The WorldCom accounting scandal, which was uncovered during 2002, is generally thought of as one of the ten worst corporate accounting scandals perpetrated in the United States of all time.

In summary, WorldCom filed financial statements with the Securities and Exchange Commission (SEC) that reported inflated total assets by up to $11 billion between roughly 1999 and 2002. During this same time, WorldCom went on an acquisition spree by purchasing some of its competitors. These acquisitions increased the size of the company and its total stock market capitalization.

Once the financial statement fraud was discovered, 30,000 WorldCom employees lost their jobs and investors suffered huge financial losses as the value of WorldCom stock dropped approximately $180 billion.

The main player at WorldCom was CEO, Bernie Ebbers. A key element of Ebbers' fraud consisted of two parts: 1) capitalizing rather than expensing certain expenses and 2) simultaneously inflating revenues with fake accounting journal entries. The fraud related to the improper capitalization of expenses was caught by WorldCom's internal auditing department and amounted to approximately $3.8 billion of overstated earnings up to the date it was discovered.

Bernie Ebbers was fired once the financial statement fraud was discovered and sentenced to 20 years in prison for fraud, conspiracy to commit fraud, and for filing false financial statements with the SEC.

Given the WorldCom and Enron accounting scandals were just one year apart, Congress passed the Sarbanes-Oxley Act (SOX) in 2002. SOX is the most sweeping set of new business regulations since the 1930s, when the Securities and Exchange Acts of 1933 and 1934 were passed.

Search the Internet and you will find a plethora of information on the following:

WorldCom fraud

Background of the CEO, Bernie Ebbers

How WorldCom grew to be one of the largest firms in the US from a market capitalization perspective

Information on the trial and related court testimony that convicted Bernie Ebbers

The role the internal audit department played in discovering the fraud, including reporting the fraud to the Board of Directors, and

The role that Corporate Controller played in the accounting fraud.

In responding to the questions related to this case, be sure to provide references for all sources you used. Your answers to this case study should be 5 pages in total, including cover and reference pages. The body of the paper, which must be at least 3 pages in length, should be double-spaced. Make a copy of each question below and place the questions into the body of your paper in bold-type, so that we can both see that you have addressed each one of the questions in your submission.

Questions (Requirements)

1. You have learned that the Fraud Triangle consists of perceived pressure, perceived opportunity, and rationalization. Based upon the research you performed, explain how the fraud triangle applies to the following players in this fraud:

-Bernie Ebbers, the CEO

-the Controller

2. During court testimony, in what ways did Bernie Ebbers try to rationalize his behavior as CEO of WorldCom while this fraud was being perpetrated? Were the ways he tried to rationalize his behavior correct or incorrect? Why or why not? Be specific.

3. How would owning and operating a small family business, like WorldCom at a time in history with rapid development and growth, create potential temptations and opportunities to commit fraud? Be specific.

4. Assume you were asked to be an expert witness in this class. Assume you were asked to testify whether the journal entries recording fake revenues were fraudulent, whether the journal entries that improperly capitalized operating expenses as assets on the balance sheet were fraudulent. What facts would you highlight and include in evidence to support your testimony as an expert witness?