Corporate GovernanceDr. Sandra Dow

01/18/2010

Presented by Renata Skersyte, Ashkin Merrikh, Lee Eisenberg and Rizayel Mukashev

CEO Bernard Ebbers CFO Scott Sullivan

Background

“Cook the Books”

Earnings Smoothing and Fraud

Complicity of the Auditors and Board of Directors

Pay to Lie

In 1984 Long Distance Discount Services (LDDS) taken over by Bernard Ebbers 1985 Ebbers becomes CEO 1989 company goes public

Growth Survival 60 acquisitions between 1995-2000

MCI $37 billion in 1997 No luck with Sprint in 2000

US Justice Department terminated the merger

Performance Revenue growth based No more acquisitions no more growth

Competition Revenues Expense-to-Revenue Ratio

Performance Measure Expense Revenue

Expenses moved to the capital expenditure

Versus Cash

Accrual Accounting Earned, not received

Ex. Construction Projection

WorldCom’s Accrual Release Estimated at time of report

Adjusted accrued to actual Began to assume over estimations

Capitalization of Line Item Expenses Leased telephone lines

Accrued Expense Posted as a capital Expense; allowed for

amortization

• Management forced employees to engage in bad accounting

• CFO grew hostile when an employee raised concerns

Board of directors and auditors have to maintain independence if they want to perform their duties properly

Complaints about possible malfeasance need to be heeded

- Continued illegal accounting transfers;

- was assured that it was legal

-Earned more than her husband;

-Promoted to Director;

-Salary raised to $80,000;

- Family Insurance Benefits

Betty Vinson