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Micholette Cooke

Accounting 657.01

INSTRUCTOR: Bettye Rogers Desselle, PhD, CPA


JHJ Room 145 5:30 – 6:45 p.m. TTH
02/02/2017

Case#1
[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.
Whistleblower Act
1. 301.4 of Sox requires the committee of a public company must establish procedures for the
receipt, retention, and treatment of complaints received by the issuer regarding accounting,
internal accounting controls, or auditing matter. The procedure must include the confidential
submission as well as anonymous by employees regarding questionable matters.

[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.
1. Effective whistle blower programs should be kept confidential

2. AICPA Note that an effective program should ensure that the complains about accounting
internal control and auditing will be directly submitted to the audit committee.
3. Reporting: the program should provide individuals with every possible means to report
information. There should be a variety of channels that are easily accessible 24 hours a day, 365
days a year.

Possible communication methods include:

 A telephone hotline

 In-person reporting

 Online forms

 A dedicated email address

 A dedicated fax number

 A dedicated mail address (e.g., P.O. Box)


4. For a program to be effective, potential whistleblowers must understand how it works, why
it’s important, and how they will be supported for coming forward.

Pitfalls that should be avoided include.


By using a third party Vendor you avoid pit falls such as
1. Unreliable Confidentiality as well as. Provide assurances of anonymity for whistleblowers
2. Declining management the opportunity to tamper with or even destroy the Complaints
preventing them from reaching its original destination. “The audit committee”
3. Follow Up. If you don’t follow up with the complaint then employees may this it is a waste of
time.

[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.
1100 – Independence and Objectivity The internal audit activity must be independent, and
internal auditors must be objective in performing their work
1110 – Organizational Independence The chief audit executive must report to a level within the
organization that allows the internal audit activity to fulfill its responsibilities. The chief audit
executive must confirm to the board, at least annually, the organizational independence of the
internal audit activity.
The primary reporting line for the Chief Internal Auditor should be to the Chairman of the Audit
Committee. In exceptional circumstances, the Board may wish for Internal Audit to report
directly to the Chairman of the Board, or delegate responsibility for the reporting line to the
Chairman of the Board Risk Committee, provided the Chairman of the Board Risk Committee
and all the other Committee members are independent Non-Executive Directors. The reporting
line must avoid any impairment to Internal Audit’s independence and objectivity and should be
free from interference when communication the results.

[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
(www.sec.gov) 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.

Sox 2002 Section 406 requires that the SEC issues rules that require public companies
To disclose if the company adopted a code of ethics and if it hasn’t the company must disclose a
reason why.
So in March of 2003 Sec Released No.33-8177 which states disclosures required by sections 406
and 407 to require public companies to disclose if the company adopted a code of ethics that
applies to the officers or controls and if it hasn’t the company must disclose and explain why.

[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.
Well the truth hurts.. and it can hurt people as well as your self. Whistle blowers I would image
they have to deal with being critizes , evaluated and investigate. Why investigate ? well because
confirm that the informations is accurate and no based on reveange or anything like that.. Then
they have to deal with the after effect. The Crisis of thousands of hard working people losing
their jobs. No body like a snitch expecially when its taking food off their table. And most of all
There is no whistle blower salary set asside when the company goes down The whistleblower is
now unemployed with the rest of the people. And that’s a hard pill to swollow. Whistleblowers
don’t have a insurance plan or job protection plan.. and there is a possibility thatthey can get
blacked balled from working in the industry.

[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.

1. Confidence to not get intimidated .


2. Independence not allowing any one to influence
3. Courage to contuine to follow though with claim no matter what.
I don’t belive I have what it takes today. However with years of experience once I gain the
assurance with in my self I am certain my mind will change.
[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.
Confirmation is the first step. Confirming that the information is accurate and that there is a
legatime claim based off fact and not personal opinion. Word of mouth gets you nowhere.
So if your going to make a claim make sure you have documents to back you. I would also
suggest looking to see if the company has a hotline that will keep the identity of the indivual
confendentional. Depending on the severity of the issue, I would even suggest going directly
to the audit commeit.

[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.

I don’t believe the provisions would prevent Scott Sullivan from cooking the books
Honestly Scott new the number was wrong however he made the choice to put out a
false statement.. Altho it wasn’t asked.. I belive that the provisions would have helped
David Myers who was the controller at the time who was just doing what his boss.
[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.

I believe the Sarbanes-Oxley Act of 2002 is very effective in today’s business practices. It helps
bring assurance to investors so they know the financial position of a company is accurate and
free of material misstatement which brings comfort to shareholders. I personal believe that
moral and ethical values are taught at home, church as well as school. Growing up we are
taught right from wrong. How it’s bad to lie. And later in life there are consequences that you
face as an adult if you’re not able to apply those teachings that was introduced to you growing
up. At my job we are constantly reminded of moral and ethical value. We usually have meeting
or online training course from we comply. We usually have to watch video and answer question
in regards situations that have to do with ethics. Even to this day as adults we are still taught
these values through training and meetings with in the work place.