The Story of the Telecom Giant WorldCom Came to a Sad

question 18

Essay

The story of the telecom giant WorldCom came to a sad turn in 2002 as the firm filed for bankruptcy, with some of the managers facing criminal charges for fraud. In 2000 a severe slump in the telecom business led to pressures within WorldCom to reduce expenses and improve the financial statements to meet investor expectations. On orders from top managers, accountants within the firm created fraudulent financial statements, ultimately resulting in an $11 billion fraud. The fraud was detected as a result of an inquiry by the SEC, which led an internal auditor within WorldCom to start an investigation that uncovered the fraud in 2002. The successor firm, MCI (which had previously merged with WorldCom and is, since 2006, a part of Verizon), under the leadership of new top management, formed the office of chief ethics officer who had the responsibility for MCI's policy of training all MCI's U.S.-based employees, an ethics hotline, an ethics pledge signed by the firm's top 100 executives, and a company code of ethics, among other responsibilities.
Required:
What should be the role of an ethics officer? To whom should the ethics officer report within the organization? Do you think MCI had a good plan for ensuring ethical behavior within the firm? How would you change the MCI ethics policy, if at all?

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Definitions:

Bank Reconciliation

The process of ensuring that a company’s bank account balance matches its financial records, identifying discrepancies and making adjustments as necessary.

Internal Controls

Systems and steps a corporation takes to verify the accuracy of financial and accounting reports, encourage responsible behavior, and stop dishonest practices.

Journal

A record where all financial transactions are entered in chronological order, serving as the initial place of recording.

Error Indicating

A term that refers to signals or signs that there are mistakes within a system or process.