世通财务造假案例分析

ACCOUNTINGFRAUDATWORLDCOMWorldComOverviewNatureofAccountingFraudProblems(InternalandExternal)FallofWorldComandlessonsfromitEthicalchoicesStartedin1983asLDDSBernieEbbersJoinedin1985AcquisitionofMFSof1996AcquisitionofMCIin1997($42billion,thelargesttakeoverinUS)FailinacquisitionofSprintin2000WorldComOverviewWorldComOverviewDotcombubbleburstin2000WorldComLoansEbbers$400M(2000-2002)Accountingfrauduncoveredin2002EmergedasMCIfrombankruptcyin2004FinancialHighlights1995199920012004Revenues($billion)$2.2$37.1$35.2$20.7Totalassets($billion)$3.4$91.1$103.9$17.1Employees(in000)7.597.687.840.4Marketcapital($billion)$3.3$150.5$42.8$6.4Debt($billion)$0.8$13.1$30.0$5.9Totalcapitalization($billion)$4.1$163.6$72.8$12.3WorldComOverviewFinancialstatementsWorldComOverviewNatureofAccountingFraudProblems(InternalandExternal)FallofWorldComandlessonsfromitEthicalchoicesDefinition:Accountingfraudistheintentionalmisrepresentationoffinancialstatementsinordertoobtainwrongfullyanadvantage,retainabenefit,oravoidadetrimentNatureofAccountingFraudPressureto“cookthebook”a)Thegrowingpaceofincomeisgenerallyslowingdownb)Drivenbyinterests(politicalinterestlikepersonalfameandimageinthepublic,economicalinterest)NatureofAccountingFraudTypicalmethodsto“cookthebook”Costofassets

Inventoryisnotreal

FixedassetisfakeUnrealliabilities

Accountspayablesisovervalued

AccruedexpensesarenotrealInflatedincomeNatureofAccountingFraudDifferencebetweenearningsmoothingandaccountingfraudConsistency

Matching

Conservatism

choosingofaccountingitemNatureofAccountingFraudWhatdidWorldComdo:Accountingfraudintwomethod:

improperreleaseofaccruals

impropercapitalizationofoperatingexpenseNatureofAccountingFraudWorldComOverviewNatureofAccountingFraudProblems(InternalandExternal)FallofWorldComandlessonsfromitEthicalchoicesProblems(Internal)LossofstrategicdirectionCorporatecultureOrganizationalstructureBoardofdirectorsFailuretoacquireSprintThepoorperformanceLossofstrategicdirectionemployeesshouldnotquestiontheirsuperiorsthereisnowrittenpolicies.EachdepartmenthaditsownrulesCorporateculturelegalfunctionwaslessinfluentialandlesswelcomethaninahealthycorporateenvironmentThecorporategovernancestructureissocomplicatedInformationisnotconsolidatedOrganizationalstructure50%ofnonexecutivemembersNoregularcommunicationDecisionsnotbasedontheinterestofshareholders,butpersonalinterests.BoardofdirectorsExternalAuditorEconomicaldownturnWeakgovernmentregulationProblems(External)FormerlybigfiveExternalAuditorFastgrowingsalesrevenueExternalAuditorTestinginformationaccuracyratherthancomparabletestsChangedtheratingfromhighriskaccordingtosoftwaretomoderateriskExternalAuditorNASDAQstockpricefrom1994to2008EconomicaldownturnWorldComOverviewNatureofAccountingFraudProblems(InternalandExternal)FallofWorldComandlessonsfromitEthicalchoicesImpactoftheaccountingfraud

FallofWorldComForShareholders$180billiondollarlossofsharestockvaluePreferredStockOwner$37.8billionofdebtandprofferedstockholderlossCompanyandemployees$750millionpunishfromSEC57000employeeslostjobsAllcurrentandformeremployeeslostretirementsavings(inWorldComStock)FallofWorldComWhathappenedonseniormanagement

Ebbers-CEO25yearsinprison

Sullivan-CFO5yearsinprison

Myers-controller1yearinprison

Yates-DirofAcctg1yearinprison

Vinson-AcctgDept5monthsinprison

Manager5monthshousearrest

Normand-AcctgDept3probation

Manager

Boardofdirector

12directoragreedtopayatotalof$25mtosettlesecuritiesclassactioncaseInvestmentBankers:settlementofsecurityclassaction

CitiGroup$2.6billion

JPMorgan$2.0B

Other$1.4BGrubmanandSolomanBrotherSecuritiesAnalystfined$15Mandbannedforlifefrompractice.FallofWorldComAccountingSystemProblem:Eachdepartmenthaditsownrulesandmanagementstyle.Nobodywasonthesamepage.Solution:Buildfair,clearandintegratedaccountingsystem.Ensureaccurate,reliableaccountingrecords.lessonsfromitAccountingSystemProblem:employeesshouldnotquestiontheirsupervisorSolution:Reducemanagement’sintervenetothenormaldailyrecording.lessonsfromitAuditingSystemProblem:BettyVinson,SeniormanagerofGeneralAccounting,followedsupervisor’sillegalinstructionofrecordentryalthoughherprofessionaljudgmenttellherthatiswrong.Solution:Builduptheproperauditingsystemthatallowswhistleblowinginternally.lessonsfromitAuditingSystemProblem:[Internal]CynthiaCooper,HeadofInternalAuditdepartment.Foundtheaccountingissuesbutwasn’tallowedtocheckindepth.Solution:Enforcethepowerofinternalauditingdepartment.lessonsfromitAuditingSystemProblem:[External]Conflictof“satisfying”customersandauditingethicsSolution:SECregulationonexternalauditingfirmsandindustryselfregulationrules.lessonsfromitWorldComOverviewNatureofAccountingFraudProblems(InternalandExternal)FallofWorldComandlessonsfromi