Worldcom
Explain how the fraud triangle applies to the CEO and the Controller
The fraud triangle consists of perceived pressure, perceived opportunity and rationalization. With Bernie Ebbers, the opportunity was clear. As CEO, he had the ability to order others in the organization to conduct acts that would result in the fraud, specifically the fake elements of the financial statements. The pressure that Ebbers felt was that most of his wealth was in WorldCom stock. At the time the fraud began, the economy was entering recession and companies were beginning to reduce their telecom spending in particular. This was creating strong downward pressure on WorldCom stock, and consequently on Ebbers' wealth, and it was this pressure that was believed to be at the root of the fraud (Crawford, 2005).
Rationalization is a bit trickier. Ebbers claimed that he didn't know about the fraud (Crawford, 2005), which was untrue, so in such a statement really does not reveal his perspectives on how the fraud was rationalized. It might have been as simple as "I'm keeping the stock afloat."
The controller in the case was David Myers, and he was the first one to plead guilty of fraud, in 2002. For him, the pressure was fairly obvious. He admitted publicly that "I was instructed by senior management to make entries for WorldCom's books to increase WorldCom's earnings, for which I knew there was no justification" (Teather, 2002). Myers would have had opportunity to commit the fraud, in his role as controller, especially knowing that the CEO and CFO were involved in the fraud – they would not punish him for the act. Rationalization for Myers appears to have been more of a "I was following orders" sort of rationalization, which he was unable to sustain, and he would eventually become a witness against the senior executives in the case.
In...
References
Crawford, K. (2005) Ex-WorldCom CEO Ebbers guilty. CNN Money. Retrieved June 2, 2018 from http://money.cnn.com/2005/03/15/news/newsmakers/ebbers/
Fleming, A., Hermanson, D., Kranacher, M. & Riley, R. (2016) Financing reporting fraud: Public and private companies. Journal of Forensic Accounting Research. Vol. 1 (1) 27-41
Hamilton, W. (2005) Ebbers tells jury he knew little of accounting. LA Times. Retrieved June 2, 2018 from http://articles.latimes.com/2005/mar/01/business/fi-ebbers1
Teather, D. (2002) Former WorldCom controller admits fraudulent entries. The Guardian. Retrieved June 2, 2018 from https://www.theguardian.com/business/2002/sep/27/corporatefraud.worldcom
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