- The Washington Times - Tuesday, July 9, 2002

WorldCom Inc. disclosed yesterday that its former chief financial officer sought to postpone announcement of the company's questionable bookkeeping after it was uncovered by internal auditors last month.

In a revised statement to the Securities and Exchange Commission, the telecommunications giant provided additional details on the company's move to portray $3.8 billion in lease payments as capital expenses, in what investigators have called the largest accounting fraud in history.

Scott Sullivan, the financial executive fired by the company's board June 24 for his role in devising the plan, asked the company's internal auditor, Cynthia Cooper, to delay her review of the transactions until this summer, after she confronted him about the cost transfers June 11.

Mr. Sullivan, who was visibly nervous in invoking his Fifth Amendment right to refuse to testify at a congressional hearing yesterday, told Ms. Cooper that he believed the cost transfers were appropriate, because the lease payments were for the purchase of capacity that the company intended to use in the future making them seem like a capital expense.

Because customers never materialized to use the capacity, Mr. Sullivan said he intended to disclose the transactions to investors and write the payments down as losses in the company's second-quarter financial statement, which is why he wanted the delay.

Ms. Cooper, the company's board and auditors rejected Mr. Sullivan's pleas and decided to disclose the enormous transfers in an announcement June 25 that stunned world markets.

Mr. Sullivan reported directly to Bernard Ebbers, WorldCom's founder and former chief executive who was forced out April 29, according to the revised company statement.

Mr. Ebbers also invoked his Fifth Amendment right and refused to testify before the House Financial Services Committee yesterday after giving a defiant speech insisting on his innocence.

Ms. Cooper, who continued her review of the company's books despite Mr. Sullivan's protests, is cooperating with the Justice Department and SEC, which has charged the company with securities fraud.

WorldCom's revised statement reveals that she had to repeatedly dodge attempts by Mr. Sullivan to stifle the news, although it suggests that Mr. Sullivan instigated her inquiry by asking her to review the company's books.

WorldCom executives continued to blame their former auditor, Arthur Andersen, for failing to detect the fraud, in yesterday's statement and at the hearing.

Andersen last month was convicted of obstructing an SEC investigation of Enron Corp.'s accounting practices and has agreed to stop performing audits of public companies.

"WorldCom uncovered this problem internally," John Sidgmore, the company's chief executive, told the committee. Mr. Sidgmore has vowed to reform and restructure the company and set it on a new course.

WorldCom Chairman Bert Roberts said he was "outraged" by the accounting maneuvers. "To my mind, the failure of our outside auditors to uncover them is inconceivable," he testified.

The WorldCom filing with the SEC said Andersen informed the board's audit committee in February that it found no problems in the company's financial statement and was "comfortable" with the company's accounting treatment of capital expenses.

Since the company's dramatic announcement two weeks ago, Andersen has maintained that it was deceived like everyone else and didn't know anything about the line-item transfers into the capital account made by Mr. Sullivan.

To the derision of House members, the lead auditor of WorldCom, Melvin Dick, testified that Andersen carefully reviewed the company's statement and conducted stress tests, computer analyses and other sophisticated reviews that failed to detect the transfers, which occurred from the beginning of 2001 to early this year.

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