WorldCom restatement could top $9 billion

WorldCom late yesterday announced that its total earnings restatements could top $9 billion, $1.8 billion more than previously disclosed.

The revelation is the second time in a matter of months that the company has added billions to its apparent fraud. The company in June originally announced that it intended to restate approximately $3.8 billion in revenues from full year 2001 and first quarter 2002 because of improper accounting.

Despite the growing dollar amounts linked to the scandal, the latest announcement likely will have no effect on WorldCom operationally. The company is already in bankruptcy and many of the top officers during the period in question have stepped down.

The announcement, though, came a day after a bankruptcy court-appointed examiner filed a report critical of the manner in which the company was run under former CEO Bernard Ebbers.

According to the report, WorldCom grew so quickly that its management and internal controls were unable to keep up with that growth. Instead, the company was dominated by Ebbers, who steered its growth, agenda, compensation committee and board of directors. “Critical questioning was discouraged,” the report says, “and the Board did not appear to evaluate proposed transactions in appropriate depth.”

The report, in fact, casts a critical eye at WorldCom’s growth, which it says was fueled by its skyrocketing stock price. This growth, the report claims, was largely undisciplined.

“WorldCom did not achieve its growth by following a predefined strategic plan, but rather by opportunistic and rapid acquisitions of other companies. The unrelenting pace of these acquisitions caused the company constantly to redefine itself and its focus. The company’s unceasing growth and metamorphosis made integration of its newly acquired operations, systems and personnel much more difficult,” the report says.

Since the company’s growth was driven by its stock price, the report says there was intense pressure within the company to meet analyst expectations and that this pressure created an environment where meeting these numbers became more important than reporting accurate numbers.

In response to the report, WorldCom outlined a series of changes to its internal controls. Among the changes are: the creation of new operational CFO positions for its Asia-Pacific and European businesses; the hiring of four line controllers to oversee the accounting; and the doubling of its internal audit department staff, which will broaden its focus to cover financial accounting matters as well as operational matters.