WORLDCOM ACCOUNTING FRAUD EXPLAINED!

Worldcom accounting fraud had ripple effects that resonate till today. In this video I breakdown their business model, the pressure leading to the fraud, the nature of the fraud and the consequences. Worldcom's management violated 2 main accounting principles: The objectivity principle and the matching principle. Let's dive in.
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[@eli.8991]

Thank you. You helped me understand the case better for class discussion Thursday.

[@TheFinancialController]

It’s a very interesting case!

[@MidlightDesigns]

so true

[@iamyournytemare4253]

I think I've grown addicted to this channel. This is exactly what I've been needing.

[@TheFinancialController]

your addiction is welcome here :)

[@themessengerkenswift707]

I actually worked at MCI WorldCom in 99', and none of us employees, naively working in our cubicles knew anything about any of this until it was already too late. 🤦🏾‍♂️

[@bunnyman6321]

What happened to the employees of that company when this happened?

[@DROIDFARM]

Thank you for breaking this down for us! Quick note it sounds good even in 2x speed!
My BYUI accounting class sent me here and you did such a good job you won a like and subscribe from me!

[@stacyliddell5038]

Some people can study as many Ethics courses as they want without ever developing a sense of right and wrong. It's fascinating.

[@stunnerkay9556]

Thanks for a wonderful video even though am a little behind watching your clips. I think objectivity is a great state of mind that was impaired by the misdirection of the CFO and poor judgement by the controller. I would also add that the misleading behavior of the plaintiffs also resulted in window-dressing the books. This was a high level and absolute disregard to WorldCom’s inefficient internal control systems. The Red flag surfaced from the very first attempt by Greedy players and that was a pivotal role for all of them to conceal the reality.

[@makenziemoikeha5767]

Thank you for the video! Sent from my class at BYUI :)
Why did the CEO get 25 years when it was the CFO suggesting it every time, and he only got 5 years?

[@cashonly2539]

Lukin Coffee: Ohh, that's how NOT to cook my books.

[@TheFinancialController]

Haha. This is how you brew the books

[@johnmcmanus1632]

I worked for a company called nationwide cellular we merged or were purchased by mciwordcomm and we all lost our jobs I worked for the company for 13 years ( nationwide cellular) and we came to work and the doors were locked it was devistating lost my 401 k that was turned into worthless stock that the company forced us into and then was not paid for the last 2 pay periods we were offered NO COMPENSATION!!! Nothing and no one talks about the employees I guess because we weren't rich people like maddoff or Enron we were just regular people trying to earn a living these people are disgusting and jailing them does nothing to make us whole again there should be a law that would liquidate assets of these criminals and divided up to the employees who had no knowledge about the fraud

[@TheFinancialController]

I am sorry to hear this John. I will be sure to raise this issue in a future video so that people are aware of this issue.

[@bunnyman6321]

Damn that's crazy.
How did you overcome that?

[@elio8fadd]

Very well explained. Thank you for this content. Although you did not focus very much on Ebbers' involvement in the whole case.

[@TheFinancialController]

Thanks Elio!

[@brainchildguru]

My dad was one of the OGs of Worldcom before MCI bought them. He wasn’t involved in any of the fraud. He was on the wireless sales side of things.

[@TheFinancialController]

Interesting!! Thanks hunter

[@prisonersdilemma939]

They are indeed relevant. You’ll be doing one on LUMEN Technologies, Inc in 2023.

[@BrittaProducts]

Didn’t you miss the part where WorldCom tried to acquire Sprint as a means of covering up the accounting issues?

[@rubenojeda1363]

Extremely useful! A very clear explanation of the case. Thanks very much for sharing!

[@TheFinancialController]

Thanks Ruben!

[@lawrencealleyne1427]

why did the CEO get a much harsher penalty?

[@bunnyman6321]

You found out yet?

[@kennethchow3996]

The merger with MCI meant Worldcom had no money to begin with.

