management

Article 1

CLINTON, Miss. -- Sitting in his cubicle at WorldCom Inc. headquarters one afternoon in May, Gene Morse stared at an accounting entry for $500 million in computer expenses. He couldn't find any invoices or documentation to back up the stunning number.

"Oh my God," he muttered to himself. The auditor immediately took his discovery to his boss, Cynthia Cooper, the company's vice president of internal audit. "Keep going," Mr. Morse says she told him.

A series of obscure tips last spring had led Ms. Cooper and Mr. Morse to suspect that their employer was cooking its books. Armed with accounting skills and determination, Ms. Cooper and her team set off on their own to figure out whether their hunch was correct. Often working late at night to avoid detection by their bosses, they combed through hundreds of thousands of accounting entries, crashing the company's computers in the process.

By June 23, they had unearthed $3.8 billion in misallocated expenses and phony accounting entries. It all added up to an accounting fraud, acknowledged by the company, that turned out to be the largest in corporate history. Their discoveries sent WorldCom into bankruptcy, left thousands of their colleagues without jobs and roiled the stock market.

At a time when dishonesty at the top of U.S. companies is dominating public attention, Ms. Cooper and her team are a case of middle managers who took their commitment to financial reporting to extraordinary lengths. As she pursued the trail of fraud, Ms. Cooper time and again was obstructed by fellow employees, some of whom disapproved of WorldCom's accounting methods but were unwilling to contradict their bosses or thwart the company's goals.

WorldCom is under investigation by the Justice Department and the Securities and Exchange Commission. Scott Sullivan, WorldCom's former chief financial officer and Ms. Cooper's boss, has been indicted. He has denied any wrongdoing. Four other officers have pleaded guilty and are cooperating with prosecutors. Federal investigators are still probing whether Bernard J. Ebbers, the company's former chief executive, knew about the accounting improprieties. Since the initial discoveries, WorldCom's accounting misdeeds have grown to $7 billion.

Behind the tale of accounting chicanery lies the untold detective story of three young internal auditors, who temperamentally didn't fit into WorldCom's well-known cowboy culture. Ms. Cooper, 38 years old, headed a department of 24 auditors and support staffers, many of whom viewed her as quiet but strongwilled. She grew up in a modest neighborhood near WorldCom's headquarters and had spent nearly a decade working at the company, rising through its ranks. She declined to be interviewed for this story. Mr. Morse, 41, was known for his ability to use technology to ferret out information. The third member of the team was Glyn Smith, 34, a senior manager under Ms. Cooper. In his spare time he taught Sunday school, took photographs and bicycled. His mom had taught him and Ms. Cooper accounting at Clinton High School.

Frightened that they would be fired if their superiors found out what they were up to, the gumshoes worked in secret. Even so, their initial discrete inquiries were stonewalled. Arthur Andersen, WorldCom's outside auditor, refused to respond to some of Ms. Cooper's questions and told her that the firm had approved some of the accounting methods she questioned. At another critical juncture in the trio's investigation, Mr. Sullivan, then the company's CFO, asked Ms. Cooper to delay her investigation until the following quarter. She refused.

Ms. Cooper's first inkling that something big was amiss at WorldCom came in March 2002. John Stupka, the head of WorldCom's wireless business, paid her a visit. He was angry because he was about to lose $400 million he had specifically set aside in the third quarter of 2001, according to two people familiar with the meeting. His plan had been to use the money to make up for shortfalls if customers didn't pay their bills, a common occurrence in the wireless business. It was a well-accepted accounting device.

But Mr. Sullivan decided instead to take the $400 million away from Mr. Stupka's division and use it to boost WorldCom's income. Mr. Stupka was unhappy because without the money, his unit would likely have to report a large loss in the next quarter.

Mr. Stupka's group already had complained to two Arthur Andersen auditors, Melvin Dick and Kenny Avery. They had sided with Mr. Sullivan, according to federal investigators.

But Mr. Stupka and Ms. Cooper thought the decision smelled funny, although not obviously improper. Under accounting rules, if a company knows it is not going to collect on a debt, it has to set up a reserve to cover it in order to avoid reflecting on its books too high a value for that business. That was exactly what Mr. Stupka had done. Mr. Stupka declined to comment.

Ms. Cooper decided to raise the issue again with Andersen. But when she called the firm, Mr. Avery brushed her off and made it clear that he took orders only from Mr. Sullivan, according to the investigators. Mr. Avery and Mr. Dick declined to comment. Patrick Dorton, a spokesman for Andersen, said his firm thought that the $400 million wireless reserve was not necessary.

"That was like putting a red flag in front of a bull," says Mr. Morse. "She came back to me and said, `Go dig.' "

Some internal auditors would have left it at that and moved on. After all, both the company's chief financial officer and its outside accountants had signed off on the decision. But that was not Ms. Cooper's style. One favorite pastime among the auditors who reported to her was applying the labels of the Myers-Briggs & Keirsey personality test to their fellow staffers. Ms. Cooper was categorized as an INTJ -- introspective, intuitive, a thinker and judgmental. "INTJs," according to the test criteria, are "natural leaders" and "strong-willed," representing less than 1% of the population.

