Theobjectivepursued by thecompaniesin his actions, it is always the same:

provide consciously aimagehealthy ofthe company, different from the

real with the purpose of obtaining certain advantages. For this purpose, the members of the
highaddressthey manipulate itinformationaccounting and financial, commit frauds and others
crimesthey hide relevant information for themarketsofvalues, this is the case of a
giant of thecommunicationsWorldCom.

I. CASE DESCRIPTION

In the year 1983, the entrepreneur, owner of a chain of motels in Mississippi,

Bernard Ebbers started a new business in the telecommunications sector.
I was taking advantage of the opportunity that the company AT&T was splitting up into
smaller sectors. In this way, for almost 2 years he was acquiring small
companies in telecommunications to open a national network across the United States.
Starting in 1984 and 1994, it created LDDS (Long Distance Discount Service) which begins to

working in Mississippi. Years later, the company changes its name to WorldCom and
willing to gain more market share in the United States merges with
MCI company, and under the leadership of founder and CEO Mr. Ebbers.

After the merger, the company began to buy all the smaller chains.
telecommunications from all states. In this way, the company was able to increase its
participation and in a few years Bernard became one of the most influential people and
powerful in the telecommunications market. The company WorldCom became
valued at up to 180 billion dollars.

By June 1999, the company was already listed on the stock exchange in the United States.
entering with a share value of 64.5 dollars. These numbers were the indices that
they identified a new company as a large player in telecommunications.
But a peculiar event changed the history of the company and that of the founder and director.
executive Bernard Ebbers. In June 2002, the global stock market
decreased enormously after the dissemination of an accounting fraud issued by the company
WorldCom for a multimillion-dollar sum.
All of this indicated that the company WorldCom, one of the largest companies of all
The United States had "cooked" its books to have revenues of 3,800.
millions of dollars, something that their auditor Andersen had not indicated.

How was the fraud carried out?

Despite the rapid growth and its highto be ablein the market, the company finds itself involved in
a series of accusations for mismanagement of itsaccounting accountsin 2002 this
fraudgoes to thelightpublic. The Department of Justice and two congressional committees
they investigate the case. Bernard claims that he knew nothing about his actions.
managers and the moves and "made-up" financial statements. But the
investigations indicate that the main "brain" of the fraud was Bernard Ebbers. Seal.
with this the greatest accounting fraud of thehistoryof telecommunications.

After many investigations, the fraud is deciphered, a loss for its

shareholders in over 180 billion dollars, a bad expense account for more
of 4 billion dollars and an irregular account of more than 3 billion dollars.

The fundamental question was how Bernard Ebbers was able to achieve all this and why?
Well, research indicates that by 2000 the company was already emitting
debt, but it was not disclosed to the shareholders. By that year, the market of the
telecommunications was a very bad year, in the case of WorldCom as well, but the attempt
The company, in order to appear solvent, was led to carry out several fraudulent maneuvers.

In July 2002, the scandal broke out when it was revealed that the executives had
manipulated the accounts and reported losses for three years, during which they claimed to have
obtained benefits. During 2001 and the first quarter of 2002, the company reported
utilities of 1.4 billion dollars and 130 million respectively, distorting the
reality creating benefits much greater than the real ones.

The accounting fraud consisted of recording some expenses as capital investments.

corporate, delaying the impact on the income statement over time, which to
Although it did not affect the company's flow, it made it show profits instead of.
losses. Hiding a financial hole of 11 billion dollars by means of the
investment expense accounts.
WorldCom indicated that Sullivan recorded expenses as capital investments of USD 3,060.
millions in 2001 and USD 797 million in the first quarter of 2002, which inflated
artificially the company's cash flow, making it appear healthier than it
it really was. The accounting falsifications would have been ordered by Ebbers to
starting from 2000, coinciding with a crisis in the telecommunications sector linked to the
explosion of the Internet speculative bubble [1]WorldCom incurred costs
operational (mostly expenses associated with the use of outsourced network services)
that he mistakenly accounted as capital expenditures, which is completely
fraudulent since the payment for a service of renting local lines is clearly a
expense.

These expenses must be immediately recognized in the period in which they occur.
place, unlike capital expenditures which can legitimately be accounted for and
depreciated over their useful life. The misinterpretation of these expenses by
WorldCom originated an artificial inflation of its net income and gross profits.
(beneficios antes de intereses, impuestos, depreciación y amortización).

