Accounting Fraud at WorldCom By Robert S. Kaplan; David Kiron


Subjects Covered:

Accounting policies; Accounting procedures; Auditing; Bankruptcy; Board of directors; Business ethics; Corporate governance; Financial accounting; Financial statements; Fraud; Leadership; Organizational behavior; Organizational culture



The principal players in WorldCom’s accounting fraud included CFO Scott Sullivan, the General Accounting and Internal Audit departments, external auditor Arthur Andersen, and the board of directors. The case provides sufficient detail to allow for a full discussion of the pressures that lead executives and managers to “cook the books,” the boundary between earnings smoothing or management and fraudulent reporting, the role for internal control systems and internal audit to prevent or rapidly detect accounting fraud, the expectations about governance processes performed by external auditors and the board of directors, and the pressure and consequences when middle managers follow orders that they know are wrong. Written from the public record, the case contains numerous quotes from an individual involved in the WorldCom fraud that were reported by the Investigative Committee and Wall Street Journal articles about several of the individuals caught up in the situation.

Learning objective:

To analyze how the largest accounting fraud in history was perpetrated and what processes, structures, and organization culture could prevent frauds from occurring in other organizations.


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