Worldcom: the Story of a Whistle-Blower

1948 words 8 pages
Question 1
At the time Cynthia Cooper discovered the accounting fraud, WorldCom did not have a whistle-blower hotline process in place. Instead, Cynthia took on significant risks when she stepped over Scott Sullivan’s head and notified the audit committee chairman of her findings. Discuss the key criteria for the operation of an effective corporate whistle-blower hotline. Be sure to highlight potential pitfalls that should be avoided and reference professional codes, legislation and academic literature as appropriate.

A whistle-blower is an organisation member (former or current) who discloses illegal, immoral or illegitimate practices under the control of their employers, to other persons or organisations that may be able to take
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in school, at home, places of worship, etc.

After experiencing several financial scandals or other malpractices within the corporate world all over the world, governments of many different regions had to come up with new regulatory reforms to tighten things up. The accounting fraud in WorldCom followed by similar scandals at Enron, Global Crossing, Tyco etc. and resulting losses to stockholders resulted in a set of far-reaching regulatory reforms passed by Congress in 2002 and Sarbanes-Oxley Act of 2002 is one of them. Sarbanes-Oxley Act has definitely got the potentials and is effective to reduce financial and accounting fraud because of some new and improved range of regulations, such as-
“The Sarbanes-Oxley Act requires all public companies to establish procedures for (1) the "receipt, retention and treatment" of employee complaints on internal accounting controls and auditing practices, and (2) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Most companies must have such procedures in place by October 31, 2004, at the latest” (David A.Seldem, 2004, Practical Solutions for Dealing with Whistle-blowers)
“Public companies are required by Section 301(4) of the Sarbanes Oxley Act to have a