According to the investigations of the justice commission, which would later take the case, Scott
Sullivan was being pressured by the CEO, Bernard, to handle the
they count in a way that benefits them and that the actions continue to rise. Therefore,
Scott was taking actions to manipulate the accounts. Although in some cases he ...
they were able to recognize in 2002 some transfers between Bernard and Scott for about 3
one billion dollars approximately. In addition, Scott commented that Bernard
I pressured all areas to reach the goals and raise the stocks and present
good financial statements to its shareholders and Wall Street. Everything indicates that the shares
makeup were known by the CEO Bernard and Scott, also the
audits that were conducted by the company Andersen, a company involved in the
the WorldCom fraud case was also complicit in the great fraud.

WorldCom declared bankruptcy on July 21, 2002, after revealing that it had
manipulated the accounts and had incurred losses for three years, during which those who
had declared profits. The debt amounted to 41 billion dollars.
Specific accounting instruments used by the company:

Underreporting in the 'cost line' (expensesof interconnection with other companies of

telecommunications) by capitalizing thesecostsin the balance and not as an expense
appropriately.
Inflate the revenues with false accounting entries ofaccountsof income
unassigned corporates.
Supplies of False Financial Information (executives, board members of the
administration, auditors, analysts, regulators, investors or shareholders even
the ownmediathe accounting data of WorldCom during the
2001 and the first half of 2002 were manipulated and did not reflect the situation.
the company's reality, the question without a doubt is what happened to the organizations or

control institutions and the role they played, in this way the Auditor
Andersen ended up at the center of the scandal, thus ending years of
prestige.

How was the fraud discovered?

En el año 2002, un pequeño equipo de auditores internos de WorldCom, encabezados

by Cynthia Cooper, who usually had to work at night in secret, were
those who investigated and discovered 3.8 billion USD in fraud. Little
later, the company, the audit committee, and the board of directors were notified and
they acted quickly, dismissing Sullivan, Myers on his part resigned and Arthur
Andersen (audit firm) withdrew its audit opinion for the year
2001.
On June 25, 2002, WorldCom admits to inflating its profit figure by 3.8 billion.
millions of dollars, on June 26 of the same year the Security Commission and
The Securities Exchange presents charges of fraud against WorldCom and the 21.
July 2002 WorldCom, overwhelmed with a debt of 30 billion dollars,
files for bankruptcy, being the largest corporate bankruptcy case of
the story.

II. GENERAL PROBLEM

 The general problem is "Accounting Fraud" - Window dressing in the statements
financial, which is produced by the concealment of expenses and exaggeration of
gains from accounting maneuvers.
This mismanagement or accounting distortion perpetrated by the founder and director of the
company meant the inevitable bankruptcy of what was considered the second
major telecommunications company in the United States.

III. SECONDARY PROBLEMS

Damages caused to:

Forks ofBondsand Actions: With the collapse of WorldCom, the shareholders

they lost about 180 billion dollars. Additionally, it is important to emphasize
among the bondholders are pension funds,
it is estimated that the collapse of WorldCom caused losses of 1 billion
of dollars only to the public pension funds in the US.
2. Employees: Twenty thousand people were left withoutemploymentand the company is
declared bankruptcy.
3. Users: Given the business dimensions, Worldcom covered with 20
millions ofclients, being the second largest long-distance company.
4. North American publicly traded companies: One of the main
harms is the impact on the public credibility of companies
North Americans. Sectors of apparent solidity such asMcDonald'sor the chain
Wal-Mart's commercial suffered from investor desertion, but to a greater extent.
this happened in the telecommunications sector, both in the US
like abroad: Spanish Telefónica.

Lack of current applications: Accounting Laws or Standards

North American regulations governing corporate financial activities and that
protect the investment.
After the fraud of WorldCom and other companies like Enron, the United States
United and its congress started a series of applications to curb the wave.
of million-dollar frauds by American companies. For this reason, it
approves a law. The law of reform of accounting for public companies
and investor protection, which came into effect in July 2002.
 The Sarbanes-Oxley Act constitutes the most extensive reform, giving prosecutors
and the regulatory authorities new instruments to strengthen the
business direction, improve accountability and protect interests
of the employees and shareholders of the companies.

Non-existence of internal control: The magnitude of the problem could have been avoided.

with the existence of adequate control procedures.

IV. ACTIONS TO BE TAKEN BY AUDIT AND/OR INTERNAL CONTROL:

The telecommunications company WorldCom lacked an effective system of

internal control, so much so that to discover acts of fraud it was necessary that
the same vice president of WorldCom will lead a small team of
auditors who were supposed to work in secret and generally at night.
We must add to this the negligence committed by the auditing company.
Arthur Andersen acted in complicity with Bernard Ebbers.

In light of this, the need to take measures or control actions is evident.

internal and/or internal audit:

Strengthening human talent: Fostering a culture of commitment

and sense of belonging of the Human talent in organizations through
of the design and implementation of the Code of ethics and good governance, which
it must contain at least the principles and guidelines that should govern the actions of

an entity and be part of its organizational culture.

