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WorldCom miscalculates Pick a NumberBy Rick Horowitz
The phrase itself is so genteel, don't you think? "A restatement of earnings." It sounds as if you've run into an old friend on a busy street, and you're catching up about this and that and he asks, "So how much are you making these days?" And you tell him, but just as you tell him, a bus rolls by and honks its horn and he doesn't hear you, so he says, "Say again?" And you say it again. A restatement of earnings. But that's not what it means. What it means is one more corporate giant, one more titan of industry, has finally owned up to cooking the books. This time, it's WorldCom, the country's second-biggest long-distance carrier, and just the latest outfit to start that sad, sudden spiral down Porcelain Boulevard. Hey, what's a few billion dollars one way or the other? Seems some number crunchers at WorldCom weren't just crunching the numbers; they were rerouting them. Normal operating expenses were being shuffled off to various capital-expense accounts, which is a perfectly appropriate thing to do unless you intend to obey the law, in which case it's not even close to appropriate. It is, on the other hand, appealing: Stuff enough of that stuff into places where it doesn't belong and you don't have to count most of it against your quarterly cash flow. Don't count it against your quarterly cash flow and voila -- you're turning a profit! (Or at least you seem to be.) The analysts are impressed and the shareholders are happy and the stock price stays high and of course, the folks at the top of the ladder, the folks with all those stock options, stand to rake in even bigger bucks than they're already doing. Of course, for a scheme like that to succeed, your devious prestidigitators would somehow have to slip it past the eagle eyes of your outside auditors, skilled professionals who are trained to uncover "errors" much smaller than these. But wouldn't you know it? WorldCom's outside auditor during most of this numerically creative period was none other than the formerly reputable firm of Arthur ("Where Do We Sign?") Andersen. Andersen, it appears, gave WorldCom's books the full Andersen treatment -- see no evil, hear no evil, count no evil -- and that was that, until just recently, when other people started digging around in WorldCom's books and found that that wasn't that. That that was -- not to put too fine a point on it -- about $3.8 billion short of that. Imagine their surprise! So now the Securities and Exchange Commission is charging WorldCom with fraud, and the president is calling WorldCom's behavior "outrageous," and Congress and the Justice Department are starting their own investigations, and -- Anyway, I decided to try a little restating of my own, just to see what it's like. And the way I figure it, if you can restate your earnings down, you can restate your earnings up. So I'm thinking that my cash flow for this year ought to include not just the money that actually comes in this year, but also the money I thought I might make this year (whether I make it or not), and for that matter, the money I'm expecting to make next year. Just call them "generously attempted accounting principles." I'm also thinking that I should count some of my expenses as income -- my postage, for instance, and my long-distance calls. After all, every time I write somebody or call somebody, I figure I'm creating all sorts of good will flowing right back in my direction, and how can you put a price tag on that? Which doesn't mean I shouldn't try. And the bigger, the better. I just want to look more profitable -- is that so bad? After all, you never know when you'll run into an old friend on a busy street. Posted 6/27/02. Make
sure your old friends hear about "Rick's." They'll be in your
debt forever!
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Rick Horowitz
