Cynthia Cooper and Worldcom (a)

Abstract

This case details the in-house discovery of WorldCom's fraudulent accounting practices and the ethical considerations employees faced during the investigation. In May 2002, Cynthia Cooper, vice president of internal audit for WorldCom, the second-largest telecommunications company in the United States, faced an extremely difficult decision. After months of sleuthing, initially not sure what they were seeking, she and two of her employees at the Clinton, Mississippi, WorldCom headquarters had discovered almost $4 billion in questionable accounting entries. The specter of the Enron collapse in the fall of 2001 still loomed large, and Cooper realized that the situation at WorldCom might even be a far greater financial debacle. If this fraud were revealed, much would be at stake: the company's credibility, the fate of thousands of employees, and pension funds loaded with WorldCom stock.

Excerpt

UVA-E-0279

Rev. Feb. 12, 2009

Cynthia Cooper and WorldCom (A)

In late May of 2002, Cynthia Cooper, the 38-year-old vice president of internal audit for WorldCom, the second-largest telecommunications company in the United States behind AT&T, faced an extremely difficult decision. After months of sleuthing, initially not sure what they were seeking, she and two of her employees at the Clinton, Mississippi, WorldCom headquarters had discovered almost $ 4 billion in questionable accounting entries. The specter of the Enron collapse in the fall of 2001 still loomed large, and Cooper realized that the situation at WorldCom might be an even greater financial debacle. Enron's case was complex: The company had devised a number of partnerships and specific entities to hide debt and create the illusion of income. At WorldCom, however, the fraudulent entries Cooper and her co-workers had discovered seemed pretty straightforward. If this fraud were revealed, much would be at stake: the company's credibility (never mind its very existence or that of its many subsidiaries), the fate of thousands of employees, and pension funds loaded with WorldCom stock. Cooper was loathe to bring about the downfall of WorldCom, the only Fortune 500 company in Mississippi and the pride of the state, as well as possibly to earn the title “whistleblower,” which she detested. Nonetheless, Cooper knew she had to do something; the apparent fraud they suspected they had uncovered was too large and glaring. The logical next step was to meet with the board's audit committee, but Cooper had to decide whether she wanted to take that step.

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Keywords: business ethics, ethical issues, stakeholder management, telecommunications, leadership, accounting, "tone at the top, " entrepreneurship, mergers and acquisitions