TOPICS > Economy

WorldCom Intensifies Review of Past Accounting Records

BY Admin  July 1, 2002 at 4:53 PM EDT

The second-largest U.S. long-distance carrier warned of other possible bookkeeping errors in a sworn statement to the Securities and Exchange Commission. The SEC demanded a detailed report of the events leading up to WorldCom’s decision to restate its earnings for 2001 and first quarter of 2002.

WorldCom told the SEC that its internal audit committee, which originally spotted the accounting irregularities for 2001 and 2002, would review financial records from 1999 to 2001.

“Today’s filing is consistent with our pledge to be forthright and open, and to cooperate fully with both internal and external investigations,” said John Sidgmore, who became WorldCom president and CEO two months ago. “We will continue to be proactive in reviewing our operations and reporting our findings. This company is absolutely committed to operating in accordance with the highest ethical standards.”

The troubled company said its new auditor, KPMG LLP, would assist in the review. KPMG replaced Arthur Andersen, the accounting firm indicted several weeks ago for obstructing justice in a separate case dealing with the collapse of energy giant Enron, as WorldCom’s independent auditor in May.

WorldCom said its inflated 2001 and 2002 financial reports were “prepared under the direction of Scott D. Sullivan,” the company’s ex-chief financial officer, and “with the assistance of David F. Myers,” former senior vice president and controller. After announcing the accounting mistakes last week, WorldCom’s board said it fired Sullivan and accepted the resignation of Myers.

The company, which acquired MCI for nearly $3 billion in the late 1990s, said that if its lenders could demand immediate repayment for its defaulted loans the company could be force it into bankruptcy.

The financial repercussions have already shaken the troubled company. On Friday, WorldCom laid off over 17,000 of its total 80,000 employees worldwide.

WorldCom also announced Monday that its shares may be de-listed from the Nasdaq stock market July 5, unless the company requests a court hearing to protest the move. The company’s stock opened today around 8 cents per share — a huge drop from a high of $60 a share in 1999.

The latest accounting crisis prompted swift condemnation and calls for action from government officials.

SEC Chairman Harvey Pitt warned that said that “criminal charges may be too good” for those responsible. President Bush also left open the possibility of a criminal investigation, promising Friday that the Justice Department will “hold people accountable” for mismanaging their companies.

The president is expected to address the issue more fully in a July 9 speech on Wall Street. The Bush administration will reportedly propose new criminal penalties for corporate executives who certify misleading financial statements.