Running Head: BUSINESS ENVIRONMENT
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Business Environment and the Industry
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a) The industry-specific challenges
WorldCom is a well-known telecommunications company operating in over 65 countries
(Pandey & Verma, 2004). The company has recently faced many industry-specific challenges,
including competition, specialization, and growth. It has been identified that the company is
facing challenges with specialization in the telecommunications industry. Telecommunications
are categorized into different sub-sectors, and specialization in some sub-sector might not have
the expertise or knowledge to venture into different sectors. Accordingly, the company had to
specialize in a specific sector to stay relevant and remain competitive in the business.
WorldCom is facing challenges with intense competition from different telecommunications
companies. As the telecommunication industry has many competitive market players, it is
highly competitive. In such a scenario, WorldCom needs to remain competitive by developing
the right strategies, including expanding its service offerings, investing in new technologies,
and increasing customer satisfaction (Pandey & Verma, 2004). Moreover, the company is also
facing a significant challenge with growth. The telecommunication industry has a rapid pace of
technological innovation, so WorldCom company requires to adapt the new technologies. In
such a scenario, the company needs to focus on investment in research and development,
innovate to stay with the pace of change in the industry, and acquire new technologies. All the
mentioned challenges are related to the company's business environment, which is specified by
intense competition, the need for specialization, and rapid technological advancements. The
company needs to develop the right strategies to combat these challenges. These strategies can
help the company to stay relevant and competitive in the telecommunication industry.
b) Behaviours indicative of fraud
The early detection of fraud is essential in organizational settings. An inexpensive and
effective way is required to identify fraudsters by investing in personnel behavior (Sandhu,
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2019). The exhibited behaviors indicative of fraud in WorldCom include falsifying financial
statements, manipulating financial records, and inflating revenue and earnings to meet
expectations. The unethical behavior of the employees, including overriding internal controls
and ignoring ethical standards, can also be indicative of fraud in the company. The company's
management team pressurizes the employees to achieve financial targets, maintain the
company's share price, and increase revenues.
The employees faced immense pressure from management to meet financial targets,
increase revenues, and maintain the company's share price. This pressure was evident in the
company's aggressive growth strategies, which included acquisitions and expansions, and the
focus on short-term financial performance (Anindya & Adhariani, 2019). To avoid such fraud,
WorldCom needs to give more focus on promoting a culture of accountability and transparency,
prioritize ethical behavior, and establish strong internal controls. In addition, the company
needs to encourage employees to report any unethical behavior or suspected fraud through
anonymous reporting channels. Moreover, the company can also engage external auditors and
implement regular internal audits to prevent and detect any fraudulent activities within the
organizational settings.
c) The organization’s internal controls
In the early 2000s, Worldcom got collapsed because of fraudulent accounting practices
(Ashraf, 2011). However, the company had some internal controls in place, like an ethics
hotline and code of conduct, that were ineffective in preventing fraud. It has been identified that
the lack of segregation of duties was the weakness in the company’s internal control that
allowed the employees to have control over various aspects of financial reporting. In addition,
the lack of monitoring and oversight by the board of directors and upper management has also
allowed fraudulent practices within the organization.
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d) Address of weaknesses
Many measures can be taken to address Worldcom's weaknesses and try to improve its
internal controls. The company could focus on a strong segregation of duties policy to make
sure no one has too much control over the financial reporting. Moreover, maintaining regular
audits can also ensure compliance with these policies, and the management team could monitor
the financial reporting practices. Further, the company needs to provide regular training to the
employees to learn about the consequences of fraudulent practices and the importance of ethical
behavior (Irianto et al., 2012) to ensure the effectiveness of these measures.
e) A financial statement analysis
Many anomalies are found in Worldcom's financial statements that were indicative of
potentially fraudulent activity. The company's inflated revenue figures are a significant
anomaly, which was achieved by manipulating financial records and accounting irregularities.
In addition, WorldCom reported its artificially high earnings without any taxes, interest,
amortization, and depreciation figures that do not show the company's true financial position.
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References
Anindya, J. R., & Adhariani, D. (2019). Fraud risk factors and tendency to commit fraud:
Analysis of employees’ perceptions. International Journal of Ethics and Systems, 35(4),
545–557. https://doi.org/10.1108/ijoes-03-2019-0057
Ashraf, J. (2011). The accounting fraud at WorldCom the causes, the characteristics, the
consequences, and the lessons learned.
Irianto, G., Novianti, N., Rosalina, K., & Firmanto, Y. (2012). Integrity, unethical
behavior, and tendency of fraud. EKUITAS (Jurnal Ekonomi Dan Keuangan), 16(2), 144.
https://doi.org/10.24034/j25485024.y2012.v16.i2.2320
Pandey, S. C., & Verma, P. (2004). WorldCom Inc.. Vikalpa: The Journal for Decision
Makers, 29(4), 113–126. https://doi.org/10.1177/0256090920040409
Sandhu, N. (2019). Behavioural Red Flags of fraud: An ex post assessment of types and
frequencies. Global Business Review, 21(2), 507–525.
https://doi.org/10.1177/0972150919850410
