Sitting in his cubicle at WorldCom Inc. headquarters one afternoon in May, Gene Morse stared at an accounting entry for $500 million in computer expenses. He couldn't find any invoices or documentation to back up the stunning number.
"Oh my God," he muttered to himself. The auditor
immediately took his discovery to his boss, Cynthia Cooper, the
company's vice president of internal audit. "Keep going," Mr. Morse says
she told him.
A series of obscure tips last spring had led Ms. Cooper
and Mr. Morse to suspect that their employer was cooking its books.
Armed with accounting skills and determination, Ms. Cooper and her team
set off on their own to figure out whether their hunch was correct.
Often working late at night to avoid detection by their bosses, they
combed through hundreds of thousands of accounting entries, crashing the
company's computers in the process.
By June 23, they had unearthed $3.8 billion in
misallocated expenses and phony accounting entries. It all added up to
an accounting fraud, acknowledged by the company, that turned out to be
the largest in corporate history. Their discoveries sent WorldCom into
bankruptcy, left thousands of their colleagues without jobs and roiled
the stock market.
At a time when dishonesty at the top of U.S.
companies is dominating public attention, Ms. Cooper and her team are a
case of middle managers who took their commitment to financial reporting
to extraordinary lengths. As she pursued the trail of fraud, Ms. Cooper
time and again was obstructed by fellow employees, some of whom
disapproved of WorldCom's accounting methods but were unwilling to
contradict their bosses or thwart the company's goals.
WorldCom is under investigation by the Justice
Department and the Securities and Exchange Commission. Scott Sullivan,
WorldCom's former chief financial officer and Ms. Cooper's boss, has
been indicted. He has denied any wrongdoing. Four other officers have
pleaded guilty and are cooperating with prosecutors. Federal
investigators are still probing whether Bernard J. Ebbers, the company's
former chief executive, knew about the accounting improprieties. Since
the initial discoveries, WorldCom's accounting misdeeds have grown to $7
billion.
Behind the tale of accounting chicanery lies the
untold detective story of three young internal auditors, who
temperamentally didn't fit into WorldCom's well-known cowboy culture.
Ms. Cooper, 38 years old, headed a department of 24 auditors and support
staffers, many of whom viewed her as quiet but strongwilled. She grew
up in a modest neighborhood near WorldCom's headquarters and had spent
nearly a decade working at the company, rising through its ranks. She
declined to be interviewed for this story. Mr. Morse, 41, was known for
his ability to use technology to ferret out information. The third
member of the team was Glyn Smith, 34, a senior manager under Ms.
Cooper. In his spare time he taught Sunday school, took photographs and
bicycled. His mom had taught him and Ms. Cooper accounting at Clinton
High School.
Frightened that they would be fired if their
superiors found out what they were up to, the gumshoes worked in secret.
Even so, their initial discrete inquiries were stonewalled. Arthur
Andersen, WorldCom's outside auditor, refused to respond to some of Ms.
Cooper's questions and told her that the firm had approved some of the
accounting methods she questioned. At another critical juncture in the
trio's investigation, Mr. Sullivan, then the company's CFO, asked Ms.
Cooper to delay her investigation until the following quarter. She
refused.
Ms. Cooper's first inkling that something big was
amiss at WorldCom came in March 2002. John Stupka, the head of
WorldCom's wireless business, paid her a visit. He was angry because he
was about to lose $400 million he had specifically set aside in the
third quarter of 2001, according to two people familiar with the
meeting. His plan had been to use the money to make up for shortfalls if
customers didn't pay their bills, a common occurrence in the wireless
business. It was a well-accepted accounting device.
But Mr. Sullivan decided instead to take the $400
million away from Mr. Stupka's division and use it to boost WorldCom's
income. Mr. Stupka was unhappy because without the money, his unit would
likely have to report a large loss in the next quarter.
Mr. Stupka's group already had complained to two
Arthur Andersen auditors, Melvin Dick and Kenny Avery. They had sided
with Mr. Sullivan, according to federal investigators.
But Mr. Stupka and Ms. Cooper thought the decision
smelled funny, although not obviously improper. Under accounting rules,
if a company knows it is not going to collect on a debt, it has to set
up a reserve to cover it in order to avoid reflecting on its books too
high a value for that business. That was exactly what Mr. Stupka had
done. Mr. Stupka declined to comment.
Ms. Cooper decided to raise the issue again with
Andersen. But when she called the firm, Mr. Avery brushed her off and
made it clear that he took orders only from Mr. Sullivan, according to
the investigators. Mr. Avery and Mr. Dick declined to comment. Patrick
Dorton, a spokesman for Andersen, said his firm thought that the $400
million wireless reserve was not necessary.
"That was like putting a red flag in front of a bull," says Mr. Morse. "She came back to me and said, 'Go dig.' "
Some internal auditors would have left it at that
and moved on. After all, both the company's chief financial officer and
its outside accountants had signed off on the decision. But that was not
Ms. Cooper's style. One favorite pastime among the auditors who
reported to her was applying the labels of the Myers-Briggs &
Keirsey personality test to their fellow staffers. Ms. Cooper was categorized as an INTJ -- introspective, intuitive, a thinker and judgmental. "INTJs," according to the test criteria, are "natural
leaders" and "strong-willed," representing less than 1% of the
population.
The Moral Narcissist:
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