Table of Contents
1.0 Executive Summary 2
2.0 Statement of the Problem 5
3.0 Causes of the Problem 7
4.0 Decision Criteria and Alternative Solutions 10
5.0 Recommended Solution, Implementation and Justification 11
6.0 External Sources 14

1.0 Executive Summary
WorldCom’s origin can be traced to the 1983 breakup of AT&T. Small, regional companies could now gain acces to AT&T’s long distance handphone lines at deeply discounted rates. The companies turn to Bernard J (Bernei) Ebbers, one of its original nine investors, to run things. Ebbers had previously been employed as a milkman, bartender, bar bouncer, car salesman, truck driver, garment factory foreman, high school basketball coach, and hotelier. Eventhough he is lacked technology experience. In 1996, WorldCom entered the local service market by purchasing MFS Communications Company, Inc., for $12.4 billion. MFS’s subsidiary, UUNET, gave WorldCom a substantial international presence and a large ownership stake in the world’s Internet backbone.
The figure below is the executive summary of WorldCom:-

In this case, the pressure of the business condition drives the BOD of WorldCom to do unethical action. The person involve in this cases are Bernard J. (Bernie) Ebbers and Scott Sullivan. The major problem that WorldCom has face is Industry conditions began to deteriorate in 2000 due to heightened competition, overcapacity, and the reduced demand for telecommunications services at the onset of the economic recession and the aftermath of the dot-com bubble collapse. Failing telecommunications companies and new entrants were drastically reducing their prices, and WorldCom was forced to match. The competitive situation put severe pressure on WorldCom’s most important performance indicator, the E/R ratio (line-cost expenditures to revenues), closely monitored by analysts and industry observers. WorldCom’s E/R ratio was about 42% in the first quarter of 2000, and the company struggled to maintain this percentage in subsequent quarters while facing revenue and pricing pressures and its high committed line costs. As business operations continued to decline, however, CFO Sullivan decided to use accounting entries to achieve targeted performance. Sullivan and his staff used two main accounting tactics: accrual releases in 1999 and 2000, and capitalization of line costs in 2001 and 2002. Meanwhile, Ebbers was doing the wrong thing by managing several unrelated business. His financed the acquisitions of many of these businesses by commercial bank loans secured by his personal WorldCom stock. When WorldCom stock began to decline in 2000, Ebbers received margin calls from his bankers. In September 2000, the compensation committee began, at Ebbers’s request, to approve loans and guarantees from WorldCom so that Ebbers would not have to sell his stock to meet the margin calls. The person should be able to follow the ethic on the business and never do unethical behavior just to follow the needs of top management and be able to handle this issue. The person becomes victim to make unethical behavior such as, altering, changing the financial data or evidence should be reacting accordingly to handle this issue. The victim should be able justify whether he or she being ethical or not. They can choose to quit from taking irresponsible reaction or become whistle blower to reveal this scandal.

2.0 Statement of the Problem i. Unhealthy corporate culture
All head quarter for every department are located at different and different location. While their company’s senior lawyers was located in Jackson. All departments had their own role and management style. They also have no written policies. In the same time, WorldCom encouraged a systematic attitude conveyed from the top down management. Ebbers and Sullivan always granted compensation beyond the company’s approved salary and bonus. The employees are unable to speak out about company policies or behavior. ii. Pressure to retain: Expense to Revenue Ratio
For the long term, WorldCom has entered the into the fixed rate leases for network capacity in order to meet the participated increase in customer demand. The leases contained punitive termination provisions. Even if capacity were underutilized, WorldCom could avoid lease payments only by paying hefty termination fees. Thus, if customer traffic failed to meet expectations, WorldCom would pay for line capacity that it was not using. Industry conditions began to deteriorate in 2000. The competitive situation put severe pressure on WorldCom’s most important performance indicator, the E/R ratio (line-cost expenditures to revenues), closely monitored by analysts and industry observers. WorldCom’s E/R ratio was about 42% in the first quarter of 2000, and the company struggled to maintain this percentage in subsequent quarters while facing revenue and pricing pressures and its high committed line costs. Ebbers made a personal, emotional speech to senior staff about how he and other directors would lose everything if the company did not improve its performance. Because of that, Sullivan was decided to use accounting entries to achieve targeted performance which they used the accrual release in 1999 and capitalization of line in 2001 and 2002. iii. Internal Audit not fully competence
Cynthia Cooper was the super senior Auditor in WorldCom which is since 1998. She conducted primarily operational audits to measure business unit performance and enforces spending controls. The main problem in this point is that on August 2001, Sullivan has instructed Myers to restrict the scope of Cooper’s inquiry. In the same time, Cooper easily gives up when Sullivan forbid her to reveal the fraud. iv. External Auditor: Arthur Anderson
Arthur Anderson is an external auditor to the WorldCom. He considered WorldCom to be its “flagship” and most “highly coveted” client, the firm’s “Crown Jewel.”. Andersen viewed its relationship with WorldCom as long term and wanted to be considered as a committed member of WorldCom’s team. As WorldCom’s operations expanded through mergers and increased scope of services, Andersen adopted more efficient and sophisticated audit procedures, based on analytic reviews and risk assessments. The auditors focused on identifying risks and assessing whether the client company had adequate controls in place to mitigate those risks. He never considered WorldCom as high-risk client. He just accepts the limitation of access when doing auditing this company.

