WorldCom: From Bad To Worse
Bankrupt telecommunciations giant WorldCom Inc. said on Thursday an internal audit of its books back to 1999 has turned up another $3.3 billion in improperly recorded earnings. The additional fraud would bring the total of phony accounting at WorldCom to more than $7 billion.
The company said that as a result of the accounting scandal and subsequent bankruptcy, it may take a writedown of $50.6 billion.
The newest discovery was made as the company reviewed its books for 1999 and 2000, with most of it tallied in 2000, the Clinton, Miss.-based company said.
"The amounts disclosed today have previously been disclosed to the SEC (Securities and Exchange Commission) and other investigative authorities," the company said. The $3.85 billion of improperly booked expenses that were previously disclosed only covered 2001 and the first quarter of 2002.
As a result, WorldCom will restate its financial statements for all of 2000. The company already said it would restate its financials for all of 2001 and the first quarter of 2002.
WorldCom has about 5,200 workers in Colorado and is the largest private employer in Colorado Springs, with nearly 4,000 workers.
In June, WorldCom disclosed that the company had concealed $3.85 billion in expenses for the first quarter of 2002 and all of last year. That allowed WorldCom to post profits instead of actual losses during that period.
Under the fraudulent accounting, WorldCom treated $3.85 billion in so-called line costs as capital expenses that could be written off over a period of years. The ruse inflated profits and helped the company hide its deteriorating financial health from investors.
Arthur Andersen LLP had been WorldCom's auditor until May. KPMG LLP is now auditing WorldCom's financial statements for 2000-2002. Until that is finished, the total impact won't be known, the company said.
WorldCom, the once high-flying long-distance and Internet services company, filed for Chapter 11 bankruptcy protection July 21. It was the biggest such filing in U.S. history, with the company listing $107 billion in total assets and $41 billion in debts.
WorldCom Chief Executive John Sidgmore, who took over in May after the ouster of founder Bernie Ebbers, has repeatedly warned that the now-bankrupt company might find more problems on its financial books.
A congressional committee probing the matter said last month that the problems might extend further back. Rep. Michael Oxley, R-Ohio, charged at the time that the restatement could grow by at least $1 billion, but the new findings could more than double that estimate.
In late June, WorldCom fired Scott Sullivan, the longtime chief financial officer, after the accounting fraud was discovered. A month later, the company was forced to file for bankruptcy as cash ran out, and it was promptly stripped of listing on the Nasdaq stock market.
Last week, two former executives -- Sullivan and controller David Myers -- were arrested and charged with hiding the nearly $4 billion dollars in a desperate bid to keep the company afloat.
The latest news is likely to rekindle questions about the role played by Ebbers, who has strenuously denied any involvement in fraud. In April, Ebbers resigned under pressure after 17 years at the helm.