This company had improperly accounted for more than $3.8 billion of expenses. The fraud started as a one-time adjustment for an unusually high line expense that was believed to correct itself in later terms. The accounting department managers of WorldCom closed the books and saw this dramatic increase of expenses compared to its decrease in revenue and reported this to the CFO. The CFO decided to make adjustments to the financial statements to better meet expectations from Wall Street. These fraudulent entries were explained as asset impairment charges. Recognized as an inappropriate capitalization of the company’s expenses.

The companies internal audit methodologies were not rigorous enough to detect this type of fraud. Collusion with top management at WorldCom helped conceal these improper accounting practices. To prevent questions about the financial statements executives continued to post closing entries to match its quarterly goals. The company’s financial ratios did not draw any red flags and were in line with the external auditors and Wall Streets expectation. Thus proving we cannot rely on the internal auditing methodologies to report or even detect fraud.

     The company’s executives used employees to conceal the fraudulent accounting entries. The executives and external auditors had a technique which used red, yellow, and green light to determine the abilities of the companies internal auditing department. Each time this company would pass the test and continue to hide their fraudulent activities. In order for this company to become exposed, there must be a whistleblower that reports the illegal entries along with everyone involved. Internal auditing was able to detect this fraud because of a tip from the president of the revenue department about strange behavior. They then reviewed the entries and began to ask the individuals involved from bottom-up to the controller who confessed about the improper accounting entries he was asked to post.

Whistleblowers are those who decide to expose misconduct, alleged dishonesty or illegal activity within an organization. There are millions of businesses all trying to win it all. There was a sense of short-term gains in the 1990s. Executives were granted stock options and could exercise them once the stock price increases. This caused executives of the company to feel pressured to meet expectations. If the company does not meet the expectations of Wall Street their stock will decrease, lowering the value of these options.

     Many employees that are influenced to participate in the illegal activity are responsible for the fraud. This could range from posting transactions and everyone in the line of command up to the CFO, in the case of WorldCom. If their actions are exposed these people could face jail time and lose their earnings that support their families. Although these employees did help in committing fraud they must have felt trapped and became angry at each other but punish the whistleblower.

I could be a whistleblower depending on the severity of the crime committed. I would report illegal activity if I had the opportunity to expose a fraudulent accounting practice or a company gaining an unfair advantage. For someone to withstand the pressure of exposing the company must be a strong individual and have a high level of moral. That is the individual must be concerned with the ethical principles of right and wrong behavior. The effects of this illegal activity on each stakeholder involved must be considered.