[@bunnyman6321]

😂😂😂

[@Ayesha-yx8kn]

Hey I,m from Pakistan Snd just need the authentic information for my presentation and this what i actually want you just sort out my problem and explained everything in a complete manner with great compatibility
Great work 👍

[@TheFinancialController]

Thanks 🙏

[@doriscastillo4438]

THE POINT IS: IF YOU DO IT YOU ARE GOING TO JAIL RIGTH AWAY, THOSE PEOPLE GET OUT WITH MURDER, NO JUSTICE YOU STEAL A PACK OF CIGARETTES YOU GOT 4 YEARS,YOU SEE THE JUSTICE?

[@railyndungog7981]

1. Why do you think Betty got imprisoned even she just follow her superiors?
2. If you are Betty, what should you do to avoid this?

[@HonestFarmerLigue1Fan]

Unless Betty could prove that she was heavily pressured and threatened by her superiors, very unlikely that she could got away.
How to save youself:
Return your "share of clout", report to Whistleblowing system or compliance or internal audit division, get a lawyer just in case you get threatened again.

[@TanvirAhmed-xs5tm]

Hey Bill, This is a great video and much in-depth yet small analysis on the Worldcom scandal. So thank you so much for that. I am currently trying to write a paper on corporate governance failure of Worldcom and the things you have said are really intriguing. I was wondering if you can kindly share the articles or sources of your findings. I would like to read them and have a better understanding so I can make a case for my paper. Once again, greatly appreciate your video and will forever be grateful if you can kindly share your sources.

[@TheFinancialController]

Thanks. My sources are David Meyer interview in the video description plus simply a google search “Worldcom phone towers rent”

[@TanvirAhmed-xs5tm]

@@TheFinancialController Thank you! Will do.

[@nani543]

Thank you!!! Very clear breakdown with the theory cleanly explained. Helped with my coursework

[@jimamann8970]

I worked for MCI before taken over by Worldcom, there was no mobile phones, especially in the U.S. when you described, MCI had previously decided to merge with British Telecom when Worldcom outbid them. MCI had the revenue and international reach to take Worldcom two another level. That merger was the catapult for Worldcom. There philosophy and culture where light years different. Not surprising of the outcome

[@TheFinancialController]

Thanks for contributing Jim!

[@argjend90able]

I don't get why wordcom can't capitalize the towers. I mean the towers brings economic benefit, because the revenue depends on these towers. So is this not bringing economic benefit when it brings revenue?

[@TheFinancialController]

In that case the towers did not benefit future periods, hence not an asset. Meaning the rent was for the benefit of the current period

[@PASSIBOI]

Love from India🔥🇮🇳🇮🇳

[@craigmonteforte1478]

i particpatedinBuilding their main Facility inNorthernVirginia and the way their Stock had grown so fast and so much we knew something had to be fishy the Company and the Employees spent money like it wouldn’t ever end coming in and being sensible we knew that wasn’t going to happen sadly i think their gigantic expensive facility is abandoned out by Dulless Virginia

[@pittedmetal]

WorldCom applied IFRS 16 decades before its existence! They should have created an equal liability though…

[@bunnyman6321]

Why?

[@accountingarchives1363]

And now they revised the standard to an asset called "right of use"

[@TheFinancialController]

Good point

[@sohamsarkar8588]

It was a great explanation, thank you so much. Love from India.

[@TheFinancialController]

Thanks Soham

[@nikitagarg3818]

I'd love to know and understand about the Harshad Mehta scam

[@anewzim]

Out of interest...who were the external auditors of WorldCom?

[@TheFinancialController]

Arthur Andersen

[@MaiTr]

Thank you this and the one you did on Enron were super helpful 😇

[@JeffreyWhitt]

I was there when all this happened... not a part of it but wow...

[@TheFinancialController]

Were you working at Worldcom? Small world...

[@aashimagupta5276]

Got to understand this case in a very simple manner. Thank you

[@TheFinancialController]

Glad you liked the video

[@jameswaters8184]

Thanks these are excellent. Your channel will be huge someday!

[@TheFinancialController]

Thank you!

[@aewcontrol2984]

So they moved a Nominal account to a real account?

