COMPANY INTERNAL CONROLS

Segregation of Duties

Figure 1. Organizational Structure of WorldCom

1. Membership and Functioning of the Board

From 2000 to June 2002, the Board of Directors consisted almost entirely of
people who had been owners, officers, or directors of companies that WorldCom
had acquired over the preceding decade. As a result, some had enjoyed very
great financial benefits from Ebber’s deals.

The position of Chairman of the Board was largely nominal at WorldCom.

WorldCom’s bylaws only if either the Chairman of the Chief Executive Officer
could preside at Board meetings, “if requested to do so.” In practice, the CEO,
Ebbers, presided at Board meetings and determine their agenda. Thus, Ebbers
dominated the Board meetings.

2. The Compensation Committee

The committee relied heavily on compensation data collected from serving on
many other boards of directors.

The committee was liable for setting the salary and bonuses of the highest
executive officers at WorldCom.
 The committee administered two bonus programs: executive officer achieves
10% increase in revenue for his or her unit over the identical period the previous
year and retention bonuses in 2000 and 2001.
3. Audit Committee
The committee was answerable for overseeing three functions: the inner Audit
department, the external auditors, and management’s financial reporting.

Control Activities

1. Internal Audit Department reports to the Chief money handler.

2. Internal Audit Department focuses on operational audits.
3. Internal Audit was supplied with audits scheduled for every year and general
updates and summaries of knowledge.

Information and Communication

1. Confidentiality may be a legitimate concern. The key financial information was

shared only within a closed, circle of senior executives like those with a desire
to understand.
2. A scientific attitude is conveyed from the top management that employees
must not question their superiors, but simply do what they were told.