WorldCom

In 2002, the WorldCom scandal became one of the largest accounting frauds in history
when the company revealed its wrongdoing and was subsequently forced to file
bankruptcy and write off $50 billion in losses. The scandal began when WorldCom CEO
Bernie Ebbers employed a business strategy of achieving growth through acquisitions.
He acquired MCI Communications and then proposed a merger with Sprint, but was
forced to abandon the Sprint merger in 2000. Determined to show increased revenue
despite a slow-down in mergers and acquisitions, Ebbers manipulated the books to
satisfy Wall Street’s expectations. The scheme was detected when a capital expenditures
audit revealed suspicious journal entries. WorldCom’s internal audit team discovered
improper accounting in expenses over five quarters. The WorldCom accounting scandal
was a situation in which corporate governance failed and the board of directors were
caught unaware. WorldCom’s accounting system was faulty and Ebbers’ close
relationship with external accounting firm Arthur Andersen presented a conflict of
interest in which the auditors were unable to exercise professional skepticism when
performing their audits.

FIFA
High-profile sports are big business in many countries. Unfortunately for the
International Federation of Association Football (FIFA), alleged corruption and money
laundering means its big business operated with little or no oversight. The FIFA scandal
involved the collusion between FIFA executives, sports marketing executives and
officials of continental football bodies. The scandal erupted in May 2015 when Swiss
authorities raided a hotel in Zurich and several FIFA executives were arrested. The U.S.
Department of Justice (DOJ) has cited more than 40 defendants in the FIFA scandal.
Some charges involved bids for World Cups and for marketing and broadcast deals that
amounted to nearly $150 million. Future World Cups are now in question — the
scandal has caused the bidding process for the 2026 World Cup to be suspended.
Proposed changes have been made, but only time will tell in an organization that has
historically dealt with bribery and corruption.
GlaxoSmithKline
In 2012, British pharmaceutical company GlaxoSmithKline (GSK) was at the center of
the largest health care fraud settlement in history when the company agreed to pay $3
billion in fines to U.S. regulators. The crime? According to the U.S. Justice Department,
GSK unlawfully promoted certain prescription drugs, failed to report safety data, paid
kickbacks to health care professionals and engaged in fraudulent pricing practices. The
settlement arose from a number of GSK policies and practices that largely involved the
promotion of prescription drugs, like Paxil and Wellbutrin, for off-label use. While
doctors may prescribe drugs for off-label use, it’s illegal for pharmaceutical companies
to promote or market off-label uses. The U.S. government also claimed that GSK paid
unlawful kickbacks to health care professionals to encourage them to prescribe certain
drugs. Although much of GSK’s misconduct was unique to the pharmaceutical and
health care industries, the case contains broad lessons. A company’s culture should
stress compliance and ethical conduct. The nature and prevalence of GSK’s misconduct
suggest that its culture rewarded profit rather than compliance and patient safety. That
type of culture is a recipe for fraud. 

Target
The Target data breach in late 2013 was the largest in U.S. retail history and resulted in
the exposure of approximately 40 million credit card numbers and the personal
information of 70 million customers. Unidentified hackers — thought to be from
Eastern Europe or Russia — surreptitiously installed malware into Target’s computer
networks. The hackers accessed Target’s systems using the credentials of a third-party
heating and air conditioning contractor.

Before the company was hacked, Target had installed a security system that caught five
instances of malware graded at the highest severity. Members of corporate
headquarters were notified, but apparently ignored the alerts. In this day and age when
cybersecurity has become a hot topic thanks to the increasing advancements in
technology, the Target debacle shows that companies need a strong response plan to
deal with alerts of possible network intrusions.
Olympus
The Olympus financial scandal exploded in late 2011 when then president and CEO
Michael Woodford came forward with information exposing fraudulent accounting
practices in the organization. Woodford had only served as CEO for two weeks when
he revealed the financial malfeasance. The fraud is one of the most significant corporate
corruption scandals in the history of Japan. In 2000, standards in Japan changed
significantly after the failure of Yamaguchi Securities in 1997. The new accounting
standards required losses on certain assets to be noted at the end of each accounting
period. Rather than comply with the standards and disclose mounting losses, Olympus
constructed a complicated system of hiding its bad assets. The company began selling
bad assets for exorbitant prices to newly created entities under its control without
recognizing losses from the sales. The Olympus fraud shows that tone at the top
matters. Woodford wrote letters to the board about his concerns and was subsequently
fired. This exemplified the company’s unethical culture. C-level executives must act
according to the principles expected of employees at all levels and across the enterprise.