Cynthia Cooper: The Night Detective

In Clinton, Miss., the headquarters of WorldCom rises out of the moonscape of Waffle Houses and Pizza Huts like a dark steel mother ship. It is rather shocking to turn the corner and see it there, lurking behind the freeway as if it had been teleported into this tiny town. In 1999 WorldCom founder Bernie Ebbers moved the company here, to his old college town, and everything changed. Employees started wearing their badges around town as a sign of their achievement. A Wal-Mart Supercenter sprang up. And millions of Ebbers’ dollars went to making over Mississippi College. When friends came to visit Cynthia Cooper for lunch, she would give them a tour of the facility. This is the town where she had grown up, and she was proud of this company that knew no bounds. Cooper too had ridden the wave, becoming vice president of internal audit of what was, for a time, the 25th biggest company in the country.

Last June, Cooper told the audit committee of WorldCom’s board that the company had been playing dirty with its accounting practices. She knew as she said it what would happen. Within days, the company fired its famed chief financial officer, Scott Sullivan, and told the world that it had inflated its profits by $3.8 billion–the largest accounting fraud in history. The number has since grown to $9 billion, and counting. Her colleagues have been placed in handcuffs and led past TV cameras. Shareholders have lost some $3 billion since the news broke, and soon at least 17,000 WorldCom employees will have lost their jobs. In December, the company put a FOR SALE sign on the hangar that stored its corporate jets in Mississippi.

Cooper, meanwhile, still drives to the desolate Clinton headquarters every day. She had spent her career trying to get the higher-ups to take her internal-auditing division seriously; it is only now, in bankruptcy, that WorldCom is finally doing so. Cooper, 38, a petite blond, has been given more money and twice as many staff members. Her division is probably the most secure at the company. And it is quite obvious that she is heartbroken. “There have been times,” says Cooper, a woman not given to intense displays of emotion, “that I could not stop crying.”

Cooper went home to Clinton in 1991, leaving a career and a failed marriage in Atlanta. She had a 2-year-old daughter and needed a job fast. So she just picked up the phone and started calling CFOs. She got a job at WorldCom–then named LDDS–as a contract employee making $12 an hour. After a brief stint at SkyTel, a paging company that would later be acquired by WorldCom, she returned to LDDS in 1994 to start the internal-audit department. The company was precocious and growing fast, and founder Ebbers and his team had little interest in the kind of financial nitpicking her division represented. But Cooper prepared to win them over. “These guys were entrepreneurs. There was a need to prove ourselves and the value of internal auditing,” she remembers. “I loved it. It was a very exciting place to be. We were moving and shaking and acquiring companies.”

Meanwhile, she reunited with the first man to have ever sent her a rose–Lance Cooper, the boy who had had an unrequited crush on her in high school. He heard she was back in town and called to ask her to lunch. She accepted and then called back to say she wasn’t ready to date. He said he understood and asked her to call him if she changed her mind. But he called her again the next day and persuaded her to reconsider. They were married in 1993. Lance had spent 12 years as a computer consultant but never found as much satisfaction in that job as he does today as a stay-at-home dad taking care of their kids Stephanie, 13, and Anna Katherine, 1. That makes Cooper, like the FBI’s Coleen Rowley, the sole wage earner.

But unlike Rowley, she is circumspect and uses few words to make big points. You can tell she is sizing you up as she chats in her friendly way. She has a disarming manner that could be described as politely tenacious. In her accounting classes at Mississippi State University in the mid-1980s, Cooper used to sit in the front row, dead center, says Phyllis Massey, her college roommate. And she would proceed to pepper the professor with questions, oblivious to her classmates’ disdain. “It didn’t matter if the bell was fixin’ to ring. If she wanted to know something, she wanted to know,” says Massey.

Cooper has always had a ferocious single-mindedness. In kindergarten, remembers her mother Patsy Ferrell, her teacher called home to complain that little Cynthia wanted to stay in and talk with the teachers during recess. At about the same age, Cooper became obsessed with getting a bike. But her parents felt she was too young and told her it was too expensive. Soon after, her mother found her hosing off her tricycle in the yard. She was planning to sell it so she could buy a two-wheeler. “You know, that was right pitiful, so we bought her the bike,” says her mother.

