Report: WorldCom exec raised red flag two years ago

A WorldCom executive told auditor Arthur Andersen more than two years ago that the company’s profits had been inflated due to the misapplication of expenses, a warning that allegedly went unheeded, according to several published reports.

The Wall Street Journal reported that internal documents released by House Energy and Commerce Committee investigators also indicate the accounting scandal “began earlier and was noticed by more people than the company’s current management has disclosed.”

Depending on how much earlier, the scandal could reach current CEO John Sidgmore, who has been a WorldCom director since 1996 but who had not been involved in the company’s day-to-day operations since 1998. Sidgmore, who was named to succeed erstwhile CEO Bernie Ebbers in the wake of the scandal, has vehemently denied any involvement in the decision to reclassify $3.9 billion in operations expenses as capital expenses, which allowed the company to spread those expenses over a longer timeframe, artificially inflating its earnings.

In related news, FCC Chairman Michael Powell said the FCC would consider a WorldCom/Bell company merger, because the industry’s “battered, debt-ridden condition now leaves regulators little choice but to consider such options,” according to the Journal. Powell also called for the federal government to honor contracts totaling in the billions of dollars it has with the company, to avoid hitting the company with another major blow.

--Glenn Bischoff, Staff Writer