WorldCom Admits $3.8 Billion Error In Its Accounting --- Firm Ousts Financial Chief And Struggles for Survival; SEC Probe Likely to Widen
NEW YORK -- WorldCom Inc.'s audit committee uncovered what could be one of the largest accounting frauds in history, with the discovery of $3.8 billion in expenses improperly booked as capital expenditures, a gimmick that boosted cash flow and profit over the past five quarters.</br></br>Without the transfers, WorldCom, one of the biggest stock market stars of the past decade, said it would have reported a net loss for 2001, as well as the first quarter of 2002. WorldCom reported a profit of $1.4 billion for 2001 and $130 million for the first quarter of 2002.</br></br>In turn, WorldCom yesterday fired its longtime chief financial officer, Scott Sullivan, and accepted the resignation of David Myers, its senior vice president and controller. Neither Mr. Sullivan nor Mr. Myers could be reached to comment.</br></br>Clearly, WorldCom's survival is in question. WorldCom said it intends to restate its financial statements for the five quarters in what could be among largest restatement in corporate history. The telecommunications firm already has been hobbled by firm already has been hobbled by an industrywide meltdown, a Securities and Exchange Commission probe and $30 billion in debt. WorldCom is one of the world's largest telecom companies, with 20 million consumer customers, thousands of corporate clients and 80,000 employees.</br></br>The company said an irregularity was initially picked up during a routine internal audit conducted soon after the ouster of WorldCom's chief executive, Bernard J. Ebbers, in April. WorldCom officials said they then turned the matter over to the company's audit committee and its auditors, newly hired KPMG LLP, who determined that the issue was serious enough to alert the SEC. The agency already had launched its own investigation into WorldCom in February.