And so Ms. Cooper decided to appeal the decision. As head of auditing, it was her responsibility to bring sensitive issues to the audit committee of WorldCom's board. She brought the reserves question to the attention of the committee's head, Max Bobbitt. At a committee meeting at the company's Washington offices on March 6, she and Mr. Sullivan presented their cases, according to minutes from the meeting. Mr. Sullivan backed down, according to people familiar with his decision.

The next day he tracked down Ms. Cooper. Unable to reach her immediately, Mr. Sullivan called her husband, a stay-at-home dad to their two daughters, to get her cellphone number. He finally caught up with her at the hair salon. In the future, she was not to interfere in Mr. Stupka's business, Mr. Sullivan warned, according to people familiar with the reserves question.

The confrontations put Ms. Cooper in a sticky position. Mr. Sullivan was her immediate supervisor. Plus, her vague discomfort with the way WorldCom was handling its accounting led her into areas that were not normally her bailiwick. Although her department did a small amount of financial auditing, it primarily performed operational audits, consisting of measuring the performance of WorldCom's units and making sure the proper spending controls were in place. The bulk of the company's financial auditing was left to Arthur Andersen. But neither of those things dissuaded Ms. Cooper from following her nose to the root of the ill-defined problem.

On March 7, a day after Ms. Cooper had visited with the audit committee, the SEC surprised the company with a "Request for Information." While WorldCom's closest competitors, including AT&T Corp., were suffering from a telecom rout and losing money throughout 2001, WorldCom continued to report a profit. That had attracted the attention of regulators at the SEC, who thought WorldCom's numbers looked suspicious.

But investigators had grown frustrated as they combed through public filings looking for evidence of wrongdoing, according to people familiar with the inquiry. So they asked to see data on everything from sales commissions to communications with analysts.

Concerned about why the SEC was sniffing around, Ms. Cooper directed her group to start collecting information in order to comply with the request.

She also was growing concerned about another looming problem. Andersen was under fire for its role in the Enron case, which soon would lead to the accounting firm's indictment. It was clear that WorldCom would have to retain new outside auditors.

Ms. Cooper set off on an unusual course. Her own department would simply take on a role that no one at Worldcom had assigned it. The troubles at Enron and Andersen were enough to warrant a second look at the company's financials, she explained to Mr. Morse one evening as they walked out to WorldCom's parking lot. Her plan: her department would start doing financial audits, looking at the reliability and integrity of the financial information the company was reporting publicly.

It was a major decision, which would necessitate a lot more work for Ms. Cooper and her staffers. Still, Ms. Cooper took on financial auditing without asking permission from Mr. Sullivan, her boss, according to investigators and a person familiar with Ms. Cooper's decision.

"We could see a strain in her face," recalls her mother, Patsy Ferrell, about that time period. "She didn't look happy. We knew she was working late and some of the other people were working late. We would call and say, `Can we bring some sandwiches?' and her father would bring them sandwiches."

Several weeks later, Mr. Smith, a manager under Ms. Cooper, received a curious e-mail from Mark Abide, based in Richardson, Texas, who was in charge of keeping the books for the company's property, plants and equipment.

Mr. Abide had attached to his May 21 e-mail a local newspaper article about a former employee in WorldCom's Texas office who had been fired after he raised questions about a minor accounting matter involving capital expenditures. "This is worth looking into from an audit perspective," Mr. Abide wrote. Mr. Smith, who declined to be interviewed, forwarded the e-mail to Ms. Cooper, according to investigators and a lawyer involved in the case.

The e-mail piqued Ms. Cooper's interest. As part of their initial foray into financial auditing, Ms. Cooper and her team had already stumbled on to the issue of capital expenditures, a subject that would prove to be crucial to their quest.

The team had run into an inexplicable $2 billion that the company said in public disclosures had been spent on capital expenditures during the first three quarters of 2001. But they found that the money had never been authorized for capital spending.

Capital costs, such as equipment, property and other major purchases, can be depreciated over long periods of time. In many cases, companies spread those costs over years. Operating costs such as salaries, benefits and rent are subtracted from income on a quarterly basis, and so they have an immediate impact on profits.

Ms. Cooper and her team were beginning to suspect what was up with the mysterious $2 billion entry: It might actually represent operating costs shifted to capital expenditure accounts -- a stealthy maneuver that would make the company look vastly more profitable.

When Ms. Cooper and Mr. Smith asked Sanjeev Sethi, a director of financial planning, about the curious adjustment, he told them it was "prepaid capacity," a term they had never heard before. Further inquires led them to understand that prepaid capacity was a capital expenditure. But when they asked what it meant, Mr. Sethi told them to ask David Myers, the company's controller, according to Mr. Morse and a person familiar with Ms. Cooper's situation. Mr. Sethi did not return phone calls.

Ms. Cooper and Mr. Smith opted instead to call Mr. Abide, who had pointed out a capital expenditures problem in his e-mail. When they asked him about "prepaid capacity," he too answered very cryptically, explaining that those entries had come from Buford Yates, WorldCom's director of general accounting.

While perusing records looking for accounting irregularities later that same day, May 28, Mr. Morse made the big discovery of the $500 million in undocumented computer expenses. They also were logged as a capital expenditure. "This stinks," Mr. Morse recalls thinking to himself. He immediately went to Ms. Cooper to tell her what he'd found. She called a meeting of her department. "I knew it was a horrific thing and she did too, right off the bat," says Mr. Morse.

