Ethicality of Accounting Activities
In 2002, WorldCom filed the biggest bankruptcy up to that time. Prior to this bankruptcy there was a huge series of fraud and unethical behavior. In the following paragraphs we will go through some of the major key players of the WorldCom scandal, and what role they played in it: Scott Sullivan, Max Bobbit, Farrel Malone, and David Myers. Then we will also discuss some of important questions analyzing the case.
Scott Sullivan was the CFO of the company and the head of the scandal. He was fully aware that unethical and illegal actions were being taken, and when he found out that they Alison Cooper was closing in on him he was doing everything in his power to cover his tracks and come up with good stores for fraudulent activity. For example, when Cooper asked Sullivan what prepaid capacity was, he told her that it represented costs associated with no or low utilized Sonet Rings and lines that were being capitalized. Cooper later discovered that the cost represented costs related to leasing the lines that had little customer usage. They continued to pay for this even though it brought in little value, because they reclassified the expense as a capital asset and expensed them over a longer period of time, so that they could buy time until revenue increased. (Mintz & Morris, 2011) Max Bobbitt’s only unethical actions were losing his temper a few times and, potentially, leaving out the audit committee from the initial investigation because that is what the audit committee does. However keeping it “under the radar” might have helped them in the long run as less people suspected what was going on and it would be easier to find the perpetrator. In the end he did inform the rest of the audit committee about the situation. By informing the rest of the committee he gave more accountants an opportunity to review the documents and reach a similar conclusion to Bobbitt and Cooper. From more people being informed you can launch a full-scale inquiry into the issue at hand. Auditing in any situation is not easy but when you actually uncover something unsavory it is really uneasy. Bobbitt says in the excerpt “Do you have any idea of what I am about to do? I am about to blow up this company!” No one wants to be in that situation but it is the life of an accountant to remain impartial and objective.
Farrell Malone was the external audit partner at KPMG. As the external auditor his role was to report to the company’s audit committee. He’s responsible for expressing an opinion on the fair representation of the organizations financial statement as it lines up with the rules established by the GAAP. He was obligated to report accurate and ethical data to outside parties and investors. Farrell appeared to be aware of what was going on in the company. His reluctance to contact the audit committee only proved his involvement. Farrell referred Cooper to another member showed a lack of professionalism. He was obligated to go to the audit committee, so not doing so painted a picture of his part in the cover-up. When he learned that Bobbitt wanted all updates ran through him before going to Cooper showed he would be able to fix it before any other persons got involved. The fact that Bobbitt wanted to shift the blame to him means that all knew what was going with the books. Farrell’s character is one who is persuaded. His unethical professionalism is unbecoming for his job title. He appears to be dishonest and untrustworthy. The information had been reporting to the investors had been inaccurate.
The actions in which David Myers presented himself with when he was confronted by Cynthia Cooper to explain the reasons in which money was moved from account to account, was returned with the answer back that they were wasting their time on an audit. Knowing the reason why the audit was going on was to figure out the reason behind the moving of the money from account to account was an
