New York (June 26, 2002) -- The audit committee of troubled communications carrier WorldCom Inc. has uncovered what may be the largest accounting fraud in U.S. history, discovering the company had improperly booked some $3.8 billion in expenses as capital expenditures.
The improper booking subsequently raised the company’s cash flow -- a key indicator on fiscal health -- as well as profit for past five quarters.
WorldCom reported a profit of $1.4 billion for 2001 and $130 million for the first quarter of 2002. However, without the expenses being booked as capital expenditures, the company would have posted a loss for 2001 and also for the opening quarter of 2002.
Mississippi-based WorldCom yesterday fired its chief financial officer, Scott Sullivan; and David Myers, a senior vice president and controller, resigned.
The company said it would also restate its past five quarters and plans to cut 17,000 jobs.
WorldCom said the irregularity was picked up during a routine internal audit, which was conducted following the ouster of former chief executive Bernie Ebbers, in April. WorldCom said the matter was turned over to the company's internal audit committee and newly hired external auditor KPMG, which had replaced former auditor Andersen.
KPMG subsequently notified the SEC, which had already been investigating WorldCom.
In a statement Andersen said, "Our work for WorldCom complied with SEC and professional standards at all times. It is of great concern that important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom. The WorldCom CFO did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment."
--Electronic Accountant Newswire staff
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