Several days later, Ms. Cooper and Mr. Smith met to try to make sense of their growing list of clues. Particularly puzzling were the cryptic comments made by Mr. Sethi and Mr. Abide. Finally the two auditors came up with a plan of action to test their sense that when it came to the booking of capital expenditures, something was very wrong at WorldCom. Ms. Cooper would send Mr. Smith an e-mail saying she wanted to know more about prepaid capacity as soon as possible, and asking how much harder they should press Mr. Sethi. They would copy Mr. Myers on the e-mail.

Mr. Myers shot back an e-mail. Mr. Sethi should be working for him and did not have time to devote to Ms. Cooper's inquiries, he wrote. Ms. Cooper had been stonewalled yet again.

Ms. Cooper and Mr. Smith didn't know it, but they had stumbled onto evidence that some executives were keeping two sets of numbers for the then-$36 billion company, one of them fraudulent.

By 2000, WorldCom had started to rely on aggressive accounting to blur the true picture of its badly sagging business. A vicious price war in the long-distance market had ravaged profit margins in the consumer and business divisions. Mr. Sullivan had tried to respond by moving around reserves, according to his indictment. But by 2001 it wasn't enough to keep the company afloat.

And so Mr. Sullivan began instructing Mr. Myers to take line costs, fees paid to lease portions of other companies' telephone networks, out of operating-expense accounts where they belonged and tuck them into capital accounts, according to Mr. Sullivan's indictment.

It was a definite accounting no-no, but it meant that the costs did not hit the company's bottom line -- at least in the version of the books that were publicly scrutinized. Although some staffers objected, the scheme progressed for the next five quarters.

Ms. Cooper, Mr. Smith and Mr. Morse didn't know this. They only knew that accounting entries had been hopscotching inexplicably around WorldCom's balance sheets and that nobody wanted to talk about it. To put all the pieces together, they would need to plumb the depths of WorldCom's computerized accounting systems.

Full access to the computer system was a privilege that normally had to be granted by Mr. Sullivan. But Mr. Morse, a bit of a techie, had recently figured out a way around that problem.

Without explaining what he was up to, Mr. Morse had asked Jerry Lilly, a senior manager in WorldCom's information technology department, for better access to the company's accounting journal entries. Mr. Lilly was testing a new software program and gave Mr. Morse permission to road test the system, too.

The beauty of the new system, from Mr. Morse's perspective, was that it enabled him to scrutinize the debit and credit sides of transactions. By clicking on a number for an expense on a spreadsheet, he could follow it back to the original journal entry -- such as an invoice for a purchase or expense report submitted by an employee, to see how it had been justified.

Sifting through the data for answers to still-vague questions about capital expenditures amounted to a frustrating task, Mr. Morse says. He combed through an account labeled "intercompany accounts receivables," which contained 350,000 transactions per month. But when he downloaded the giant set of data, he slowed down the servers that held the company's accounting data. That prompted the IT staff to begin deleting his requests because they were clogging and crashing the system.

Mr. Morse began working at night, when there was less demand on the servers, to avoid having his work shut down by the IT department. During the day, he retreated to the audit library -- a windowless, 12-by-12 room piled with files from previous projects and tucked away in the audit department -- to avoid arousing suspicion.

By the first week of June, Mr. Morse had turned up a total of $2 billion in questionable accounting entries, he says.

Having found the evidence they were looking for, the sleuths were suddenly faced with how serious the implications of their endeavor really were.

Mr. Morse grew increasingly concerned that others in the company would discover what he had learned and try to destroy the evidence, he says. With his own money, he went out and bought a CD burner and copied all the incriminating data onto a CD-Rom. He told no one outside of internal audit what he had found.

Mr. Morse even kept his wife, Lynda, in the dark. Each night, he'd bring home documents he was studying. He instructed his wife not to touch his briefcase. His wife thought the usually gregarious father of three looked drained.

Ms. Cooper had begun confiding in her parents, with whom she was especially close. Without going into detail, she told her mother that she was worried about what her team was finding, and that it was definitely a very big deal, according to a person close to Ms. Cooper.

Meanwhile, Mr. Sullivan began to ask questions about what Ms. Cooper's team was up to. One day the finance chief approached Mr. Morse in the company cafeteria. When Mr. Morse saw him coming, he froze. The auditor had only spoken to Mr. Sullivan twice during his five-year tenure at WorldCom.

"What are you working on?" Mr. Morse later recalled Mr. Sullivan demanding. Mr. Morse looked at his shoes. "International capital expenditures," he says he replied, referring to a separate, and less-threatening auditing project. He quickly walked away.

Days later, on June 11, Ms. Cooper got an unexpected phone call from Mr. Sullivan. He told her that he would have some time later in the day, and invited her to come by and tell him what her department was up to, according to a person familiar with Ms. Cooper's situation.

That afternoon, Ms. Cooper, Mr. Smith and another auditor arrived at Mr. Sullivan's office. They talked about pending promotions and other administrative matters, according to lawyers involved in the case.

