Worldcom: The Lack Of Internal Control Strategy

Causes
The Lack of Internal Control Strategy: As of 1998, WorldCom had been involved in mergers with 60 companies, and there were valued at a little more than $70 billion. WorldCom also merged with MCI Communications Corporation on September 14, 1998, and it was valued at $40 billion (Ashraf, 2011). According to Ashraf (2011), during the 1990s, WorldCom was motivated by the low interest rates and frequently rising stock prices. WorldCom strived to achieve the high-growth strategies that relied on aggressive corporate actions, which involved a creative accounting practices. One of the investigations of WorldCom indicated a lack of strategic planning. The

Such a fatal mistake led to very high levels of overhead in proportion to the revenues, and contributed to having a weak internal control environment (Ashraf, 2011). As a result, the company was not able to keep up with integration and efficiency, due to how fast it merged with the new companies, as well as management’s neglect. Due to the lack of internal controls, manual adjustments were made in the system without dictating any red flags, which thereby minimized the chance of detection (Ashraf,

It was reported that the directors at WorldCom were from different backgrounds. Some had the knowledge and experience of business and legal issues, while others were appointed because of their connections with Ebbers (Ashraf, 2011). Due to the knowledgeable board of directors and the connections with Ebbers, this led to the Board’s lack of awareness on WorldCom’s issues. The board met only 4 times a year, and they were inactive, for a company growing at the vast rate that it was, this was wrong. Furthermore, the directors were given a small cash fee as compensation, so therefore, an appreciation of stock was the only form of compensation available. The directors, employees and management depended on the company’s growth and stock appreciation for compensation. The board of directors had a large amount of a significant influence on the approval or disapproval of company decisions. As a result of their approvals of the acquisitions, WorldCom’s grew to an increase that led to a higher stock price and a large amount of compensation. Directors then began to depend on this type of large issuances of equity, this did not only conveyed an unhealthy practice, it also created a conflict of interest where the major goal was focus more on the growth of the stock rather than the best interests of the company (Ashraf, 2011). There was another conflict of interest