Planning: The plans and programs as the guiding thread of the

activities and results, commit the strategies of the
organization. One of the effective tools that it provides us with
constant measurement of the plans and programs of the organizations, without
The dashboard constitutes the framework, which provides in a manner
permanent progress in the development of activities as well as
strategies through indicators, which makes it timely: correct, measure,
 alert and propose actions directed at adjusting activities that in
some cases correspond to shock or alternative plans that
ensure the achievement of the goals and therefore the proposed objectives.

Processes and Procedures: It is important to have procedures

that allow to identify, foresee and correct risks. Manuals such as
control instrument establishes a relationship of obligation between the
individual and its environment, which leads to subjectivity and bad practices
disappear from the institutional agenda.

Organizational Policies: Compliance with regulations and

internal policies allow minimizing risks, therefore it is necessary that
every company has clear policies.

Information and Communication: The development of systems

information on collection and organization allows the
strengthening of institutional management, as it facilitates the flow of the
información, análisis estadístico, la atención del usuario, la ejecución de
processes, and the optimization of resources through platforms
robust.

Independent Evaluation and Audit: The internal control offices,

they occupy a designation at a high level in the organizational structures
hierarchical in a way that effectively contributes to improving control
internal within organizations.
The above implies that the existing regulations should be reviewed to
strengthen the audit groups, so that the functions and roles of
risk assessment, advice and support, evaluation and
monitoring, promoting the culture of self-control and relationships with
external organizations, are adopted in a more rigid manner and manage to have
a real presence in the organizational structure as well as in its
operations. The organization selects, develops, and carries out
continuous and/or separate evaluations to check if the components
the internal controls are present and functioning.

In this regard, the key is strong internal control mechanisms and

external. In general, external auditors conduct an audit
fiscal for the year in each company. But there are systematic problems (like
in the case of WorldCom the items that quarter after quarter were
erroneously assigned), which should have been detected by the
Auditors. Internal controls are more timely in many ways.

And as a way to provide support, investors must take into account that the
financial accounting figures are filled with estimates and judgments. The
the public should be somewhat skeptical, and should realize that
Certain judgments may be erroneous. Investors may have
too much faith in the figures of results.

Investors often take a company's annual report and believe

without a doubt in everything that appears in it. Consequently, to achieve
mitigating the risk should be:

1) Compare companies in the same industry and within the same sector.
For example, are the leasing conditions similar? Are they
provisions for similar debts? In the case of WorldCom,
could you compare the evolution of the capitalization of investments
and the expenses on investments between companies. However, it is still
quite difficult to detect fraud because companies do not provide
detailed information about the specific evolution of expenses and
capital investments.

Analyze the evolution of cash flow in relation to profits

calculated according the
to accounting principles generally
accepted." If there is a wide and growing divergence between these
figures, this is a warning signal that managers may
to be manipulating those figures.
A very useful warning sign that often manifests before these
situations is the existence of recent disagreements between the
company, its managers, and their professional consulting firms.
For example, has the auditing company changed recently or
 as legal counsel?, have senior executives recently left?
the company under suspicious circumstances?, Has it left
some senior executive due to possible disagreements about the
aggressive methods of accounting for sales figures?

V. CRITICAL COMMENT

In the developed case, it has been proven that to ensure good results
future for anyoneorganizationthe ethics of eachpersonand businesses must go
hand in hand and when this bond does not exist, then chaos or a
imbalance in the approach to everyday business dilemmas.
Upon thinking thatthe moraland ethics are being dissolved in the upper echelons, they
they trigger fraudulent acts, deceit, counterfeiting, scams, etc. that with
time can lead to the discovery of judicial problems and the
deterioration of the corporate image, in general, before the society.

Another critical point is that the lack of regulation of the markets

financial and the weakness of the controlling bodies constitute a
threat to theeconomyin general and reflects their volatility. Thus
we have seen that from the scandalous financial problems in the United States
The Sarbanes-Oxley Act was passed in the United States to prevent a loss of trust in
investors towards North American companies, ensuring that the company
reflect their real financial statements and assign responsibility to one person
responsible for signing the reports and ensuring to the auditing company that the
the information is truthful and complete.

One of the main lessons regarding decision-making of the

policiesthe company's goal is to ensure and certify its objectivity and independence,
removing any family ties that may interfere with them.
Through the WorldCom case, we can realize the inherent risk to
financial market, since despite the fact that the company's shares were
prosperous and apparently coming from a solvent company, the internal frauds
they can bankrupt investors who have not been able to decipher
time thesignalsof notice that the company could have issued
The organization suffers a significantcostas a result of the fraud, therefore
should be the main interested party in its prevention, so that
recommends the existence of an effective internal control mechanism based on
principles.