As the meeting was breaking up, Ms. Cooper turned to Mr. Smith and suggested that he tell Mr. Sullivan what he was working on. It was meant to seem like a casual comment. In fact, the two auditors had planned it out beforehand, so that they could gauge Mr. Sullivan's reaction, according to a person familiar with Ms. Cooper's situation.

Mr. Smith briefly described the audit, without going into the explosive material they already had found.

Mr. Sullivan urged them to delay the audit until after the third quarter, saying there were problems he planned to take care of with a write-down, according to several people familiar with the meeting.

Ms. Cooper replied that no, the audit would continue. Mr. Sullivan didn't respond, and the meeting ended in a stalemate.

Concerned now that Mr. Sullivan might try to cover up the accounting improprieties, Ms. Cooper and Mr. Smith appealed to Mr. Bobbitt, the head of WorldCom's audit committee. Mr. Bobbitt had to travel to Mississippi from his home in Florida for a board meeting scheduled for June 14, so the day before he met with Ms. Cooper and Mr. Smith at a Hampton Inn in Clinton.

The two auditors told Mr. Bobbitt what they had found. He asked Ms. Cooper to contact KPMG, the company's new outside auditors, and brief them on what was happening. Mr. Bobbitt did not raise Ms. Cooper's suspicions at the board meeting the next day, according to a document WorldCom later submitted to the SEC. James Sharpe, Mr. Bobbitt's lawyer, declined to comment.

Farrell Malone, the KPMG partner in charge of the WorldCom account, urged Ms. Cooper to make sure she was right.

On June 17, Ms. Cooper's team began a series of informal confrontations meant to convince themselves that there was no legal explanation for the accounting entries.

That morning, Ms. Cooper and Mr. Smith went to the office of Betty Vinson, director of management reporting, and asked her for documentation to support the capital-expense-accounting entries. Ms. Vinson told the two that she had made many of the entries but did not have any support for them, according to an internal memo prepared by Ms. Cooper and Mr. Smith. Ms. Vinson's lawyer did not return phone calls.

Next they walked a few feet to Mr. Yates's office. He said he was not familiar with the entries and referred Ms. Cooper and Mr. Smith to Mr. Myers.

The duo then paid a call on Mr. Myers. When confronted, he admitted that he knew the accounting treatment was wrong, according to the memo. Mr. Myers said that he could go back and construct support for the entries but that he wasn't going to do that. Ms. Cooper then asked if there were any accounting standards to support the way the expenses were treated, according to the memo, which was later made public by a Congressional committee.

Mr. Myers answered that there were none. He said that the entries should not have been made, but that once it had started, it was hard to stop.

Mr. Smith asked how Mr. Myers planned to explain it all to the SEC. Mr. Myers replied that he hoped it wouldn't come to that, according to the memo.

An hour or so later, Ms. Cooper returned to her department to brief Mr. Morse and her other auditors. "They have no support," she told them, according to Mr. Morse.

It was clear to Ms. Cooper's team that their findings would be devastating for the company, and the prospect of going before the board with their evidence was sobering. They worried about whether their revelations would result in layoffs and obsessed about whether they were jumping to unwarranted conclusions that their colleagues at WorldCom were committing fraud. Plus, they feared that they would somehow end up being blamed for the mess.

Ms. Cooper's staffers began to notice that she was losing weight. Mr. Morse's wife noticed he was preoccupied and short tempered.

During the third week in June, Mr. Smith called his mother, who was vacationing in Albuquerque, according to a person familiar with the conversation. Without providing specifics, he told her that he was about to take actions at WorldCom that were not going to make people happy. He asked his mother, Ms. Cooper's former high school accounting teacher, to remember him in her prayers and to pray for him to be strong.

Ms. Cooper prepared for several meetings with the audit committee. At one, on June 20, Mr. Sullivan was scheduled to defend himself.

One evening, as Ms. Cooper worked late with accountants from KPMG, she suddenly dropped her head into her arms on the conference-room table. Mr. Malone of KPMG led her onto a balcony, put his arm around her and showed her the sunset, according to a person familiar with the meeting.

Ms. Cooper, Mr. Smith and Mr. Malone headed to Washington to brief the board's audit committee. At the meeting on Thursday, June 20, Mr. Malone described the transfer of line costs to capital accounts and told the audit committee that, in his view, the transfers didn't comply with generally accepted accounting principles, according to a document WorldCom later submitted to the SEC.

Mr. Sullivan tried to give an explanation for the accounting adjustments but asked for more time to support the line-cost transfers. The committee gave Mr. Sullivan the weekend to explain himself. He got to work constructing what he called a white paper that argued that the accounting treatments he used were proper, according to the document.

It didn't work. On June 24, the audit committee told Mr. Sullivan and Mr. Myers they would be terminated if they didn't resign before the board meeting the next day. Mr. Sullivan refused and was fired. Mr. Myers resigned.

The next evening, WorldCom stunned Wall Street with an announcement that it had inflated profits by $3.8 billion over the previous five quarters.

Afterward, Ms. Cooper drove to her parents' house, which was near WorldCom's headquarters. She sat down at the dining-room table without saying anything, says Ms. Ferrell, her mother. "She was deeply, deeply pained. She was grief stricken that it was true and that all these people would feel the consequences of having gone astray," Ms. Ferrell says. "We were all so proud of WorldCom and it's just been the saddest, most tragic thing."

