What are the names of the two members of the internal audit staff who worked with Cynthia on their secret investigation? Gene Morse and Glyn Smith What made the internal auditors think that possibly there was a need to investigate WorldCom’s accounting? The internal auditors thought that there may be a need to investigate with WorldCom’s accounting stemmed from an unjustified $400M reserve reversal which bumped revenue. When the inquiry was made as to the justification for this reversal, Anderson provided no explanation except that it was “fine”. Cooper was then received a hostile response from the CFO when she further questioned it.
This one-sided hostility caused Cooper to become suspicious. Which CPA firm was the external auditor of WorldCom? Arthur Anderson was the external auditor of WorldCom.  At the time Cynthia Cooper discovered the accounting fraud, WorldCom did not have a whistleblower hotline process in place. Instead, Cynthia took on significant risks when she went over Scott Sullivan’s head and notified the Chairman of the Audit Committee of her findings. Conduct an Internet search to locate a copy of the Sarbanes? Oxley Act of 2002. Summarize the requirements of Section 301. 4 of the Act.
WorldCom Notes Essay Example
In summary, Section 301. 4 of the Act requires an audit committee to establish a method for individuals to anonymously submit their complaints or concerns, and a process with which to handle them. Specifically, the Act states that (A) each audit committee shall establish procedures for the receipt, retention and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and (B) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.
 Use the Internet to conduct research related to whistleblower processes. Discuss the key characteristics for the operation of an effective corporate whistleblower hotline. Be sure to highlight potential pitfalls that should be avoided. After online research, key characteristics for the operation of an effective corporate whistleblower hotline identified include: -Independence: The whistleblower operator should be an independent party from the organization. -Multiple Access Platforms – There should be multiple ways for individuals to report their claims so that they can easily submit claims.
-Availability – Many hotlines are available 24/7 to allow for users to submit claims when they feel able or become aware. Many employees would likely call outside regular business hours. -Top-level commitment – Executive management should encourage use of the hotline to provide assurance to employees that it is encouraged to report fraud. -Reporting and monitoring – Claims submitted should be investigated in a timely fashion -Anonymity – The hotline should allow for anonymous reporting which encourages individuals to report issues when they know they will not be targeted.
Pitfalls to be avoided include not employing any of the above characteristics. For example, management should avoid scrutinizing the use of the hotline so as to not make employees feel disloyal using it. All reports should be followed up on to the reporter’s satisfaction to ensure that employees feel their submitted claims are taken seriously.  As Vice President of Internal Audit, Cynthia Cooper reported directly to WorldCom’s CFO. She did not report directly to the Chairman of the Audit Committee.
What do the professional standards of the Institute of Internal Auditors to recommend for the organizational reporting line of authority that will best facilitate an effective internal audit function within an organization? Professional standards of the IIA advocates a dual reporting relationship for the Chief Audit Executive to both the Audit Committee (or it’s Chair) and members of senior executive management.  Often the life of a whistleblower involves tremendous ridicule and scrutiny from others, despite doing the “right thing.
” Describe your views as to why whistleblowers face tremendous obstacles as a result of bringing the inappropriate actions of others to light. Some reasons why whistleblowers face obstacles as a result of bringing the inappropriate actions of others to light may include: oErrors identified may increase the level of work others must perform to ensure no errors go undetected. This increase in work may not be appreciated. oEmployees may feel that the whistleblower has shamed the Company and indirectly their own reputation.
oSignificant frauds such as WorldCom can result in significant layoffs. oThe whistleblower may appear to be disloyal to the Company.  Assume that a close family member came to you with information about a potential fraud at his or her employer. Prepare a summary of the advice you would offer as he or she ponders whether he or she will disclose the information. If a close family member came to me with information about a potential fraud at his or her employer, I would provide the following advice as he or she considers disclosing the information: oMake sure you have all the facts
oCommunicate via whistle blower hotline – not the accused oMake sure your complaint is clear and understandable oDo not discuss at work  After the fraud was disclosed, what were the consequences for the CEO and the CFO? Did other accountants within WorldCom face legal consequences from the Justice Department or the SEC? The CEO and the CFO were asked to resign, or otherwise fired, from WorldCom upon the disclosure of the fraud. Scott Sullivan, CFO, was sentenced to 5 years in prison. Bernie Ebbers, CEO, was sentenced to 25 years.
Also, Buford Yates, General Director of Accounting, was sentenced to one year in prison and $5K fine. Lastly, as mentioned in class, approximately 50 people were fined and had their CPA license revoked.  After the fraud was disclosed, what were the consequences for the external auditor of WorldCom? Was there a trial? Yes, there was a civil trial filed by the investors of WorldCom against Anderson for not detecting the fraud. Anderson later agreed to a settlement of $65M.  What is Cynthia Cooper doing today? Today, Cynthia Cooper is a guest speaker discussing her experience and kn