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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (92274)	7/8/2002 12:24:51 AM
From: sylvester80	Respond to of 99280

Ebbers Tried to Cut WorldCom Audit Budget biz.yahoo.com Sunday July 7, 10:30 pm Eastern Time Reuters Business Report Ebbers Tried to Cut WorldCom Audit Budget By Jeremy Pelofsky WASHINGTON (Reuters) - WorldCom Chief Executive Bernard Ebbers proposed cutting by half the budget of the company's internal audit unit before he resigned earlier this year, a congressional source said on Sunday. A hearing on Monday will cover this and other topics, the source said. The second-largest U.S. long-distance telephone carrier is embroiled in a scandal for improperly accounting for $3.85 billion in expenses over five quarters, a debacle that could eclipse the crash of Enron Corp. which filed for the largest bankruptcy in U.S. history. The U.S. House Financial Services Committee, which probed auditor Andersen's role in the Enron collapse, will open a high-profile hearing at 1 p.m. (1700 GMT), delving into how the accounting errors went undiscovered and whether more reforms will be needed for the industry. The hearing will also focus on the timeline of when top executives at the company knew about the fiasco as well as a downgrade of WorldCom stock by Salomon Smith Barney analyst Jack Grubman, just before the debacle was made public. Ebbers resigned in April under pressure over the company's massive debts and huge personal loans he received from it. WorldCom ended up only cutting the office's expenditure budget by 10 percent, according to the source. "This showed a lack of emphasis of internal auditing that, in retrospect, was unfortunate to say the least," the source said. Internal auditor Cynthia Cooper eventually discovered the bookkeeping errors in May, WorldCom has said. Company spokesman Brad Burns declined to comment. The Securities and Exchange Commission has sued WorldCom for fraud, alleging the company improperly booking capital spending as expenses which hid $1.22 billion in losses over five quarters starting in 2001. WorldCom, the second-largest U.S. long-distance carrier, is also the subject a federal investigation by the U.S. Justice Department. WHAT DID SALOMON KNOW? Expected to testify at the hearing are WorldCom Chief Executive Officer John Sidgmore, Chairman Bert Roberts, Salomon's Grubman, and Melvin Dick, once a senior partner at former WorldCom auditor Andersen. The WorldCom executives are expected to echo comments made last week about the importance of the company's survival to the U.S. economy and national security, according to a source familiar with their testimony. WorldCom handles about half of the world's Internet traffic and has 20 million customers. The men at the center of the controversy, Ebbers, former Chief Financial Officer Scott Sullivan and former controller David Myers have been subpoenaed to appear at the hearing but could invoke their right not to testify. Salomon's Grubman will likely face questions during the hearing about his downgrade of WorldCom on June 21, a Friday, to "underperform" from "neutral," days before the accounting errors became public, the congressional source said. On June 24, a Monday, his move was made public. Some analysts alert their customers to a change in a stock rating and make it public a day later. On the same day another Salomon analyst in the firm's bond department e-mailed then CFO-Sullivan seeking information about a rumor that WorldCom had a $3 billion liability, sources said. Sullivan passed on the e-mail to a WorldCom lawyer, the sources said. The next day, June 25, Sullivan was fired for failing to sufficiently explain the errors. The e-mail was not replied to until after the public announcement, one of the sources said. "The writer clearly is referring to a rumor picked up from the street that seems to have no link to the accounting fraud and nothing to do with Jack Grubman," Salomon spokeswoman Arda Nazerian said. (With additional reporting by Jessica Hall in Philadelphia.)