Professor Steve Jensen
September 22, 2015
WorldCom Case Analysis
According to the section 301.4 of Sarbanes-Oxley Act of 2002, each audit committee shall establish procedures for complaints regarding accounting, internal accounting control, and auditing matters, and the anonymous complaints regarding questionable accounting or auditing matters. However, in this case, the WorldCom Company did not have the procedures for anonymous complaints, so Cynthia Cooper decided to go over Sullivan’s head and reported her findings to the audit committee. This was a huge gamble for her and was risking her career. Section 406 of the Sarbanes-Oxley Act of 2002 requires the ...view middle of the document...
S. financial markets. Overall, the Sarbanes-Oxley Act plays a part in turning from disclosure to substantial control.
Section 301 of Sarbanes-Oxley Act requires to ensure the audit committee is conversant with the requirements of this section and establish procedures for "whistle blowers". According to Security Magazine, Providing whistleblower support is arguably the most important aspect of a whistleblower program, and doing so can greatly increase the number of individuals willing to report wrongdoings. It will be more effective that whistleblowing is regarded as a valuable contribution to the company’s ethical culture development. Moreover, an effective whistleblower process should be overseen by the board’s audit committee. Otherwise a whistleblower would be suppressed by middle managers. Also, anonymity protects a whistleblower from suffering fear, threat, and repercussions of reporting. The whistleblower program should also ensure and monitor the complaints from the whistleblowers are related to accounting, internal accounting control, and auditing matters. For Cynthia Cooper, she reported directly to WorldCom’s CFO, Sullivan, rather than the audit committee, and she was informed that there was no problem that internal audit should not be focused on this issue. She also received a similar reaction when she approached the external auditors. Cynthia suffered intimidation from her boss and was facing a crisis of a lifetime. If she had reported to the audit committee and the process had been anonymous, she might not have felt that much pressure and risk. Cynthia made backup copies of their files in response to fears that if their investigation was revealed, files might be destroyed. Gathering more evidence helped her make accurate judgement.
Even though whistleblowing is considering a valuable attribute towards the company’s ethical culture, it may cause some serious negative effects. In the WorldCom case, whistleblowing resulted in bankruptcy of the company, and thousands of employees lost their jobs, and stockholders lost their investments.
In the WorldCom case, the corporate office accounting team had taken $400 million out of...