Whistleblower Speaks at Partners In Business Event
By Christine Arrington
It was the biggest fraud in business history, starting at $3.8 billion, rising to $9 billion, and ultimately resulting in an $11 billion financial restatement. 70,000 people lost their jobs. Five executives went to prison, including the man who became a national household name, WorldCom CEO Bernie Ebbers. And all that was just within the company—investors lost $38 billion.
Cynthia Cooper, the whistle-blower, spoke to a rapt audience at the Oct. 20th Partners in Business Annual Accounting Conference. She said that the meltdown of WorldCom—the only Fortune 500 company headquartered in Mississippi—wasn’t caused by the fraud itself. Rather, the real cause of the eventual bankruptcy was the bursting of the telecom and dot-com bubbles. The accounting fraud was an effort to cover up the sudden crash of the company’s revenue.
At age 37, Cynthia Cooper was head of the internal operational audit team at WorldCom in Clinton, Mississippi, a college town of 25,000 people. Two of her employees, Betty and Troy, began to notice that a line expense mysteriously called “prepaid capacity” had increased significantly, and they said it “couldn’t be right.”
Ms. Cooper would not back down in her investigation of the issues she began to discover. Eventually, everyone learned that in order to offset a drastic decline in revenue, the CFO, Scott Sullivan, had started putting in many small-dollar-amount expense entries described as “prepaid capacity.” Following the “matching principle,” he would then “hang up” those charges on the balance sheet, as if they were part of a capital lease. Actually, though, they weren’t capital leases but were fictional entries masquerading as operating expenses that should have been expensed immediately, like rent, and not “hung up” on the balance sheet. That realization is what gave away the game.
Ms. Cooper described the terrible effects, now well known, that many whistle-blowers live through—research has shown that they very frequently suffer from being ostracized, difficulty finding a job, divorce, bankruptcy, and alcoholism. She advises that people need to be ready for difficulties when they do the right thing in such circumstances. She experienced depression, weight loss, and long crying jags. She described the low point being one day when she just couldn’t get out of bed, and her father sat on the foot of her bed, reading the 23rd Psalm to her over and over again, trying to help her carry on.
She also remembered, though, that her mother had told her frequently, starting when she was a child, don’t ever allow yourself to be intimidated. That strengthened her, together with her Baptist faith, prayer, her friends, and family. Her husband said, the night before the first public hearing, “Do what you have to do. If we have to go live with our parents, then that’s what we’ll do.” They both knew they might lose everything. She said his support was invaluable.
She cited research on cheating in which 70 percent of executives admitted to cheating, in one form or another. She affirmed that “We have a choice to make, every day.” The choices she made were celebrated on a 2002 cover of Time Magazine, when she and two other whistle-blowers were named Time “Persons of the Year.” Today she is CEO of The Cooper Group LLC, in Jackson, Mississippi, a successful management consulting group that provides services in corporate governance, internal audit, ethics, compliance, fraud prevention and detection. She speaks all over the country and internationally in an effort to use her experience in a positive way. Despite the difficulties she experienced, she said she definitely would do it again.