Alleged fraud at US telco giant
- 25 June, 2002 22:00
WorldCom, the owner of local ISP Voyager, is facing allegations of the largest fraud in US corporate history.
Clinton, Mississippi-based WorldCom has fired its chief financial officer Scott Sullivan after discovering "improper accounting" of nearly $US4 billion in expenses. David Myers, senior vice president and controller, was allowed to resign. The company plans to lay off 17,000 staff, starting this week, although it may be put into Chapter 11 bankruptcy protection by then. WorldCom has announced it will "restate" its 2001 financial results.
Accounting firm Andersen, whose role as the auditor of Enron helped lead to the energy trader's collapse, had audited WorldCom's financial statements for 2001. The WorldCom announcements helped send its stock down nearly 76% on The Island ECN after-hours market. On Tuesday evening (US time) the stock was trading at $US0.20.
Locally, WorldCom bought Voyager in 1999 and moved to shut down its residential arm late last year, leaving only its business customer base intact. Local management has also been handed off to Australia. Voyager is in the throes of rebranding itself as WorldCom.
Trevor Duff, managing director of Australia and New Zealand, was unavailable for comment, referring IDGNet to the WorldCom regional communications manager Rowena Kwok in Hong Kong. Kwok did not immediately return IDGNet calls.
One of WorldCom's New Zealand customers, the Met Service, says it shouldn't be affected by any problems as it uses two ISPs anyway.
"We were already moving off them quite quickly," says CIO Marco Overdale. "Fortunately for us we have dual ISPs so this shouldn't cause us any operational nightmares."
The Met Service adopted its dual-ISP approach in September 2000, following an outage on Voyager's network that lasted for several hours. Overdale says he is happy with two ISPs and will continue to use that model with another ISP if WorldCom does fall over.
WorldCom has notified the Securities and Exchange Commission in the US and asked its recently hired external auditor, KPMG, to undertake a comprehensive audit of the financial statements from those periods, according to a company statement. The company expects to provide a restatement of its results as soon as possible.
According to WorldCom's statement certain transfers from line cost expenses to capital accounts during 2001 and the first quarter of 2002 were not made in accordance with US Generally Accepted Accounting Principles (GAAP). The transfers totalled $US3.05 billion in 2001 and $US797 million in the first quarter of 2002.
Without the transfers, WorldCom's earnings before interest, taxes, depreciation and amortisation (EBITDA), would be reduced to $US6.34 billion, and for the first quarter of 2002 would be cut to $US1.37 billion. The company would have reported net losses for both periods, it said.
WorldCom does not expect a restatement of its results to affect its cash position or its customers or services, the statement said.