[@basit147]

can u make a video on mci scandal they also had an accounting scandal

[@TheFinancialController]

Sure. Will do :)

[@HK-xj1oo]

Many thanks for this . Great explanation

[@opjpopojkjpoj]

hey what does it mean when you say booked an entry bogus thing please i need it quick thank you

[@StephieA]

What processes or systems would prevent or detect accounting frauds such as this?

[@TheFinancialController]

An internal control for manual journal entries. Also and internal audit

[@john18563]

great video. so did they pretend to own the phone towers on the books? they were paying rent in 98 but not 99. am i getting the picture?

[@TheFinancialController]

They improperly reclassified tower rent as an asset, claiming that the payments they made will benefit future periods. But in reality it was for the past period.

[@bushy12987]

Thank you

[@user-kf3co8np3j]

Can you make video on Enron?

[@chirayugarg7207]

Sir can we say that this scam was initial phase of dot com crash??

[@TheFinancialController]

It was part of it. The common theme here is using metrics focused on revenue while ignoring cash flow. Nice observation 👏

[@chirayugarg7207]

@@TheFinancialController Thanks for the reply

[@chirayugarg7207]

Can u please elaborate ur point ??

[@TheFinancialController]

LastBencher0P the bogus entry Worldcom booked focused on increasing revenue but the cash flow did not match the revenue obviously because the revenue didn’t exist

[@chirayugarg7207]

@@TheFinancialController thanks sir. Please make video on more accounting frauds

[@benderbendingrofriguez3300]

"Prepaid capacity"
the words you don't want to see on a Statement of financial position.

[@vibhutisvibes6332]

Thankyou sir for vedeo...love from India ❣️

[@lamronjr8785]

Thank you for making a clear and easy to understand example

[@lamronjr8785]

You made something that was designed to be complex and confusing intentionally, since these people certainly didn't want anyone following their Trail LOL, into something understandable

[@TheFinancialController]

Thanks for watching

[@LandoDubyaz]

Thank you!! Your work is very much appreciated.

[@TheFinancialController]

Thank You!

[@alokoberoy5335]

Great explanation 🙂

[@bsparkle2166]

Another great video!

[@TheFinancialController]

Thanks again!

[@vengatMaran]

Cleaver explanation Man ...👍

[@TheFinancialController]

Glad you liked it

[@jasminemarano1649]

What is the reason why the Ebbers loans were not reported in the annual report?

[@TheFinancialController]

Thanks for pointing out this aspect of the fraud. I will do some research on it

[@bunnyman6321]

@@TheFinancialController You figure out why?

[@norman_zwakathatboy5815]

i still cant get why the ceo got 25 years jail time ofwchich the cfo did all the decision making but he got only 5 years

[@amritbrar7606]

I would like to know the entry they passed to cover the margins.

[@TheFinancialController]

I don’t know the entry but it must be related to either revenue or cost of sales for it to improve margins

[@eulamaecataluna569]

So what's the role of the CEO? Why was he put in jail?

[@TheFinancialController]

Yes, the CEO, Bernie Ebbers, was convicted in 2005 and sentenced to 25 years in jail. He actually just died in Feb 2020 aged 78, right after his early release.

[@eulamaecataluna569]

@@TheFinancialController was he involved on the scandal?

[@TheFinancialController]

The CEO is almost always involved :) and yes in this case he was found to have known about the fraud.

[@eulamaecataluna569]

Wait, correct me if I'm wrong 😅 so the reason why the the CFO came up with the idea of making a bogus entry was because their margins were low?

[@TheFinancialController]

Something like that. I highly recommend watching the video link in description with story told by the controller of worldcom

[@j.robertohernandez9692]

Excellent video.

[@TheFinancialController]

Thanks Roberto

[@mikehawk4856]

Watching this in 2023 as the banks are collapsing. History doesn’t always repeat itself but it sure does rhyme

[@pravan5095]

Thank you sir

[@jumper11able]

Lovely stuff mate keep it up

[@TheFinancialController]

Thanks for watching

[@annog6673]

Will you make a video about Wirecard? ;)

[@TheFinancialController]

Hey Annog, I actually have a conflict of interest that prevents me from doing so. I am working on some other interesting topics. Cheers

[@beccacamberos5706]

Great video! Thank you so so much!

