Auditor Uncover Fraud At WorldCom. The label of whistleblower is not flattering, Cynthia Cooper told accounting students Monday at Mississippi State University.
Cooper, the internal auditor credited with uncovering $3.85 billion of fraud at WorldCom, said whistleblowers often lose their jobs, their families and even face bankruptcy.
Cooper said she wasn’t ostracized by people at WorldCom when she uncovered the company had listed line costs as a capital expense instead of an operating expense to make it look profitable when it was actually losing money.
“There is an invisible line, and when you step over it you will be labeled a whistleblower,” she told several hundred accounting students who packed the Swalm Chemical Engineering Building auditorium.
Personal integrity should be the driving force in making the right moral decisions, said Cooper, vice president of internal audit at MCI the company’s new name.
“Strive to be persons of honor and integrity,” she said. “Do not allow yourself to be pressured … Do what you know is right even if there may be a price to be paid.”
While Cooper didn’t face repercussions from the company, revealing the fraud hasn’t come without personal challenges or costs to WorldCom.
guilty to accounting fraud
Cooper’s revelation forced WorldCom, which was based in Clinton at the time, into bankruptcy. Four former employees have pleaded guilty to accounting fraud and former chief financial officer Scott Sullivan faces a February trial for numerous counts of fraud in the accounting scandal that has since grown to $11 billion.
The fallout didn’t end there.
“Thousands of our co-workers were laid off,” Cooper said. “There are 55,000 honest, hard-working employees that were affected because of the actions of a few.”
Most accounting functions that were performed in Clinton have been moved elsewhere, Cooper said.
The state of Oklahoma has also brought criminal charges of securities fraud against former Chief Executive Officer Bernie Ebbers, Sullivan, David Myers, Buford Yates, Betty Vinson and Troy Norman as well as the company.
Cooper said the recently enacted Sarbanes-Oxley act now protects people who are considered whistleblowers.
“It was added after the WorldCom debacle,” said Cooper, who along with Sharron Watkins, a former vice president at Enron and FBI agent Coleen Rowley were named Time magazine’s People of the Year for 2002.
Rowley wrote a memorandum saying information about Zacarias Moussaoui was ignored before the 9-11 terrorist attacks and Watkins exposed extensive false accounting at Enron, the energy trading company now in bankruptcy.
Sophomore accounting student Tanisha Jones of Magee found Cooper’s first-hand experience helpful.
“You have to think about what is right,” Jones said. “A lot of people are going to face problems at their jobs and it was important to have someone who has been there to tell us what they’ve been through.”
That was the reason Danny P. Hollingsworth, director of the school of accountancy, wanted Cooper, who received her bachelor’s degree in accountancy from MSU in 1986, and Glyn Smith, an audit manager in MCI’s Internal Audit Department, to speak to the group.
“It is extremely important to constantly remind the students of their responsibilities,” he said.
Hong Zhang, a graduate student from China, said she worked on a project in her fraud examination class that studied WorldCom.
“It is very important for there to be internal auditing,” she said. “Every big company must have internal audits.”
Cooper said the problems major corporations have had during the past two years are bringing about changes to help deter future problems.
Among areas of concern Cooper said, are the irrational exuberance of companies and passive boards of directors, which lead to an inadequate balance of power.
“Boards can’t just rubber stamp what executives want,” she said.
Other areas that need to be addressed are excessive executive compensation and loans to executives. Ebbers received a loan of more than $400 million from WorldCom. The board approved it so he wouldn’t sell shares of stock to pay debts backed by the stock.
“A public company cannot and should not be piggy banks to executives,” Cooper said.
While the internal controls are owned by the management of the company, Cooper said collusion by executives at the highest level can go undetected.
She is encouraging companies to have training on ethics and internal controls policies. Also, internal audit departments should have increased authority, be independent and be given the resources to do their jobs, Cooper said.
“And the internal auditor should report to the CEO not the CFO,” she said. “Many, including myself, reported to the CFO.”
Smith told the students that often people make decisions based on what they are told to do, because they are afraid they may lose their jobs.
“Mid-level managers are now in trouble all across the nation because of the decisions they made because their bosses, or the boss’ boss is saying it’s OK,” Smith said. “Right now you are making decisions that will affect the choices you make when you get into corporate America.
“On a daily basis you should practice decision making,” Smith told the students.