Mr. Morse worked late that night, and his wife phoned after she watched the news. The anchors were calling the company World-Con, she reported. Did he know anything about it?

The SEC on June 26 slapped the company with a civil fraud suit, and trading of WorldCom's stock was halted. Ultimately the company was delisted by the Nasdaq Stock Market.

Mr. Sullivan is preparing to go to trial. "We will demonstrate at the appropriate time that a number of the negative points that WorldCom's internal auditors have recently suggested about Mr. Sullivan are not accurate," says Irvin Nathan, a lawyer for Mr. Sullivan. "The fact is that he was always supportive of internal audit and was instrumental in the promotion of Cynthia Cooper and securing resources for her staff."

Mr. Myers, Mr. Yates, Ms. Vinson and Troy Normand, the director of legal entity accounting, have all pleaded guilty to securities fraud and a variety of other charges. David Schertler, an attorney for Mr. Yates, says that while his client pleaded guilty, "all the evidence would suggest he was acting under the orders of supervisors."

Ms. Cooper and her team have continued to work at WorldCom's Clinton headquarters and are responding to requests related to the various investigations of the company. Ms. Cooper, Mr. Smith and Mr. Morse have been interviewed by FBI agents in connection with the Justice Department's investigation.

Some WorldCom employees have told the auditors that they wish they had left the accounting issues alone.

Article 2 to answer #3 question

JACKSON, Miss. -- Betty Vinson has always kept her life well ordered. She posts one list on the refrigerator of what she needs to buy at Wal-Mart and another for the grocery store. She keeps a list of the clothes she wears to work so she doesn't repeat outfits too often. The daughter of the former owner of a small typewriter shop, she is known among her friends for her spicy Texas chili.

In 1996, she took a job as a midlevel accountant at a small long-distance company. Five years later, her solid career took a sudden turn in a very sorry direction. Today Ms. Vinson, 47 years old, is awaiting sentencing on conspiracy and securities-fraud charges. She has begun to prepare her 12-year-old daughter for the possibility that she will go to jail.

The long-distance company grew up to be telecom giant WorldCom Inc., which melted down last year in an $11 billion fraud, the biggest in corporate history. Asked by her bosses there to make false accounting entries, Ms. Vinson balked -- and then caved. Over the course of six quarters she continued to make the illegal entries to bolster WorldCom's profits at the request of her superiors. Each time she worried. Each time she hoped it was the last time. At the end of 18 months she had helped falsify at least $3.7 billion in profits. Ms. Vinson refused to talk about her work for WorldCom or the case against her.

Ms. Vinson and two colleagues ended up confessing their accounting sins to federal officials in a Courtyard Marriott hotel room. As the investigation got rolling, she hoped to be considered a witness. When the Justice Department shifted the case midstream from Mississippi to more-aggressive prosecutors in New York, she became a target.

Ms. Vinson's story is a cautionary tale for good corporate soldiers everywhere who find themselves ordered to do something wrong. In a recent speech to Wall Street executives, James Comey, the U.S. attorney prosecuting Ms. Vinson's case, said that "just following orders" is not an excuse for breaking the law. As Ms. Vinson's experience at WorldCom shows, sometimes it's hard to tell right from wrong in the heat of a workplace battle. And when an employee's livelihood is on the line, it's tough to say no to a powerful boss. Ms. Vinson wasn't alone in these predicaments. In a report issued this month, investigators hired by the company's new board found that dozens of employees knew about the fraud at WorldCom but were afraid to speak out.

Ms. Vinson played on the high-school tennis team here in her hometown and translated her love of math into an accounting major at Mississippi College. She lived at home and spent the summers working in her father's typewriter shop, which eventually closed after computers came into vogue.

Shortly after she graduated in 1978, she married Tom Vinson, her college sweetheart. Ms. Vinson took a series of positions at a small savings bank in Louisiana and then the Resolution Trust Corporation, there and in Kansas City. The couple moved home to Jackson in 1996, when Ms. Vinson got a job in the international accounting division at WorldCom making $50,000 a year.

The Vinsons moved to a quiet, manicured neighborhood on the outskirts of Jackson. They attended their daughter's soccer games, took on home-improvement projects and played with Cupcake, their curly-haired mutt. In her spare time, Ms. Vinson taught Sunday school and devoured John Grisham novels.

When she joined WorldCom, it was a small long-distance company on the verge of becoming a star of the Wall Street telecom boom. Ms. Vinson developed a reputation for being hardworking and diligent. She was known as a loyal employee who would "do anything you told her," says a former colleague. Many nights after dinner, she would retreat to her den to work on WorldCom's books until nearly midnight. On vacations, she squeezed in some work on her laptop.

Within two years, Ms. Vinson was promoted to be a senior manager in WorldCom's corporate accounting division, reporting to Buford Yates. In her new job, she helped compile quarterly results, along with 10 employees who reported to her. She analyzed the company's operating expenses and loss reserves, amounts put aside to cover certain kinds of expenses.

Mr. Yates, known as Buddy, had been recruited to join WorldCom in 1997 by David Myers, the company's controller. They had worked together at Lamar Life Insurance in Jackson. Also working for Mr. Yates was Troy Normand, a Baton Rouge, La., native, who oversaw accounting for the company's fixed expenses, such as property, plants and equipment.

