Leadership in Action: What does it take to be a whistleblower?

Cynthia simply loved numbers! At High School, she couldn’t wait to get to accounting; it was her favourite class. Cynthia Cooper was a high achiever who showed a healthy streak of determination in going after her goals. All her teachers, family and friends agreed that Cynthia was destined to join the accounting profession.

Fast forward to early March 2002 and a cloudy Monday morning, Cynthia turned her car into the space with the sign “Vice President Internal Audit.” As she switched off the ignition, she thought to herself, “Life is good!” Only 38 years old and she had the job of her dreams! She couldn’t believe how lucky she had been to work her way up through the ranks at WorldCom over the last 10 years. That the giant telecommunications corporation was headquartered in Clinton Mississippi was perfect. Cynthia’s parents lived close by, she was happily married to Lance and they had two little daughters. She couldn’t imagine how things could have worked out better.

As Vice-President Internal Audit, nothing and no-one would stop Cynthia doing her job!

This particular Monday morning Cynthia was hurrying to make her 8.45am meeting with the Divisional Vice President of WorldCom’s Wireless business, John Stupka. He was already waiting for her outside her office on the 18^th floor. “Hi, John, you’re a little early, aren’t you?” she said smiling, “Come right in.” It turned out to be a very intense meeting.

John was angry about a $400 million reserve that Scott Sullivan, WorldCom’s CFO, had taken out of his Division. The purpose of the reserve was to account for possible revenue shortfalls if customers didn’t pay their bills and his Division suffered a large pool of bad debts. He complained to Cynthia, “Now I’ll have to report a large loss in the next quarter.” He had also voiced his concerns to Arthur Andersen, their external auditors, but they had backed up the CFO in his decision to divert the $400 million into WorldCom’s income account. Cynthia was puzzled by this transaction and promised him that she would get some answers from Scott Sullivan (who was also her boss) and would ring Arthur Andersen.

Shortly after John left her office, Cynthia telephoned Andersen’s and spoke to the Audit Partner responsible for WorldCom. His response was frosty and he brushed her off by saying that he only took instructions from Scott Sullivan. This was like waving a red flag in front of a bull. Cynthia instructed members of her staff to “Go dig.” While her staff commenced their investigations, Cynthia moved quickly to appeal the decision with the audit committee of WorldCom’s Board of Directors. This decision put her in direct conflict with Scott Sullivan. Both she and Sullivan presented their separate cases to the audit committee on March 6, 2002. The outcome: Sullivan backed down on his decision to transfer the $400 million reserve out of the Wireless Division.

The next day Cynthia was at the hair salon when she received a call on her cell phone from Scott Sullivan. He warned her, “In future, you are not to interfere in the Wireless Division.” This was a moment of truth: her boss, the second most powerful executive at WorldCom after the CEO Bernie Ebbers, was making it loud and clear that she should not continue her current line of investigations.

Scott Sullivan was instructing his direct report, as he had every right to do, but was she going to comply? How many people at this point would have backed away and called off any further probing. Cynthia had worked hard to get to her senior position of VP Internal Audit with 24 staff reporting to her. To continue her investigations could turn into a career-limiting move. It was not Internal Audit’s responsibility to undertake their financial auditing as this was generally handled by their external auditors. Yet the more Cynthia thought about it, the more her misgivings grew that something was not right about how and why this $400 million transaction had been authorised.

The following day – March 7 – the SEC (Securities and Exchange Commission) dropped a bombshell on WorldCom executives with a “Request for Information.” Regulators at the SEC were concerned that WorldCom’s reported results had been so strong when all their competitors had been losing money hand over fist in 2001. If Cynthia’s instincts that something was wrong had been aroused before, she now felt certain that her Internal Auditing team must step up their investigations. She decided they would start doing financial audits to check the reliability and integrity of the financial information which the company was making public to investors and the New York Stock Exchange.

Most of their investigations had to be done after hours so that they could access the computer information systems without raising alarm bells about their activities. In fact, the audit team ran so many queries late into the night that the computer system crashed more than once. Any transactions that appeared suspect were traced back to their original documents. They found that an astonishing number of large transactions were false and had no supporting invoices or payment authorisations. By the first week of June, these fraudulent entries totalled $2 billion and keep on rising week by week.

Some of the key events in the months between March & June 2002, and afterwards were:

May 28, 2002: An Internal Auditor in Cynthia’s team finds an accounting entry for $500 million in computer expenses but he couldn’t find any invoices or documentation. Cynthia tells her team to “Keep going.”

June 11, 2002: CFO Scott Sullivan asks Cynthia to delay her audit. She refuses.

June 17, 2002: Cynthia confronts other WorldCom executives about the increasing number of major accounting irregularities her staff are finding. A number of the executives acknowledged that they knew about what was happening and that they personally disapproved but had been - and continued to be - unwilling to oppose their superiors about it.

June 20, 2002: Cynthia presents her findings to WorldCom’s board. Four days later, Scott Sullivan is fired. His Financial Controller resigns.

June 25, 2002: WorldCom makes a public announcement that it has inflated its profits by $3.8 billion over the previous five quarters.

July 21, 2002: WorldCom files for Chapter 11 bankruptcy.

July 14, 2005: Former WorldCom chief executive Bernie Ebbers is sentenced to 25 years in prison for fraud, conspiracy and false filings. At 63 years of age, this was, in effect, a life sentence for him. His personal fortune of up to $40 million was forfeited in a settlement of civil litigation brought against him.
August 12, 2005: Scott Sullivan is sentenced to five years imprisonment. He had turned prosecution star witness and pleaded guilty to three counts of security fraud. Because of his cooperation with the authorities and that he had a sick spouse, the Judge gave him a lighter prison sentence.

In round figures, Worldcom shareholders lost a staggering $US180 billion and 20,000 employees lost their jobs.

Cynthia Cooper did not back down from doing what she knew to be right despite being under considerable pressure to keep quiet and stay away. She was courageous, resolute and stood her ground, leading her team through an investigative process of the most critical importance.

Cynthia Cooper offers an exemplary role model of how to protect our personal integrity and keep focussed if we come across something rotten in the organisational apple. We hope that you never find yourself in this kind of dire situation. Only then do we ever know whether we have the courage and character to stand our ground and refuse to ignore, comply or become complicit.

Lynne Lloyd

Managing Director