The accounting fraud at WorldCom Inc. is likely to reach approximately $11 billion as the company’s auditors and investigators continue to pore over financial statements that already detail the biggest case of accounting fraud in U.S. history, according to people familiar with the situation told The Wall Street Journal.
The exact amount of the fraud hasn’t yet been determined because the company doesn’t expect the investigation to be completed until the summer. The actual losses WorldCom will have to restate could be smaller if they are offset by tax credits or other factors.
Already, WorldCom has said it expects the fraud to exceed $9 billion. “We won’t have the restatement process complete until this summer,” said WorldCom spokesman Brad Burns. “At this point, it is not possible to know what the final number will be.”
WorldCom filed for Chapter 11 bankruptcy protection in July after acknowledging an initial $3.7 billion fraud. The bulk of the fraud so far involved booking billions of expenses in line costs, the fees that telephone companies pay to use local landline networks, as capital expenditures instead of operating expenses, thereby boosting profits. WorldCom also boosted revenue with so-called cookie-jar accounting in which it used reserves for bad accounts.