The story of a Whistleblower

Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt

Leaning objectives:

After completing and discussing this case you should be able to

1. Understand the pressure a person faces when he or she becomes aware of a accounting fraud.

2. Describe possible actions a person can take when he or she suspect's fraud may exist.

3. Recommend characteristic of an effective corporate whistleblower program

4. Describe key requirements in the Sarbanes Oxley Act related to whistleblower and code of ethics processes for public companies.

REQUIRED

1. At the time Cynthia Cooper discovered the accounting fraud, WorldCom did not have a whistleblower hotline process in place. Instead, Cynthia took on significant risks when she stepped over Scott Sullivan's head and notified the audit committee chairman of her findings. Conduct an Internet search to locate a copy of the Sarbanes-Oxley Act of 2002. Summarize the requirements of Section 301.4 of the Act.

2. Use the Internet to conduct research related to whistleblower processes. Prepare a report summarizing key characteristics for the operation of an effective corporate whistleblower hotline. Be sure to highlight potential pitfalls that should be avoided.

3.  As Vice President of Internal Audit, Cynthia Cooper reported directly to WorldCom's CFO, Scott Sullivan, and not to the CEO or audit committee. Research professional standards of the Institute of Internal Auditors to identity recommendations for the organizational reporting lines of authority appropriate for an effective internal audit function within an organization.

4. Conduct an Internet search to locate a copy of the Sarbanes-Oxley Act of 2002 and summarize the requirements of Section 406 of the Act. Then, search the SEC's website  to locate the SEC's Final Rule: "Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002 :Release No. 33-8177:. Summarize the SEC's rule related to implementation of the Section 406 requirements.

5. Often the life of a whistleblower involves tremendous ridicule and scrutiny from others, despite doing the "right thing." Describe your views as to why whistleblowers face tremendous obstacles as a result of bringing the inappropriate actions of others to light.

6. Describe the personal characteristics a person should possess to be an effective whistleblower. As you prepare your list, consider whether you think you've got what it takes to be a whistleblower.

7. Assume that a close family member came to you with information about a potential fraud at his or her employer. Prepare a summary of the advice you would offer as he or she considers taking the information forward.

8. Conduct an Internet search to locate a copy of the Sarbanes-Oxley Act of 2002. Read and summarize the requirements of Section 302 of the Act. Discuss how those provisions would or would not have deterred the actions of Scott Sullivan, CFO at WorldCom.

9. Document your views about the effectiveness of regulatory reforms, such as the Sarbanes-Oxley Act of 2002, in preventing and deterring financial reporting fraud and other unethical actions. Discuss whether you believe the solution for preventing and deterring such acts is more effective through regulation and other legal reforms or through teaching and instruction about moral and ethical values conducted in school, at home, in church, or through other avenues outside legislation.