Ms. Vinson's work world began to change in mid-2000. With the telecommunications industry in a severe slump, Chief Executive Bernard Ebbers and Chief Financial Officer Scott Sullivan informed Wall Street in July that the company's results for the second half of the year would fall below expectations. That warning turned out to be far too mild.

The company had a looming problem: Its huge line costs -- fees paid to lease portions of other companies' telephone networks -- were rising as a percentage of the company's revenue. Those numbers were carefully monitored by Wall Street. Then in the third quarter of 2000, the company was hit with $685 million in unpaid bills, after some of its small customers went belly-up.

Inside the accounting department, a scramble ensued to try to reduce expenses on the company's financial statements enough to meet Wall Street's expectations for the quarter. But Ms. Vinson, Mr. Normand and Mr. Yates were able to scrape together only $50 million, far from the hundreds of millions it would take to hit the company's profit target.

In October, Mr. Yates convened a meeting with Ms. Vinson and Mr. Normand in the accounting department, which occupied a corner of the fourth floor at WorldCom's headquarters. He told them that Mr. Myers and Mr. Sullivan had asked them to dip into a reserve account set aside to cover line costs and other items for WorldCom's telecommunications unit, fish out $828 million and use it to pay other expenses, according to people familiar with the meeting. In doing so, they would reduce expenses for the quarter and boost earnings. An attorney for Mr. Myers didn't return phone calls.

Ms. Vinson and Mr. Normand were shocked by their bosses' proposal and the huge sum involved. All three accountants were worried that the adjustment wasn't proper, according to the people familiar with the conversation. Under accounting rules, reserves can be set up only if management expects a loss in the unit where the reserve is established, and there must be a good reason to reduce them. The transfer would violate those rules, the accountants believed, because there was no business reason for depleting the reserve account.

Ms. Vinson and Mr. Normand told their boss that the transfer wasn't good accounting, according to a person close to Ms. Vinson. Mr. Yates replied that he wasn't happy about it either. But he said that Mr. Myers had assured him that it would never happen again and that he had agreed to go along. Finally, so did Ms. Vinson and Mr. Normand. They made the transfer.

David Schertler, a lawyer who now represents Mr. Yates, says that his client was put in an "untenable" position by his bosses. "I think that Vinson, Normand and Yates are all low-level players in this who wound up being the victims of unscrupulous higher managers," he says.

Afterward Ms. Vinson suffered pangs of guilt. On Oct. 26, the same day the company publicly reported its third-quarter results, she told Mr. Yates that she was planning to resign. Mr. Normand felt similarly, according to the person close to Ms. Vinson and others.

Word of the mutiny in the accounting department reached Mr. Ebbers. After a conference call with analysts, he approached Mr. Myers in a corridor and vowed that the accountants would never again be placed in such an uncomfortable position, says a former employee. Reid Weingarten, Mr. Ebbers's lawyer, declined to comment for this story.

Several days later, Mr. Sullivan tried to talk Ms. Vinson and Mr. Normand out of resigning. The two accountants, who had met the CFO only a few times before, took seats on a sofa in his office's large seating area. Mr. Myers and Mr. Sullivan sat in two chairs facing them, according to two people familiar with the meeting.

Mr. Sullivan explained that he was trying to fix the company's financial problems. Think of it as an aircraft carrier, he said, according to the people familiar with the meeting. He continued, in their account: We have planes in the air. Let's get the planes landed. Once they are landed, if you still want to leave, then leave. But not while the planes are in the air.

Ms. Vinson listened silently. Mr. Normand said that he was worried he would be held liable for making the accounting changes. But Mr. Sullivan assured him that nothing they had done was illegal and that he would assume all responsibility, according to two people familiar with the meeting. He noted that the company had just cut by half its projections for the fourth quarter, and that the accounting switch wouldn't be repeated. Mr. Sullivan's attorney, Roy Black, declined to comment for this story.

By the time Mr. Sullivan stopped talking, Ms. Vinson's resolve to quit her job was wavering, according to the person close to her. That night, she told her husband about the meeting and her worries over the accounting. Mr. Vinson, who is a printing-equipment salesman, didn't fully understand his wife's accounting concerns, but he urged her to quit. He already was unhappy about the long hours she was putting in at WorldCom.

But after further thought, Ms. Vinson decided against quitting, says the person close to her. She was the family's chief breadwinner, earning more than her husband's roughly $40,000 a year compensation. The Vinsons depended on her insurance. She was anxious about entering the job market as a middle-age worker.

Though Ms. Vinson still worried about the accounting issues, she began to rationalize her decision to comply with her bosses' request, according to the person close to her. After all, Mr. Sullivan had been heralded as one of the top chief financial officers in the country. If he thought the transfer was all right, who was she to question it?

Back in the office, Ms. Vinson told Mr. Yates that she had changed her mind about quitting. They commiserated about how hard it would be to leave their jobs and probably Jackson, where it wasn't easy to find well-paying work, according to a person familiar with the conversation. Mr. Normand also changed his mind about leaving WorldCom.

