Accounting and Financial Statements (Ethics)
league and embezzled over ten million dollars to keep it afloat. He continued to demand exclusivity fees from his vendors as well. Monus worked a five year exclusivity fee with Coca-Cola worth ten million dollars alone, the revenue was used to cover-up existing losses. Even with all the exclusivity fees, Phar-Mar was hemorrhaging too fast to stop.
The Phar-Mor fraud was spearheaded by one man, Mickey Monus, but there were also several key players who could have made strong ethical choices to stop the fraud. Mickey Monus perpetuated the fraud for one main reason, money. Monus’ employment contract was incentive laden, so he had substantial interest in the performance of the company. The nature of his contract added extra pressure to misstate financials. Other executives like C.F.O. Pat Finn didn’t have the same incentives in his contract as Monus. However, Finn along with other upper level managers was easily persuaded by the manipulative nature of Monus. Monus was able to manipulate the key players in the fraud to make them a victim of groupthink. Finn and the other managers knew what they were doing was wrong, but yet nobody stopped.
WorldCom
On June 26, 2002 U.S. regulators charged WorldCom Inc. with fraud after MCI WorldCom admitted it hid almost $4 billion of costs. Two months after the initial charge, WorldCom revealed a further $3.3 billion of improperly reported earnings. Reaching a total of nearly 9 billion dollars concealed in expenses, and converted into false profits.
Adding fuel to the investigation is the fact that Arthur Anderson was WorldCom’s auditor while the inappropriate accounting was taking place. Arthur Anderson has been found guilty of Obstruction of Justice charges in the governments’ investigation of another infamous client, Enron. WorldCom switched auditors from Andersen to KPMG at which point the accounting irregularities were discovered.
The SEC said in its civil lawsuit that the scheme was "directed and approved by WorldCom’s senior management and allowed WorldCom to fraudulently report 2001 cash flow of $2.393 billion, rather than its actual loss of $662 million. Also, in the first quarter of 2002, WorldCom incorrectly reported cash flow of $240 million, rather than a loss of about $557 million (http://www.securitiesfraudfyi.com/worldcom_fraud.html).
The SEC’s investigation into the accounting fraud at WorldCom turned up several key players. The following is a list of high-ranking WorldCom executives and other employees who are involved in the accounting fraud:
• Bernard Ebbers – former CEO of WorldCom. Ebbers is suspected in the accounting fraud but no charges have been filed against him.
• Scott Sullivan – former CFO of WorldCom. Sullivan was indicted on charges of securities fraud, conspiracy, and false statements to the SEC.
• David Myers – former controller of WorldCom. Myers is charged with securities fraud, conspiracy, and false statements to the SEC.
• Buford Yates Jr. – former director of general [next page]