Think of her as the mother of 404. Not that that’s a goal she ever imagined or one she has embraced. But the odyssey that began when Cynthia Cooper, the then–vice president of internal audit at WorldCom, decided to investigate anomalies in the company’s accounting entries ended by inspiring critical — and heavily criticized — legislation: the U.S. Senate responded to revelations about massive accounting fraud at the telecom giant by adding Section 404, on the assessment of internal controls, to the Sarbanes-Oxley Act. For public companies, the rest is history. For executives, Cooper’s experiences challenging then-CEO Bernie Ebbers and then-CFO Scott Sullivan, brought to life in her new book, Extraordinary Circumstances (John Wiley & Sons, February), offer lessons that are as fresh today as when the scandal first broke.
When did you first suspect that something might be wrong at WorldCom?
It was a process. My feelings changed from curiosity to discomfort to suspicion based on some of the accounting entries my team and I had identified, and also on the odd reactions I was getting from some of the finance executives.
For example, the CFO [Scott Sullivan] asked me to delay our capital-expenditure audit. When I received an E-mail from the controller telling me that I was wasting my time auditing capital expenditures, it made me uncomfortable. When I showed [our evidence] to the external audit partner, he wasn’t initially concerned. In fact, the audit committee actually gave Scott the weekend to write a white paper supporting his position.
Nobody wants to believe that the CFO is perpetrating a multi-billion-dollar fraud, especially somebody as respected as Scott Sullivan. But as my suspicions grew, my team and I began working at night and behind closed doors because we didn’t want to be detected. We were running so many queries of the accounting system that we were starting to crash it.
When did it come together for you?
Eventually we went door-to-door in the accounting department, working our way up the chain of command. When we finally confronted the controller, David Meyers, he confessed. His wife later told The Wall Street Journal that he had decided that if I came to him and confronted him directly he would tell me the truth. He also said he felt better that day than he had in years.
How long was it after the MCI merger before people thought, “Uh-oh, this is a mistake”?
I would say that there was a consensus across the company that it was a mistake. First of all, the company had to take on a huge debt load to acquire MCI. And a significant portion of MCI’s business came from residential sales. Up until that point WorldCom’s strategy — and Bernie Ebbers really kept to this philosophy — had been to stick to business customers, a market with higher margins and less turnover.