The aftershocks of the Enron scandal continue to reverberate throughout the IT industry with WorldCom, Inc. (Quote) and Qwest Communications International, Inc. (Quote) becoming the latest companies to have their accounting practices questioned. As a result, Qwest is scrambling to raise $4 billion after its short-term creditors walked away from the telecom giant yesterday and WorldCom launching a wide scale internal investigation into employees inflating by sales commissions by millions of dollars.
Qwest's creditors got cold feet following Standard & Poor's and Fitch, Inc.'s reducing the company's short and long-term credit ratings amid concerns about the carrier's past accounting practices. Much of the Denver-based Qwest's problems stem from the way it accounted for access to its networks to other telecoms, otherwise known as an Indefeasible Right of Use.
The practice can be used to artificially pump up revenues and the Securities and Exchange Commission (SEC) has already ordered Qwest to produce documents relating to its transactions with Global Crossing, Ltd., which recently filed for bankruptcy.
Although the lowered credit ratings and the SEC probe have battered Qwest's stock and driven it to a four-year low of $6.80 a share in late morning trading, most analysts do not expect the company to seek bankruptcy protection as it has lucrative assets it could sell.
Meanwhile, the Clinton, Miss.-based WorldCom, which maintains extensive operations in the Washington, D.C., area, is facing a scandal of a different sort. According to the Wall Street Journal, the company has suspended three employees and frozen the commissions of a dozen other salespeople as it looks into a scam that boosted sales commissions at three of its branch offices.
In the cases of the three suspensions, all who worked at the company's offices in Arlington, Va., WorldCom general counsel Michael Salsburyt told the Journal the employees claimed credit for sales that had already been booked by other divisions of the company. The inflated commissions may be for as much as $4 million.
The WorldCom probe has also looked at sales commission accounting at the company's Baltimore and Chicago offices. The company has frozen the accounts of a number of salespeople in both of the offices.
But the main focus of the investigation seems to be at the company's posh Pentagon City offices in Arlington. The Journal cites sources naming executive Peter J. Collier, one of WorldCom's top producers last year, as the main target. Collier was suspended last month, along with Roger Davis, another executive, and Aimee McDuffie, a top salesperson. All three were escorted off the property and had their computers seized by WorldCom investigators.
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