Case study financial fraud of world com

Case study

ACCOUNTING fraud AT worldcom

PRESENTED BY-RAHUL TREHAN(140201104)LOUKIK HUILGOLKAR(140201070) OMKAR PATNE(140201089)MAYANK SITLANI(140201077)RIDHIMA JAIN(140201112)

TYPE OF ORGANIZATIONBecame a public company in 1989.OBJECTIVETo be number one stock on Wall street.STRUCTUREBecame complex due to mergers and acquisitions.CULTUREUnhealthy work environment for the employees.StrategyAfter mergers and acquisitions , they lacked a strategic sense.IndustryTelecommunicationCOMPANY OVERVIEW AND HISTORY3CASE SUMMARYMaintained E/R ratio at 42% to be No. 1 stock on Wall StreetIn 2000, during economic recession and after the dot com bubble collapse it overstated its pre-tax income by around $7 billion to maintain its E/R ratio by deliberate miscalculations throughaccrual releasesexpense capitalization Actual data to internal and outside auditors were not revealedIn March 2002, SEC made a surprise request for information.Cynthia coopers whistle blowingIt went bankrupt and its stock once valued at $180 bn , became nearly worthless4PROBLEMSORGANISATION STRUCTUREBoard Of Directors conducting meetings 5-6 times an year and no exercise of power by them.Incorrect flow of authority(division of work but no delegation of power).Legal system ineffectiveCompensation granted beyond approved guidelines.Audit committee members were not sufficiently familiar and involved with companies internal financial workings.Incompatible financial systems of acquired companies.PROBLEMS ETHICSMisrepresentation, concealment and tampering of facts by senior executives.Pressuring employees to manipulate accountsEmployees who played along were rewarded ; others were threatened.Providing false information to the Board of directors and the outside auditorEbbers financed other unrelated businesses by loans secured by his personal Worldcom stock.6PROBLEMSORGANISATION CULTUREThere were no written policies and norms that were to be followed.Hodgepodge of departments , people and culture.Senior officials exercised undue power(followed the boss is always right policy).SUGGESTIONSEthicsThe top management should send clear and pragmatic messages that good ethics is a basis of good business.To avoid problems like misrepresentation and concealment of facts there should be-a control mechanism itself which undergo surprise audit.It is done to make sure that internal audit and control are functioning as well.Healthy skepticism should be encouraged in the work environment.

SUGGESTIONSCULTUREThere should be proper written set of policies and norms for the employees to maintain a proper working culture. A feedback mechanism should be employed to keep the employees satisfied and motivated.

SUGGESTIONSSTRUCTUREThe BoD should conduct regular meetings and be more connected with the organization.The system should be transparent to earn the confidence and loyalty of employees.There should be a presence of well structured legal system.There should be a uniform system of operations in the organizations.THANK YOU