Extraordinary Circumstance Review

Introduction and Aim of the Review This review of WorldCom is based on the Extraordinary circle by Cynthia Cooper. The purpose of review report is to conclude whether WorldCom satisfied the Code of moral philosophy and the Attribute and surgical procedure Standards set forth by the IIA. Background WorldCom was peerless of the largest telecom companies in the world during 1996 to 2002. The union helped to modernise a small regional company that bought and re-sold long distance in the S byh into an international whale that operated in over 65 countries.However, in 2002, the senior management and employees perpetrated a massive fraud, and in June, WorldCom announced that it had misstated its financial statements over the last five quarters by $3. 8 billion. After coming out this scandal, WorldCom went bankrupt, and it has been the largest bankruptcy ever. Analysis Based on the book Cynthia Cooper wrote, WorldCom didnt comply with the Code of Ethics and the Attribute and Performan ce Standards. Fraud The internet bubble that burst in March, 2000 is followed with much larger and to a greater extent devastating collapse Telecom.WorldComs financial statements were far worse than expectation that would result in declination price fall, downgrading company and most importantlylosing capital to acquire companies. Then CEO and CFO were cooking to change the financial statements with mid-level accountants. They thought if the financial statements were better in next quarter, they could cover the change. But things didnt go according to plan. They had to change the number until the whistle blew. Lack of risks assessment During the WorldCom expansion, CEO, Bernie led the company through 70 acquisitions in less than 20 years.Bernie was too audacious to expand the company without consideration. For example, when board didnt want to invest any more capital or incur more debt on telecom, Bernie mortgaged everything he had to buy TMC outright. The strategy helps LDDS e xpand, but as well as planted bomb in the company which change integrity in the future. Gambling rather than risk control When World Com was getting other companies, some were non willing to receive a combination of cash and occupation. They would sell the post as soon as they thrum.In order not to permit the stock price fall, the executives in WorldCom bought the stock instead at a discount price. Luckily, as the result, the stock price went up dramatically. Low internal Audit department set Internal audit department was a dispensable unit in the company and didnt get high attention during that time. Unlike external counterparts, internal auditors are usually employees of the companies they audit. Some companies choose to bring on only a small, token group, others none at all, and others outsource the function altogether, sometimes to the same open accounting firm performing the external audit.Cynthia Cooper was announced to be the director of internal auditing by CEO, Bernie. They probably had some deals under table during CEO fraud. Individual manipulation and lacking of proficiency LDDS was too big to have so many employees reporting to CEO, Bernie directly. Meanwhile, Bernie doesnt have technical telecom or financial training and he was only interested in what he liked and understood. His goal was to figure out WorldCom to be the NO. 1 stock on Wall Street rather than capture mart share or be global which implied the tragedy of WorldCom.He continuously acquired the other companies to make WorldCom large and bigger without deep consideration, even paid the price to lose his confidants. Lack of programs improvement WorldCom was praised as a fast-growth companya rate of growth usually achievable only by external acquisition, not total internal evolution. If WorldCom ever s concealments acquiring, growth will most likely slow, which will negatively continue analysts ratings and WorldComs stock price. The main business in WorldCom is not real t elecom business instead, its a acquiring and resell business.Thus, there were no improvement or clear organic structures in the company. Whats more, WorldCom didnt have its own wireless network and it only sells wireless service, which would result in loss revenue later. Lack of afterwards acquiring testing WorldCom acquired 65 companies successfully until the failure of acquiring Sprint. Internal auditing department only employed 10 people to monitor the huge company. Not elevate to monitor and test the acquired companies. Lack of auditing CEO During the golden period of WorldCom, Bernie obtained loan from plenty banks which related to the stock price of the company.As long as WorldCom stock stayed higher above a level, banks wouldnt issue a margin call, requiring Bernie to come up with the cash to pay down replete of the loan to bring the validatory to remain at a certain percent of the loan. As a result, when the stock market fluctuated in 2002, WorldCom stock price went down below the certain level, and the board had to help Bernie to pay the loan, or the stock price will keep falling as the banks lose confidence in WorldCom and sell stocks one after another.But at the beginning, there was no one to control Bernie not to borrow money and wear that risk to pay marginal call. Conclusion WorldCom was proved to be a big success and a tragedy in the history. Its strategy of expansion through acquiring constantly helped it grow-up to be a top 100 company in the stock market. However, its precisely because this crazy acquiring method let the WorldCom ignore the foundation of operating activities. Investors neglect the cash flow statements rather than totally relied on the equity return.As the internal department, it didnt play a good role in assurance and consulting activities for the acquiring process. Since the department wasnt gain enough attention from the board and was usually influenced by the executives, like CEOBernie, it was scarcely to let them p erform well under the Bernies control. In this case, Bernie was seen as Gods in WorldCom and there was no one came up with objections, even some will oppose the acquiring, but at last Bernie lock could do what he wants.Even Cynthia found there was a fraud from the new CEO and CFO after Bernie left WorldCom. It still couldnt prevent the tragedy Bernie planted before. At the same time, this case also gives a lesson that power should be divided rather than central control, and the person who holds the power should have the enough capability and professional knowledge. 2 . On page 52 3 . On page 57 4 . On page 77 5 . On page 84 6 . On page 129 7 . On page 175 8 . On page 127 9 . On page 152 10 . On page 172 11 . On page 183