3.0 Causes of the Problem i. Unhealthy corporate culture
All head quarter for every department are located at different and different location. Which is their Finance Department is located at the Mississippi, Network Operation at Texas, Human Resources Department in Florida and Legal Department was located in Washington, D.C. ii. Pressure to retain: Expense to Revenue Ratio
Throughout 1999 and 2000, Sullivan told staff to release accruals that he claimed were too high relative to future cash payments. Sullivan apparently told several business unit managers that the MCI merger had created a substantial amount of such over accruals. Sullivan directed David Myers (controller) to deal with any resistance from senior managers to the accrual releases. The action that they have done is Myers asked David Schneeman, acting CFO of UUNET, to release line accruals for his business unit. He also asked Timothy Schneberger, director of international fixed costs, to $370 million in accruals. In 2000, General Accounting released $281 million against line costs from accruals in the tax department’s accounts, an entry that the tax group did not learn about until 2001. The other accounting tactics that they used which is the expense is capitalizing as capital expenditure. He had his staff identify the costs of excess network capacity. , since the contracted excess capacity gave the company an opportunity to enter the market quickly at some future time when demand was stronger than current levels. In April 2001, however, Sullivan decided to stop recognizing expenses for unused network capacity. He directed Myers and Yates to order managers in the company’s general accounting department to capitalize $771 million of non-revenue-generating line expenses into an asset account, “construction in progress.” The accounting managers were subsequently told to reverse $227 million of the capitalized amount and to make a $227 million accrual release from ocean-cable liability. In General Accounting Department, Vinson and Troy Nomad receive order from their boss, Yates to release $828 million of line accruals into the income statement. From the beginning, they refuse to comply order from Yates and they also want to resign. But after Sullivan persuaded them, they change their mind to follow Yates order. iii. Internal Audit not fully competence
In August 2001, Cooper began a routine operational audit of WorldCom’s capital expenditures. Sullivan instructed Myers to restrict the scope of Cooper’s inquiry. Insufficient evident went Cooper want explanation about the capital expenditure of $2.3 billion. In March 2002, the head of the wireless business unit complained to Cooper about a $400 million in his business for expected future cash payments and bad-debt expenses that had been transferred away to pump up company earnings. In the same time, Cooper asked one of the Andersen auditors to explain the transfer, but he refused, telling her that he took orders only from Sullivan. When Cooper want to revile the fraud of the WorldCom, then Suvillan step in to stop Cooper. Also in March 2002, SEC investigators sent WorldCom a surprise “request for information.” The SEC wanted to examine company data to learn how WorldCom could be profitable while other telecom companies were reporting large losses. Because of that, Cooper decided to, to expand Internal Audit’s scope by a financial audit. iv. External Auditor: Arthur Andersen
Andersen roles are identifying risk and accessing whether the client company had adequate control in place to mitigate those risk and also assessed the risk that expenditures for payroll, spare parts, movable parts, and capital projects. It did not perform comparable tests for the international line-cost group even after WorldCom employees told Andersen’s U.K. audit team about a corporate reversal of $34 million in line-cost accruals after the first quarter of 2000. Between 1999 and 2001, Andersen’s risk management software program rated WorldCom as a “high-risk” client for committing fraud, a conclusion that its auditors upgraded to “maximum risk” but the Andersen audit team for WorldCom did not modify its analytic audit approach and continued to audit WorldCom as a “moderate-risk” client. Management’s ability to continue to meet aggressive revenue growth targets, and maintain a 42% line cost expense-to-revenue ratio, should have raised questions. Instead of wondering how this could be, Andersen appeared to have been comforted by the absence of variances. Indeed, this absence led Andersen to conclude that no follow-up work was required

4.0 Decision Criteria and Alternative Solutions
Decision criteria can be identifying to provide guidelines to evaluate alternative solution to handle these issues that consist of: time of implementation, tangible cost, acceptability to management. When employees are received order from top management to do the unethical behavior or fraud, the employees should not take immediately decision without take count pros and cons. The employees should allocate amount of time to evaluate whether to receive or against of top management. After that, the employees should confront the top management on what is their decision. Next criteria are employee should consider possible tangible cost of the decision taken by the employee, whether to receive or against the order. Whether the employees received the order or against the top management to make unethical behavior (fraud), the employee should estimate the future income against future loss. If the employees against the top management orders to make fraud, the employees should consider the acceptability of management, the employee should give an advice to the company to not to make an unethical behavior on business conduct by telling the pro and cons of the action toward the business. If the management still refused to accept their advice, the employee should give time to the top management to think carefully about their action. In the time given, if the top management still refused, the employee should take the other course of action.

