Concept and a Company 3.4 Accountant Falsifies Accounts for Bosses at WorldCom Concept Ethics and the employed accountant - caving in to pressure from your bosses Story On October 10, 2002 the US attorney's office announced that Betty Vinson, former Director of Management Reporting at WorldCom, had pleaded guilty to two criminal counts of 101 APTER 3 ETHICS FOR PROFESSIONAL ACCOUNTANTS ccountant Falsifies Accounts for Bosses at World Com (continued) conspiracy and securities fraud, charges that carry a maximum sentence of 15 years in prison. One year later, October 10, 2003, she was charged with breaking Oklahoma securities laws by entering false information on company documents a charge that potentially carries a ten-year prison sentence. (English 2003) Over the course of six quarters Vinson made illegal entries to bolster WorldCom's profits at the request of her superiors. Each time she worried. Each time she hoped it was the last time. At the end of 18 months she had helped falsify at least $3.7 billion in profits. (Lacter 2003) In 1996, Ms. Vinson got a job in the international accounting division at WorldCom making $50,000 a year. Ms. Vinson developed a reputation for being hardworking and diligent. Within two years Ms. Vinson was promoted to be a senior manager in World Com's corporate accounting division where she helped compile quarterly results and analyzed the company's operating expenses and loss reserves. Ten employees reported to her. (Pulliam 2003) Work began to change in mid-2000. WorldCom had a looming problem: its huge line costs fees paid to lease portions of other companies' telephone networks were rising as a percentage of the company's revenue. Chief Executive Bernard Ebbers and Chief Financial Officer Scott Sullivan informed Wall Street in July that the company's results for the second half of the year would fall below expectations. A scramble ensued to try to reduce expenses on the company's financial statements enough to meet Wall Street's expectations for the quarter. But the accounting department was able to scrape together only $50 million, far from the hundreds of millions it would take to hit the company's profit target. In October, her boss told Vinson to dip into a reserve account set aside to cover line costs and other items for WorldCom's telecommunications unit and use $828 million to reduce expenses, thereby increasing profits. (Pulliam 2003) Ms. Vinson was shocked by her bosses' proposal and the huge sum involved. She worried that the adjustment wasn't proper. She agreed to go along. But afterward Ms. Vinson suffered pangs of guilt. On October, 26, the same day the company publicly reported its third-quarter results, she told her colleagues who were also involved that she was planning Think of it as an aircraft carrier, he said, We have planes in the air. Let's get the planes landed. Once they are landed, if you still want to leave, then leave. But not while the planes are in the air. Mr. Sullivan assured them that nothing they had done was illegal and that he would assume all responsibility. He noted that the accounting switch wouldn't be repeated. (Pulliam 2003) That night, she told her husband about the meeting and her worries over the accounting. Mr. Vinson urged her to quit. But in the end, she decided not to quit. She was the family's chief support, earning more than her husband. She, her husband and daughter depended on her health insurance. She was anxious about entering the job market as a middle-aged worker. By the end of the first quarter of 2001, it was clear Ms. Vinson could find no large pools of reserves to transfer to solve the profit shortfall. Sullivan suggested that rather than count line costs as part of operating expenses in the quarterly report, they would shift $771 million in line costs to capital-expenditure accounts which would result in decreased expenses and increased assets and retained earnings. Accounting rules make it clear that line costs are to be counted as operating leases, not capital assets. APPLICABLE TO EMPLOYED PROFESSIONAL ACCOUNTANTS (PART C) tant Falsifies Accounts for Bosses at WorldCom (continued) Ms. Vinson felt trapped. That night she reviewed her options with her husband and decided to put together a resume and begin looking for a job. Nevertheless, she made the entries transferring the $771 million, backdating the entries to February by changing the dates in the computer for the quarter. She faced the same dilemma in the second, third and fourth quarters of 2001. Each subsequent quarter she made more fraudulent entries. (Pulliam 2003) Ms. Vinson began waking up in the middle of the night, unable to go back to sleep because of her anxiety. Her family and friends began to notice she was losing weight and her face took on a slightly gaunt look. At work she withdrew from co-workers, afraid she might let something slip. In early 2002, she received a promotion, from senior manager to director, along with a raise that brought her annual salary to about $80,000. (Pulliam 2003) In March 2002 the SEC made requests for information from World Com and Cynthia Cooper, head of internal auditing (see Chapter 1) started asking questions. Ms. Vinson and two other accountants hired an attorney and told their story to federal officials from the FBI, SEC and US attorney, hoping to get immunity from prosecution for their testimony. On August 1, 2002, Ms. Vinson received a call from her attorney telling her that the prosecutors in New York would probably indict her. In the end, they viewed the informa- tion Ms. Vinson had supplied at the meeting with federal officials as more of a confession than a tip-off to wrongdoing. Within hours, World Com fired her because of the expected prosecutors in New York would probably indict her. In the end, they viewed the informa- tion Ms. Vinson had supplied at the meeting with federal officials as more of a confession than a tip-off to wrongdoing. Within hours, WorldCom fired her because of the expected indictment. The only thing she was allowed to take with her was a plant from her desk. (Pulliam 2003) Two of her colleagues pleaded guilty to securities fraud. Unable to afford the legal bill that would result from a lengthy trial, Betty Vinson decided to negotiate a guilty plea as well. Discussion Questions Was Betty Vinson justified in her actions because there were at the request of her superiors? Why? If you were in Ms. Vinson's situation, what would you have done