WorldCom auditor: Fraud extends beyond upper echelons

Kevin Rademacher

Wednesday, July 14, 2004 | 11:12 a.m.

Cynthia Cooper knows a lot about consequences.

On Tuesday, she told a packed auditorium at the Association of Certified Fraud Examiners in Las Vegas all about the price she paid for exposing the fraud at WorldCom.

Cooper, who still serves as vice president for the company's internal audit division, expressed no regret for making what she clearly said was the right choice. She did, however, drive home the point that a price was paid.

"The decision to to come forward was easy," she said of notifying WorldCom's board of directors in 2002 that executives had misrepresented financial statements by $3.8 billion. "We were standing at a crossroads with only one right direction ... Making that right decision does not mean there won't be a cost."

At the time, the company's headquarters were in Clinton, Miss., making it that state's only Fortune 500 company. A significant title for in one of the poorest state's in the nation, Cooper said.

After the news broke, however, the company eventually left Mississippi for Virginia and thousands of employees were laid off. Many employees -- including her parents -- also lost significant portions of their retirement plans.

The media swarmed her neighborhood, as well as her parents'. She was called to give testimony to Congress and answer questions from the FBI as well as investigators hired by the company's board of directors. Many of those interviews continue today.

Then there were the arrests, those of the top financial executives with whom she had once worked and socialized.

"These are real people with families," Cooper said. "These were people we had trusted, respected and worked for for many years."

Amid the fallout of the company's bankruptcy, she lost weight and struggled with depression.

"This is not what I had banked on," she said.

Despite the price, she spoke with significant pride about her audit team's refusal to be hindered in its duties by uncooperative executives and external auditors.

In fact, she said that in early 2002, just months before the news of the massive fraud broke, she was notified that management wanted to cut internal audit expenses by half. She responded by calling in the company's top executives to educate them on the role of her division.

"We did not allow ourselves to be thwarted," Cooper said. "We followed our instincts when we felt uncomfortable and continued to dig deeper."

Earlier in the day, Douglas Carmichael, chief auditor and director of the Public Company Accounting Oversight Board, urged the crowd to take a similar approach in sniffing out fraud.

Many auditors have fallen into the rut of using a risk assessment to pick random journal entries for their inspection. That mechanical approach leaves out the prospect for instead picking the abnormal entries that could be found if the process was left up to intuition and instinct.

"The real focus should be on identifying those significant and unusual journal entries," he said. "Conduct an audit in a way that gives you an opportunity to detect fraud."

He also pointed out that to be successful, an auditor only needs to find on instance of fraud to begin the process of unraveling a pattern of abuse.