5.0 Recommended Solution, Implementation and Justification The employees should know the steps to resolve any dilemmas that confront with the ethical value when they feel inconvenienced of doing something that ordered by their employer. Besides that, employees should be aware and follow up with the enforcement of rules and regulations.
Employees should consider the future assured action in confronting with an ethical dilemma is by abiding with the code of ethics as a form of guidelines. Even in the WorldCom case however, there were no in written policies for the management practices and rules itself yet the code of ethics. Therefore, employees in WorldCom had no formal guidance to lead them to an ethical decision in abiding or disobeying their superior such as Sullivan, Myers and Yates. As a fact, The IFAC’s Code of Ethics (2006) is developed eventually after the WorldCom corporate scandal in order to provide clear guidelines on how a professional accountant should comply with the following principles: integrity, objectivity, professional competence and due care, confidentiality and professional behavior. Plus, employees should make an ethical decision which entails what is right and what is wrong in making a decision as the one in which there are a right (ethical) choice and a wrong (unethical or illegal) choice. When a person makes a decision that’s unmistakably unethical or illegal, then person committed an ethical lapse. For example, Betty Vinson had an ethical lapse or dilemma when she caved in to her superior’s pressure to make the fraud in the WorldCom books. Apart from that, the employees may determine themselves with the alternative actions that are available to them in that situation. After that, they should weigh up the benefits and costs of the alternatives to themselves as well as to others who might be affected by the action taken. The alternatives that produce the greatest benefits then should be chosen. Taking Betty Vinson as an example in which she should not only consider about her personal matters besides the company’s sake, but she also should consider the consequences towards the company’s shareholders and stakeholders before performing the fraud. The steps as listed below indicate how employees can avoid ethical dilemma by making a better ethical decision: i. Is the action is illegal ii. Is it unfair to other parties iii. If I take it, what I feel about it iv. Will I be ashamed to tell my family members, co-workers v. Will I be embarrassed with if my action is written up in the local newspaper?
Whereas, employees may use whistle-blowing as a legitimate channel to expose the misconduct, alleged dishonest or illegal activity occurring in an organization. The alleged misconduct may be assigned to various ways. For example, a violation of a law, rule, regulation and a direct threat to public interest such fraud, health and safety violation and corruption. Whistle blowers may make their allegations internally (to other people within the organization) or externally (to regulators, law enforcement agencies, to the media or to groups concerned with the issues). For example, from what we can see in the WorldCom corporate scandal, the misdeeds of Betty Vinson and her accomplices at WorldCom didn’t go undetected. They caught the eye of Cynthia Cooper, the company’s director of internal auditing who could have looked the other way, but instead she summoned up the courage to be a whistle-blower or an individual who exposes illegal or unethical behavior in an organization. The following describes the involvement of authorities to enforcements whistle-blowing in order to safeguard employee’s interest and information.

i. Securities Exchange Committee (SEC)
The SEC Office of the whistle-blower was formed as part of the Dodd-Frank
Act. They help handle whistle-blower tips and complaints, and provide guidance to the Enforcement Division staff. They will help the committee to determine the size of awards for each whistle-blower. Further, SEC assists whistle-blowers by promoting the program, providing guidance and answering questions about the program ii. Wall Street
Securities whistle-blowers are provided incentives and protection by the Dodd Frank Wall Street Reform and Consumer Protection Act (2010).The SEC Office of the Whistle-blower offers whistle-blowers significant incentives and increases protection for whistle-blowers in the SEC whistle-blower program. This legislation authorizes the SEC to reward those who provide information concerning violations of the federal securities laws at companies that are required to report to the SEC. Further, the Dodd-Frank Act strengthens the whistle-blower protection provisions of the False Claims Act, and contains one of the strongest confidentiality provisions for whistle-blowers ever enacted. For the first time, whistle-blowers will be permitted to initially report fraud anonymously by filing a claim through an attorney. Additionally, the law prohibits employers from retaliating against whistleblowers. Employers may not pull the trigger, demote, suspend, threaten, harass, or discriminate against a whistle-blower. The Dodd-Frank Act expands The reach of whistle-blower protections provided under the Sarbanes-Oxley Act of 2002 to include employees of public companies as well as employees of its private subsidiaries and affiliates. Whistle-blowers who suffer from employment retaliation may sue for reinstatement, back pay, and any other damages incurred.
6.0 External Sources

James Pinkson, E. a. (August, 2010).). Securities litigation & Regulation: Fuel to the fire : Whistle-blower incentives in the Dodd-Frank Act. Publication of Thomson Reuters: Westlaw Journal.
Kaplan, R. S., & Kiron, D. (September 14,2007). Accounting Fraud at WorldCom. HARVARD|BUSINESS|SCHOOL, 071-104.
THE ASSOCIATED PRESS. (August 6, 2005). Ex-WorldCom Accountant Gets Prison Term. New York: The New York Times.
Velasquez, M. G. (2012). chapter 1: basic principles ethics in business,. In B. E. Edition, Business Ethics: Concepts and Cases 7th Edition (pp. 56-61). A Pearson publication.