E-mails Show How WorldCom Blocked Auditor Communications

A series of WorldCom e-mails released by the House Financial Services Committee confirms that members of WorldCom management were not forthcoming in their discussions with the company's auditors. Some of the e-mails hint at a "cover-up" of the accounting techniques used to improperly manage earnings.

One particularly egregious accounting technique involved improper capitalization of $3.8 billion in line costs.

When Arthur Andersen (AA) learned of the improper accounting, it issued a statement saying, "It is of great concern that important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom. The WorldCom CFO did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment."

The e-mails show that at least one member of management wanted to consult with Andersen. But he was silenced by WorldCom's controller. An e-mail from the former controller reads, "Do not have any more meetings with AA for any reason. I do not want to hear an excuse, just stop. ... Don't make me ask you again."

A spokeswoman for the House committee said that while no action was taken against the manager who received the stern warning, the e-mails show "the opposition and intimidation he [the manager] ran into when he tried to raise accounting issues."

The former chief financial officer is accused of directing the controller to falsify the company's balance sheet through the improper capitalization of line charges. In addition, the company announced it has uncovered another $3.3 billion in improper accounting, bringing the total to about $7.1 billion.

WorldCom filed for Chapter 11 bankruptcy after disclosing its accounting problems. It was the biggest such filing in U.S. history.

-Rosemary Schlank

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