Corporate America is fraught with fraud, corruption and financial misdemeanours, reports Anayat Durrani from Washington Click to view caption Just as Americans were beginning to come to terms with the whole Enron debacle, an even deeper crack has emerged in corporate America. This time, telecommunications giant WorldCom Inc, the nation's second largest long- distance phone company, has revealed that it hid US$3.85 billion in expenses and inflated pretax profits. Three days later, Xerox Corp, the world's largest copier maker, announced it misreported US$6.4 billion in sales, resulting in a shortfall of as much as US$2 billion over a five-year period. Speaking at a Republican Party fund-raiser, President George W Bush warned that big companies could not "fudge the numbers" and get away with it. "Corporate America has got to understand there is a higher calling than trying to fudge the numbers, trying to slip a billion here and a billion there and...hope nobody notices," he said. News about WorldCom and Xerox come at a time when Americans are watching their economy stumble as the government's high spending on the war on terrorism takes its toll. The latest scandals come on the heels of the collapse of energy giant Enron and just days after a jury delivered a guilty verdict against Arthur Andersen, the accounting firm that audited Enron's accounts. A Houston jury convicted the company in June of obstructing justice when it proved that documents relevant to the case were shredded in a bid to muddle an investigation by the Securities and Exchange Commission (SEC), the top US federal securities regulator. The recent scandals are only the most recent examples of fraudulent accounting. Drugstore chain Rite Aid, telecommunications provider Global Crossing and cable TV operator Adelphia Communications have all been implicated in similar affairs. During Bush's radio address on Saturday, the president tried to restore the public's faith in US corporations and the stock market and emphasised his renewed commitment to cleaning up corporate America. "No violation of the public's trust will be tolerated," the president said. "The federal government will be vigilant in prosecuting wrongdoers to ensure that investors and workers maintain the highest confidence in American business," he added. The president vowed to fully investigate reports of corporate fraud and said that those accused of wrongdoing would be held accountable. "Executives who commit fraud will face financial penalties and, when found guilty of criminal wrongdoing, they will face jail time," the president said. Bush called for Congress to pass measures that will keep corporate executives from profiting from fraudulent financial statements. A spokesman for Bush said the president "shares the goal" of a Democrat-sponsored Senate bill that aims at tightening controls on the accounting industry. The White House has said the president would support such legislation if it expanded the SECs jurisdiction. The bill is expected to reach the Senate floor after Congress returns from its 4 July recess. "When bad accounting practices make the company appear more successful than it actually is, corporate executives should lose the phony profits they gained at the expense of employees and stockholders," Bush said. Bush also said that he will urge Congress to pass the 10-point plan he proposed in March in response to Texas-based Enron Corp, a major campaign contributor to the Bush campaign that filed the largest bankruptcy claim in US history in December. The proposed plan would punish corporate wrongdoers by making them return any fraudulent gains, preventing them from ever holding executive jobs in US companies and proposing a 'regulatory board' system for accountants. Bush will expand on the issue at length in his upcoming 9 July speech on Wall Street. Two congressional committees subpoenaed testimony and documents from WorldCom executives. The Securities and Exchange Commission filed civil fraud charges against WorldCom, based in Clinton, Mississippi, and gave the company until Monday morning to file a report on the "circumstances and specifics of these matters". WorldCom is expected to provide a detailed report, to be released publicly, that will provide a more accurate profile of its financial status. "We're demanding that they make a statement under oath, telling the American public exactly what went on there and what their true financial condition is," Securities and Exchange Commission Chairman Harvey Pitt said on Sunday in an interview on ABC's This Week. "If there's even an iota of false statement in there, people will pay heavily. If the truth is in there and people get to know at least what the circumstances are, then we'll have an informed market and there won't be insiders who can play games with the unsuspecting public," Pitt said. Last week, WorldCom fired Chief Financial Officer Scott Sullivan, who served in the post since 1994, and accepted the resignation of its comptroller. As its financial situation worsened, Worldcom began laying off 17,000 employees, a move that Bush termed "outrageous". "WorldCom hired William McLucas, the SEC's former chief of the enforcement division, to carry out an independent investigation of any accounting inaccuracies." Pitt said that "people are going to pay heavily," adding that Xerox Corp had not escaped investigation by the SEC. Xerox Corp announced Friday that it "improperly recorded" revenues over a five-year period. The SEC slapped a US$10 million civil penalty on Xerox for misappropriating about US$3 billion in revenues. "We're not finished with the Xerox case...we knew there were problems," he said. "We told this company: not only must you disclose and restate what we know, we want to know everything. And that's what they've now done. And now those who are responsible will pay." Beyond Worldcom and Xerox, the SEC is also investigating Halliburton Co for apparent irregularities in their accounting practices in 1998. Vice President Dick Cheney was the company's chief executive during that period. To prevent future instances of fraudulent accounting, the SEC stated on Thursday that it now requires the top executives of large public companies to submit sworn affidavits relating to the accuracy of their financial reports. "We've got to root out the bad people and punish them," Pitt said. "We've got to make certain that the accountants and the independent directors that oversee the more than 12,000 publicly traded corporations in America perform their job."
