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A D V E R T I S E M E N T
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Well-Blown Whistle
The story of Kim Emigh’s allegations helped lift the lid on WorldCom.
By DAN MALONE
Kim Emigh, the Texas financial analyst who was laid off after blowing the whistle on questionable accounting practices at WorldCom, was cited last week by The Washington Post for playing a pivotal if circuitous role in drawing attention to the larger scandal that has now dropped the telecom giant to its corporate knees.
As detailed in a Fort Worth Weekly cover story on May 21, Emigh had objected to a management directive that he believed could have caused about $3.5 million in capital expenses to be illegally accounted for. A few weeks after the story ran, Emigh’s complaint was overshadowed when WorldCom auditors announced they had uncovered a different scam that had inflated the company’s cash flow by $3.9 billion.
Comparatively small they may have been, but Emigh’s allegations apparently started a very big ball rolling. The Post’s front-page article on Aug. 29 said Weekly editor Gayle Reaves’ story about Emigh was one of the elements discussed by WorldCom internal auditors who went on to uncover the $3.9 billion misdeed.
“On May 16 of this year, 13 days before the audit team met and began questioning capital expense adjustments, an alternative newspaper, the Fort Worth Weekly, published a lengthy account of Emigh’s story,’’ The Post reported. “The article caught the attention of Mark Abide, [WorldCom’s] director of property accounting. On May 21, Abide forwarded the article to Glyn Smith on the internal audit staff, with a note saying the allegations (of accounting misdeeds by Emigh) were ‘worth looking into.’ ”
The Post said the auditing team met May 29 to discuss the Weekly’s article on Emigh, as well as results of a recent audit that had raised disturbing questions about overcharges by a group of contractors. At that meeting, Post reporter Jonathan Krim wrote, the team focused on a third problem, involving mysterious and sizable additions to the company’s capital expenses.
“The internal audit team resolved to make tracking down the adjustments a top priority. ... Within a month, the auditors had discovered that $3.9 billion in operating costs were improperly accounted for as capital expenses.’’ That’s the flip side of the problem Emigh had found.
“It’s a pretty amazing world,’’ Emigh told the Weekly after the Post article appeared. “It just shows that a little bit of determination and standing up for what’s right can accomplish more than I ever imagined.’’
The Post’s story was based on thousands of pages of company records reviewed by Krim. His article portrayed WorldCom as being plagued by “loose business practices, inadequate financial disclosure, and widespread internal chicanery and corruption’’ long before the accounting scandal forced it into bankruptcy. Indeed, those descriptions cover many of the practices and problems that Emigh told the Weekly he had seen during his years with MCI and WorldCom.
Emigh worked at WorldCom’s networking engineering office in Richardson. When the company announced it was laying off 375 workers in March 2001, Emigh was a well-lit target. The by-the-book analyst had antagonized management by repeatedly challenging the company’s bookkeeping practices. He questioned apparent double-dipping by a favored subcontractor who sought payment for 10 workers who, according to invoices, shared only five Social Security numbers. He complained about a bartender whose friendship with WorldCom managers netted him the equivalent of a $120,000 annual salary for a grunt work data entry job. All of those problems were again detailed in Krim’s story.
But what appears to have sealed Emigh’s fate was his decision to challenge that management directive to mischaracterize millions of dollars in capital expenses as operating costs — a move that he considered illegal as well as a breach of WorldCom’s own internal policies.
In the last few weeks, Emigh has become the go-to guy for national media covering the WorldCom debacle.
“Before, no one wanted to listen to the story. I had maintained long before Enron that this needed to be a national news story,’’ he said. Now, “We’ve been on CNN, ABC, The Washington Post, The New York Post. It’s just gone and on.’’
Emigh’s vindication is not with out a bittersweet element. His $35 million wrongful termination lawsuit against WorldCom got thrown out of court, but he’s trying to turn that around on appeal. And he’s out of work.
It took Emigh 14 months to find his first post-WorldCom job — in part because the company, he said, would not provide him with references. But now that job, too, has played out. One of his new employer’s big accounts went elsewhere, and Emigh’s job went with it. Friday was his last day.
As for WorldCom, two of its top executives have been indicted on fraud charges, the company is attempting to reorganize in bankruptcy — the biggest bankruptcy filing in U.S. history — and its stock now goes for pennies a share.
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