It was formed so that the strongest, most capable public relations firm could serve national and

international clients while retaining flexibility and client-service focus inherent in independent
agencies. Through WorldCom, clients have on-demand access to in-depth communication
expertise from professionals who understand the language, culture, and customs in the
geographic areas of operation. WorldCom has 105 offices in 90 cities and 40 countries on five
continents, more than 2000 employees, and recorded revenue of U.S. $ 243.5 million in 2008.
However, from 1999 to early 2002, the company's C.E.O., Bernard Ebbers, and other senior
management used fraudulent and improper accounting methods to mislead investors and other
directors. The fraud was accomplished primarily in two ways. First is by underreporting line
costs by capitalizing them on the balance sheet rather than properly expensing them, thus
avoiding the loss of billion dollars. The second is inflating revenues with bogus accounting
entries from “corporate unallocated revenue accounts .”According to US GAAP Code 605, the
account of such sort is fictitious, as it does not satisfy the criteria and thus could not be treated
as a legal form of revenue. The management, knowing this fact, restricted the number of people
who had access to the monthly income so that the fraud in revenue recognition would not be
discovered. In addition, WorldCom tended to recognize the revenue, which was yet to be
received from long-term contracts, even before the service was provided. This, of course, was
another violation of the US GAAP.
Indeed, according to F.R.S. 16, costs related to day-to-day servicing or wear and tear repairs of
Property Plant and Equipment (P.P.E.) would be expensed unless the P.P.E. is enhanced due
to the expenditure. Consequently, we can see that WorldCom has wrongly classified its
expenses as an asset account despite the P.P.E. not being enhanced at any state. This would
lead to reduced expenses, an increment in total assets, and ultimate profit increase, and a
stronger balance sheet. Moreover, the eventual failure of WorldCom was caused by the
disruption of the cycle, when pressures stopped the planned acquisition of Sprint Corporation in
1999-2000 from the U.S.U.S. Department of Justice and the European Union over concerns of it
creating a monopoly. As a result, WorldCom lost its primary growth strategy and left Bernard
Ebbers with few options to enhance the business further. Either they had to consolidate all the
previous acquisitions into one efficient business, which they had failed to do so far, as they had
only concentrated on the takeovers, or to find other creative ways to sustain and increase the
share price.
The driving factor behind this fraud was the business strategy of WorldCom’s C.E.O., Bernie
Ebbers. In the 1990s, Ebbers was focused on achieving impressive growth through acquisitions.
Using WorldCom stock to accomplish this buying spree, the stock had to increase in value
continually. Bernie Ebbers felt the need to show ever-increasing revenue and income. His only
recourse to achieve this end was financial gimmickry. The problem is that the more one resorts
to this dishonesty, the more complicated it becomes. Thus, dishonesty is just not sustainable in
the long run.
WorldCom’s failure was down to a multitude of underlying issues and shortcomings. The
aggressive acquisition strategy used by Ebbers was brought through from his previous
ventures, where he found himself adept at raising money, mainly due to his likable personality.
Subsequently, this focused his attention on increasing share prices as he received large
amounts of his remuneration in shares, and an increase in share price increased his wealth, in
the short run anyway. A firm's downfall was the absence of accountability from some top
management. The flaws in terms of corporate governance were shown when all the board
members approved nearly everything Bernie Ebbers suggested, mainly because Ebbers
showered them with benefits. Half of the directors were associates of Ebbers and had large
personal stakes in the company. In addition, the board’s wealth was tied to the stock; therefore,
it was in the board’s interest to allow management to do whatever they wanted to keep the stock
price up.
Moreover, Arthur Anderson, the external financial auditor of WorldCom, took the incentive to
keep his mouth shut about the problems. Management was able to exploit this problem and get
its auditors to agree to the fraud it was committing. Because of the close relationship between
auditor and company, management was under the impression that their auditors would not
report their fraud.
WorldCom’s fraudulent activities gradually took their toll on the entire U.S.U.S.
telecommunications industry.
They have faced a massive scandal and one of the most prominent bankruptcies that serve as
a reminder and lesson never to obtain an unfair or illegal advantage to achieve market growth
expectations. As professionals, the company executives, along with the C.E.O., should have
been the first and primary people that oversaw if the company’s financial reports were in line
with the proper and applicable reporting standards and if they were upholding ethics within the
company. However, in this case, such vital people were unable to fulfill their responsibilities
which resulted in the detriment of the company’s stakeholders. Moreover, they were the focal
reason for the said fraud, and accordingly, we believe that good governance was not correctly
implemented within the company for various reasons. The involved personnel, and
consequently the company as a whole, were not transparent about the pertinent information that
could have affected the stakeholders, especially the investors. The top management was
unprofessional as they used their authority to manipulate their financial records to maintain their
image as a company with a continuously growing profitability instead of honestly recording and
disclosing that the company’s value was falling and taking proper measures to improve their
situation. We believe that integrity and objectivity were not observed as they let themselves be
affected by selfishness which resulted in them setting aside the company’s good for the long
term and resulting in unethical practices.