Week 6 Project
In August 2001, Cynthia Cooper began an operational internal audit. This was her job and she simply was trying to do it. Cooper began to inquire on capital expenditures, Sullivan instructed Myers to restrict the scope of her audit. When she received a revised chart of expenditures, with a beginning accrual of 2.3 billion to 174 million it began to raise red flags. There were complaints of transfers of accruals in a portion of the business and bad debt expenses that had been done to up the financials. When she was told to investigate and the accountants told her they only answer to Sullivan, red flags went up everywhere. This behavior continued and resulted in a surprise SEC investigation, along with the board being informed of the information that the audit team received. Even with the outside auditors, continuing to give the company good rankings in regards to fraud risk, cooper continued with her audit and fining information.
When the non-executive directors met to discuss the future of Ebbers with the company in April of 2002, they knew that they were ready to ask for his resignation. They were unsatisfied with his performance and decided to ask for it. That agreement was established and signed within three days which included the restructure of his loans that he had gotten with the company for collateral.
At this point the internal audit really began to look at the situation and discovered $3 billion in questionable expenses, including $500 million in computer expenses. They also began to question capital expense entries and asked for explanations. As the investigation continued it showed that there was no accounting backup to support the entries. Yates at that point admitted to the audit team that there was no “accounting standards” backup that existed to support them and once the entries started he had a hard time stopping.
On June 20, 2002 the audit team met in Washington D.C. with the audit committee and disclosed what they had...