By the end of the first quarter of 2001, it was clear Ms. Vinson would have to prepare another bad financial report. As the company's revenue fell, its line costs, as a percentage of revenue, were well above the company's 42% goal. Again, Ms. Vinson and her colleagues searched for costs they could reduce. But this time they could find no large pools of reserves to transfer to solve the profit shortfall. The gap was a whopping $771 million.

As the situation grew dire, a troubling solution was ordered up by Mr. Sullivan, according to a former WorldCom employee. Rather than count line costs as part of operating expenses in the quarterly report, they would shift $771 million in line costs to capital-expenditure accounts, according to SEC filings. The shift would boost the company's bottom line. That's because operating expenses, such as salaries and benefits, are subtracted from income as they occur, reducing a company's current profit. Capital expenses are subtracted from income over long periods of time.

When Mr. Yates told Ms. Vinson about the $771 million transfer, she was shocked, according to the person close to her. While the accounting maneuver in October had been questionable, she believed this transfer was even less defensible. Accounting rules make clear that line costs are to be counted as operating leases, which can't be delayed by calling them capital expenses.

In fact, Mr. Yates initially had refused to execute the plan when Mr. Myers told him about it, according to a person close to Mr. Yates. And in turn Mr. Myers, the controller, had argued to Mr. Sullivan that the transfer could not be justified, says a former employee. But Mr. Myers eventually passed the order down the line to Mr. Yates after he was persuaded by Mr. Sullivan that the transfer was WorldCom's only way out of its troubles, according to the former employee.

When the order landed on Ms. Vinson's lap she felt trapped, the person close to her says. Threatening again to resign wasn't going to help. And she was still reluctant to quit without another job. She and Mr. Normand met with Mr. Yates in his immaculate office to talk about their concerns, but nothing was resolved, according to a person close to Mr. Yates.

That night Ms. Vinson reviewed her options with her husband, the person close to her says. She decided to put together a resume and begin looking for a job. She didn't think about retaining a lawyer or talking to the SEC, says this person. She hadn't really started to think about the ramifications of her actions.

At WorldCom, the wheels were already in motion to transfer the line costs. Ms. Vinson reluctantly went along. It fell to her, Mr. Normand and Mr. Yates to figure out into which of five capital accounts they should transfer the costs. As they considered the options, Mr. Myers walked into Ms. Vinson's office and the group commiserated about how unhappy they were about the transfers. Still, they agreed they had to keep bailing water for the time being, according to a person familiar with the conversation.

Ms. Vinson then made the entries transferring the $771 million, backdating the entries to February by changing the dates in the computer for the quarter, according to court and SEC documents.

Ms. Vinson faced the same dilemma in the second, third and fourth quarters of 2001. Each quarter she, Mr. Yates and Mr. Normand scraped together small amounts of liabilities that legitimately could be lowered for the quarter, hoping that they wouldn't be required to make a large questionable adjustment. But each quarter they found themselves in the same uncomfortable spot, and wound up making giant and fraudulent entries. In the second quarter, they transferred $560 million to the capital accounts. In the third quarter it was $743 million, and in the fourth quarter it was $941 million.

Ms. Vinson began waking up in the middle of the night, unable to go back to sleep because of her anxiety, says the person close to her. Her family and friends began to notice she was losing weight and her face took on a slightly gaunt look. At work she withdrew from co-workers, afraid she might let something slip, says the person close to her.

In early 2002, she received a promotion, from senior manager to director, along with a raise that brought her annual salary to about $80,000, according to a former WorldCom staffer.

Meanwhile, she and her two co-workers were increasingly distraught. Mr. Yates decided to look for a lawyer, according to a person close to him. Through a cousin, he got the name of Joseph Hollomon of Jackson, a former federal prosecutor in Mississippi. Mr. Yates met with Mr. Hollomon, but unsure of what to do, didn't retain him immediately.

Ms. Vinson continued to cling to the notion that each transfer would be the last, says the person close to her. That hope was dashed in late April 2002. Ms. Vinson, Mr. Normand and Mr. Yates had just finished putting together the financial reports for the first quarter, which included an $818 million transfer of line costs. Shortly afterward, they made a discovery that spurred them finally to take action.

Mr. Normand and Mr. Yates were talking about WorldCom's 2002 financial plan, a copy of which Mr. Sullivan had circulated. Mr. Normand flipped his copy over and began scribbling on the back. Mr. Normand handed his calculations to Mr. Yates, says a person close to Mr. Yates. It suddenly was clear to both men that the line-cost transfers would have to continue at least through 2002, because there was no other way the company would be able to make its projections, say several people familiar with the discussion.

The two men shared their discovery with Ms. Vinson and they all agreed that they had had enough, say two people familiar with their decision. Ms. Vinson vowed to begin looking for a new job, says the person close to her. Mr. Yates decided to launch a job search as well and Mr. Normand decided to quit but ask for a severance package, according to internal documents and one of the people close to Mr. Yates.

They made another pact as well: They would refuse to make any more improper accounting entries. Over the next few days, each of them met with Mr. Myers to tell him of their plans and their decision to make no more transfers.

In March, the SEC made a request for information from WorldCom because it was suspicious about the company's good financial results. The company's head of internal auditing, Cynthia Cooper, started asking Mr. Myers and others about certain accounting decisions, and the entries made by Ms. Vinson and Mr. Normand.

