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Virginia International University

FALL, 2015.

School of Business

BA !11 Business "thics # La$

Su%&itte' %y

' Saye' (asan

I)* 1000012!5+5

o

)r. Ashley -e$ell

* ase Stu'y on /orl'o& Accounting Frau'

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/orl'o&, US secon' largest teleco&&unication co&any shoce' the $orl' %y

filing %anrutcy at 21 uly2002. he /orl'o& filing surasse' "nron an' %eca&e the largest

%anrutcy filing in Unite' States history. )ue to its rai' gro$th, /orl'o& is also heavi ly

in 'e%t as they finance the co&any gro$th $ith 'e%t. he collase of /orl'o& 'i'

not 3ust affect their e&loyees, retailers, the govern&ent %ut also %aners. /orl'o& $as a

&ulti4%illion 'ollar teleco&&unications co&any that $as foun'e' in167 .he co&any

starts their %usiness un'er the na&e 8Long )istance )iscount Services8 9L))S:,

rovi'ing long 'istance teleco&&unication services. he venture $as rofita%le

right fro& the start. In 165, Bernie "%%ers %eca&e the co&any8s ";. he co&any

changes its na&e to /orl'o& in 15.)uring the 10en'iture $hat shoul' have %een nor&al e>enses, thus

turning losses into rofit, creating a s&oescreen that the co&any is erfor&ing $ell. hings

start to co&e un'er light at une 2002 an' the co&any

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file %anrutcy in uly. Several to &anage&ent ersonnel $ere hel' resonsi%ilities for the

frau'.

/orl'o& $as the a&alga&ation of &any &ergers an' ac=uisitions 'uring the consoli'ation

hase of the US teleco& in'ustry. Ironically, it $as less than t$enty years since the US ha'

force' the %reau of A#. Its %usiness an' &ove' %eyon' long 'istance an' ha' %eco&e a %ig

layer in %oth the local &arets as $ell as the Internet. /hile a very fast gro$ing co&any,

/orl'o&cess caacity. Its stoc rice ha'

really %enefite' fro& %oth the 'ot.co& an' teleco& %u%%les. Unfortunately, its senior lea'ershi

an' the resulting cororate culture $as fi>ate' on &aintaining its high rice an' %egan to

tae&ae ever increasingly aggressive accounting 'ecisions to artificially ro u the stoc. As

ti&e $ent on, these accounting 'ecisions &ove' fro& earnings &anage&ent to fully crossing the

line into a &assive accounting frau'. "ventually, the accounting frau' $as e>ose' %y ynthia

ooer 9(ea' of Internal Au'it: an' /orl'o&

inco&e ha' %een overstate' %y so&e ?C %illion an' assets ha' to %e $ritten 'o$n %y over ?60

%illion. he resulting outco&e of /orl'o&

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articiate any 'ecision thattent of his unish&ent is un'er contention, one

thing re&ains clear 4 that "%%ers an' the other officers at /orl'o& are guilty of resi'ing over

$hat is to 'ate, the largest cororate frau' in history.