- The Washington Times - Friday, August 9, 2002

NEW YORK Bankrupt telecommunications company WorldCom Inc. said yesterday that had it uncovered an additional $3.3 billion in bogus accounting, adding to the $3.85 billion fraud it revealed in June.

The newest discovery was made as the company reviewed its books for 1999 and 2000, with most of it tallied in 2000, the company said last night.

The fraudulent accounting already revealed occurred in 2001 and the first half of 2002. The additional fraud would bring the total of phony accounting at WorldCom to more than $7 billion. WorldCom said it will restate its financial reports for all of 2000 as a result of the new findings.

"We knew the problem was a lot bigger than WorldCom first admitted," Ken Johnson, a spokesman for the House Energy and Commerce Committee, said before the company released its statement. "The extent of the fraud is staggering." The committee is investigating the fraud.

The Clinton, Miss., company admitted on June 25 that it had falsely accounted for $3.8 billion in expenses, classifying operating costs for use of rivals' phone lines as capital investments.

Capital spending on equipment can be spread over several years, but operating expenses are recognized when they are incurred. The misclassified costs allowed WorldCom to mask losses.

That day, it fired its chief financial officer, Scott Sullivan, who was subsequently accused by the company's former auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.

The company filed for Chapter 11 bankruptcy protection July 28 the largest filing in history listing $107 billion in assets and $41 billion in debts.

The telecom giant carries half of the world's Internet traffic and owns MCI, the nation's second-largest long-distance company.

In a statement, WorldCom said it is continuing its own internal investigation into its finances. It said that investors and creditors "should be aware that additional amounts" of improperly reported EBITDA, or earnings before interest, taxes, depreciation and amortization, and other pretax income "may be discovered and announced."

The company's auditor, KPMG LLP, is auditing WorldCom's financial statements for 2000-02. Until that is finished, the total effects won't be known, the company said.

Arthur Andersen LLP had been WorldCom's auditor until May.

Lawmakers investigating WorldCom said in July that the company may have begun misstating its accounting as early as 1999.

House Energy and Commerce Committee investigators have released memos and e-mails showing that midlevel employees tried to alert superiors to the improper bookkeeping.

WorldCom also said it is likely to write off $50.6 billion in good will and other intangible assets as well.

Last week, Mr. Sullivan and controller David Myers were arrested and charged with hiding the nearly $4 billion in expenses and lying to investors and regulators in a desperate bid to keep the company afloat.

Authorities also are investigating former Chief Executive Officer Bernard Ebbers, who owed WorldCom $408 million when he quit in April.

When WorldCom made its disclosure in June, it said it would review finances from prior years.

The fraud in 2000 is said to differ from the techniques used in 2001 and 2002, according to CNBC.

In the latest case, the report said, Mr. Sullivan is believed to have used a variety of techniques to bolster operating income, including reversing reserves for bad debts into operating income.

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