On the afternoon of June 17, Ms. Cooper and Glyn Smith, another auditor, walked into Ms. Vinson's office and asked her to justify the transfers. Ms. Vinson said she couldn't, and told them that the amounts were provided to her by Mr. Yates and Mr. Myers. She suggested that Ms. Cooper talk to them, according to internal documents released by Congress. Moments later, Ms. Cooper and Mr. Smith were in Mr. Yates's office asking the same questions. He sent them to see Mr. Myers, according to the documents.

Ms. Vinson, Mr. Yates and Mr. Normand were in a panic, say people familiar with the situation. Mr. Yates called the other two into his office and suggested they all meet with Mr. Hollomon, the lawyer he had been referred to, according to a person close to Mr. Yates. On Thursday, June 20, at Mr. Hollomon's downtown office, they agreed on a plan: They would meet with regulators and prosecutors, tell them everything and hope for leniency. The three each contributed $10,000 to retain Mr. Hollomon.

Mr. Hollomon had the three accountants sign a so-called proffer agreement with prosecutors, stating what the three were willing to tell them. Although there was no written agreement that they wouldn't be prosecuted, several lawyers involved say the Mississippi U.S. attorney's office had told Mr. Hollomon that the accountants would likely be viewed as witnesses, not targets of the probe.

But Mr. Hollomon warned his clients that "all bets were off" if the case was moved to the Manhattan U.S. attorney's office, which has a long history of aggressively prosecuting high-profile business cases. The Mississippi office often emphasizes gaining cooperation from witnesses rather than targeting them for prosecution, according to several lawyers.

On Monday afternoon, Mr. Yates, Mr. Normand and Ms. Vinson left their offices one at a time and drove to a Courtyard Marriott in Jackson. They told their story to an official from the SEC, an FBI agent and an assistant U.S. attorney.

WorldCom's problems were about to explode into public view. On June 25, the day after the meetings at the Marriott, the SEC got a call from WorldCom's lawyers with a shocking disclosure: Ms. Cooper and her fellow auditors had found $3.8 billion in fraudulent accounting entries. The following day, the SEC charged the company with accounting fraud.

Though the Mississippi U.S. attorney's office had initially taken the lead on the case, the U.S. attorney's office in Manhattan began to play a more dominant role. Soon, Mr. Hollomon's fears were realized. In July, after a turf war with Mississippi, the Justice Department granted jurisdiction to the Manhattan U.S. attorney's office and it quickly became clear that the New York prosecutors had a different take on the accountants.

Mississippi U.S. Attorney Dunn Lampton said he was "disappointed" he didn't remain involved. He wouldn't discuss his initial plans for the case. "Deciding who to prosecute is one of the toughest decisions a prosecutor faces," he says.

Soon, Ms. Vinson's hopes that she would continue to be viewed as a witness were dashed. On a flight to Mississippi after an interview with prosecutors in New York, Mr. Hollomon told Ms. Vinson that he was concerned that they were focusing on the fact that she had made her own decisions about which capital expense accounts she transferred the line costs into. He thought prosecutors might draw the conclusion that she hadn't simply been following orders.

Mr. Hollomon told her that Mr. Myers was cooperating with prosecutors, who now suspected that Ms. Vinson and the other accountants from the beginning had been instrumental to making the scheme work, according to the person close to Ms. Vinson.

On Aug. 1, Ms. Vinson received a call from Mr. Hollomon telling her that the prosecutors in New York would probably indict her. In the end, they viewed the information Ms. Vinson had supplied at the Courtyard Marriott as more of a confession than a tip-off to wrongdoing, people familiar with the case say.

Crying, she called her husband, who was on a business trip, and reached him at the airport in Atlanta to tell him that charges against her were imminent. Within hours, she was fired because of the expected indictment. The only thing she was allowed to take with her was a plant from her desk.

On Aug. 28, Mr. Sullivan and Mr. Yates were indicted, and Ms. Vinson and Mr. Normand were named as unindicted co-conspirators in the scheme. Mr. Myers pleaded guilty to three felony counts and Mr. Yates soon pleaded guilty to one count of securities fraud and one count of conspiracy to commit securities fraud.

Ms. Vinson and her husband tried to think of a way out of their predicament. Unable to afford the legal bill that would result from a lengthy trial, Ms. Vinson decided to negotiate a guilty plea as well. They hoped to cut a deal that wouldn't include a prison sentence.

On Oct. 10, the U.S. attorney's office announced that Ms. Vinson and Mr. Normand had pleaded guilty to two criminal counts of conspiracy and securities fraud, charges that carry a maximum sentence of 15 years in prison.

At a court hearing, Ms. Vinson answered U.S. Magistrate Judge Andrew Peck's questions so meekly that he asked her to speak up. Mr. Hollomon held a microphone close to her as she read a statement admitting that she had started making the illegal entries in October 2000. "I was very concerned about the order to make the adjustment," she said. Ms. Vinson was released on a bond secured by $25,000 of equity in her home. She is now working as an accountant for a large Kentucky Fried Chicken franchise.

Her sentencing is scheduled for February.

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Journal Link: WSJ.com subscribers can read more about the WorldCom scandal in the Online Journal at WSJ.com/Worldcom.

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Copyright Dow Jones & Company Inc Jun 23, 2003