[@TheFinancialController]

Thanks Becca

[@crazyistanbullu]

Very good content. Thank you very much 👍

[@TheFinancialController]

Thank you!

[@saifkhan-gd6kj]

Great effort bro keep it up

[@TheFinancialController]

Thanks 🙏

[@melbonesarra2821]

Thank you for this.

[@TheFinancialController]

My pleasure!

[@inquirer1016]

Good job with the video, well explained.

[@TheFinancialController]

Thanks! Stay tuned for Wirecard video I am publishing today ;)

[@k.manisandeep7226]

Hi my self sandeep from india
It was a great explanation tq
I listened this video for my exam I think it will make my answer better to put on exam paper

[@lavanyabanala9691]

Thank you ❤️❤️❤️❤️

[@TheFinancialController]

Glad you liked it

[@khwiserosportsacademy6826]

great video on accounting

[@TheFinancialController]

Glad you liked it 😎

[@bakhtiyorkuliev5293]

Great

[@AdeebImthiaz]

Good stuff!

[@TheFinancialController]

Thank you!

[@filda2005]

sorry, there is a lot of sauce and details but no principal explanation.
Outcome:
NEVER WATCH VIDEO WITH CAPS LETTERS AND EXLAMATION MARK AT THE END *HAWK*

[@ektakansal273]

I didn’t understand what is bogus entry

[@TheFinancialController]

As Ty NEL wrote in a comment below "for the first 2-3 years of the fraud they initially under-reported about $3.8B in expense and accrued liability for the line rental fees payable to the local carriers at a much later time, which was around 50% of revenue. When there was no more room to under-report line expenses /liability, they capitalized line expenses as prepaid lease asset, by stretching the actual past 2-3 year line expenses to be 20-30 years lease payment, deferring a large portion of that payment a prepaid asset."

[@bruhbruh-jr5mp]

hey man do you mind if i use the info in the video for a project? i will say the info was from you btw)

[@TheFinancialController]

Go for it bruh

[@abdulrasheedrasheed9579]

Thank you bro

[@TheFinancialController]

You are welcome 🙏

[@gonzalesshairao.7667]

Thanks you so much :)

[@TheFinancialController]

Thanks for watching

[@ohiotoledo3787]

do u like ur books medium rare or well done

[@TheFinancialController]

Super rare with a side of objectivity :)

[@Jessiemats]

Thanks

[@TheFinancialController]

Glad you like it!

[@lisamccray6481]

So are you saying that they could've filed bankruptcy instead and found other jobs? No really. Like I said, I'm new. I came from being a waitress.

[@TheFinancialController]

They filed for chapter 11 bankruptcy. All three execs served jail sentences

[@vaibhavsahu8021]

It was a nice video but you should have covered the whole case like afterwards of unrevealeing of the case

[@TheFinancialController]

Okay thanks for the feedback

[@gopan1984]

What do you think would have happened without fraud?

[@TheFinancialController]

Competition was rising and it's hard to tell whether they could have survived!

[@agatolwey6218]

It was MCI, then Worldcom, the. Verizon

[@TheFinancialController]

😂

[@le4-677]

hahahahaha, how did they think they would get away with this?

[@UMANGPLAYS]

Anyone came here from the tv show The Wire?

[@aylo2412]

you can't explain... I didn't get anything

[@sarwaralam3977]

👍

[@TheFinancialController]

Thanks Sarwar!

[@kapetannemo]

This is funny !
Mr. CFO tells Mr. Controller 2 + 2 is equal to 5 and not 4 and Check where you are wrong !!
And Mr. Controller goes to check!
If I were Mr. Controller I would load to
Mr. CFO
federal police and a prosecutor on the neck!!

[@TheFinancialController]

Haha agreed. But to be fair, it was more complex than that

[@jcs0984]

Your video needs volume normalization. I had to turn my earbud volume down so you didn't blow out my ears

[@hunarkareem6182]

I like your video, but I hope you say AHH less.

[@TheFinancialController]

Haha thanks yeah I worked on that and now say ahh less in my newer vids

[@bunnyman6321]

😂😂😂😂😂

[@mdmiltonhossain2038]

Great