Accounting Fraud at Worldcom

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C. Should criminal charges have been brought against Betty Vinson? Why or why not?

Looking at Betty Vinson’s actions, she should have had criminal charges brought against her. In one incident, Myers told Schneberger to release $370 million in accruals. When Schneberger refused to make the entry or give Myers the account number, Vinson was the one to obtain the account number and have her subordinate create the entry. At the time, Vinson was a senior manager in General Accounting. In October 2000, Vinson was also asked to release $828 million of line accruals. Vinson was not comfortable with the request and argued that it was not “good accounting”. At one point, Vinson even planned on resigning. Sullivan, with his strong reputation, placated her through telling her that he was taking responsibility for the accounting decisions and their actions were legal. Vinson also made the entries to convert $771 million of line costs into capital expenditures. At the time, she knew the entries were also a poor accounting decision and misleading.

Vinson had already worked at WorldCom since 1996 and was a senior manager that was eventually promoted to Director. Since Vinson had worked at WorldCom for a number of years, she already had a strong understanding of WorldCom’s accounting system and how the accruals and line costs worked. The timing of the accruals’ releases and line costs not being expenditures are a basic principal she should have known with her experience at WorldCom. In addition, her position as senior manager and eventually director both imply a level of competency and understanding of accounting principals. While it can be argued that she was just following the commands of her bosses, her experience and personal seniority negates this. A very junior accountant could use this as a defense against criminal charges because of the little experience he or she has and the trust bestowed to his or her superiors. However, Vinson does not have this excuse. She knew better and could have acted very differently, but was complicit and supportive of the fraud at WorldCom. She should have had criminal charges brought against her.

D. How would you as employees react if ordered by your employer to do something you do not believe in or feel uncomfortable doing?

If we were ordered by our employers to do something that we do not feel comfortable doing, we would first consider all the facts and reflect on the situation first. There may very well be a legitimate reason why our superiors are telling us to do something and we feel uncomfortable just because we have not been experienced enough. We would do outside research and see if there is any precedent of such actions. If our research comes up with nothing, we would then talk to the people around us and other superiors to see if they have an opinion on the matter.

After we have gathered as much information as we can, we would assess our alternatives. Depending on the specific situation and who specifically is pressuring us to perform such action. If they are a low enough manager, we could go to the partners, or if they are partners, we could go directly to the ethics and compliance departments to report the superiors. If no one was helpful and no one would act in our favor, we could go public and whistle blow or resign in protest.

After assessing all of our alternatives, we would review the resources we have in our hand. Do we have a trusted colleague, a trusted superior, or a competent ethics and compliance department, internal audit department, or audit committee that can support us in scenarios like these? Are there rules set out in the firm such as a Code of Professional Conduct that will act in our favor? And lastly, do we have personal relationships that can support us. We would review all of our resources and see where we stand.

Lastly, we would evaluate the outcome. If we were to perform the action, what would be the consequence? If we were to resign or report it to the ethics and compliance helpline, what would be the consequence? If we deem that something is useless, such as the Audit Committee, it would probably not be the best scenario to report it to them because there may be adverse consequences.

Based on the above CARE model and the processes that we went through, we can make an informed decision on what to do and the outcomes that would occur.

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