Like Rowley and Watkins of Enron, Cooper grew up in a household where money was tight. She remembers the lights going out when she was little; her father Gene Ferrell remembers her worrying over him when she noticed a hole in the bottom of his shoe he hadn’t told anyone about. As soon as she could get a job, she did. Beginning at age 14, she worked at a series of local eateries, including McDonald’s and Morrow’s Nut House.

But the biggest challenge was the Golden Corral, Cooper remembers. The veteran waitresses could carry an impressive total of five plates on their arms. Cooper could carry only a measly two. The manager was too nice to say anything but began gradually cutting her hours until she was almost de facto fired. So Cooper’s dad bought her some weights, and she began training. Sure enough, she started to reclaim hours. “She’d rush home and put on that tacky uniform and go off to the little Golden Corral,” says Cooper’s mother in her most bemused Mississippi drawl. Today Cooper triumphantly recalls what the manager told her after several weeks: “I did everything I could to make you quit. You were the worst waitress I ever had,” he told her. “And now you’re the best.”

At WorldCom, Cooper desperately needed to carry more plates. The culture was so anti-jargon that Ebbers had ordered her never to use the phrase “internal control”–shorthand for the fundamentals behind auditing–again. He said he didn’t understand it, says a WorldCom employee. But that is like asking a weatherman not to use the word forecast. So Cooper huddled her small team together and planned their debut. She called Ebbers, Sullivan and a few others to a meeting in the main conference room. She was going to force them to see what an audit department could do for their bottom line.

The morning of the meeting, everyone gathered together–except Ebbers, the most important attendee. Cooper refused to start without him. After 30 painful minutes, he finally strode in, wearing his trademark sweat suit and holding a cigar, remembers an employee who was there. “What in the hell is the purpose of this meeting?” Ebbers demanded to know. Cooper, in her low, serious voice, asked him to have a seat and turned to her first slide, which defined the purpose. “He wanted to know where his next dollar was coming from,” Cooper says. And she told him. Her division could find millions of dollars in wasteful operations with the use of internal controls. And indeed, over the years that followed, Cooper says, “we paid for ourselves many times over.” Ebbers ended up being the last person to leave the meeting.

WorldCom started as a mom-and-pop long-distance company in 1983. But in the 1990s, it matured into a powerhouse. In 1997 it shocked the industry with an unsolicited bid to take over MCI, a company more than three times its size. In 1998 CFO Magazine named Sullivan one of the country’s best CFOs. At age 37 he was earning $19.3 million a year. The next year Cooper was promoted to vice president. The stock price had gone through the roof, and she and her friends at work would sometimes talk of retiring early, taking care of their parents and starting their own businesses. Cooper harbored a girlish dream of starting a bead shop. She had even ordered a couple hundred thousand beads, which still sit in her garage.

But by early 2001, overexuberance for the telecom market had created a glut of companies like WorldCom, and earnings started to fall. Cooper was aware of the decline but not of the creative accounting fix. At WorldCom her department handled operational audits, which set company budget standards and evaluate performance, among other things. Financial audits, which verify the accuracy of a company’s financial reports, were the province of the then esteemed independent firm Arthur Andersen.

It was a fluke, really, that Cooper got wind of the rotten accounting. A worried executive in the wireless division told her in March 2002 that corporate accounting had taken $400 million out of his reserve account and used it to boost WorldCom’s income. But when Cooper went to Andersen to inquire about the maneuver, she was told matter-of-factly that it was not a problem. When she didn’t relent, Sullivan angrily told Cooper that everything was fine and she should back off. He was furious at her, according to a person involved in the matter. Cooper, concerned that her job might be in jeopardy, cleaned out personal items from her office.

For many auditors, the word of the CFO and an Andersen partner would have been more than enough to leave the situation alone. “You have to understand,” says a WorldCom employee, “Scott was probably the most respected person in the company.” But, says Cooper, “when someone is hostile, my instinct is to find out why.”

As the weeks went on, Cooper directed her team members to widen their net. Having watched the Enron implosion and Andersen’s role in it, she was worried they could not necessarily rely on the accounting firm’s audits. So they decided to do part of Andersen’s job over. She and her team began working late into the night, keeping their project secret. And they had no allies. At one point, one of Cooper’s employees bought a CD burner and started copying data, concerned that the information might be destroyed before they could finish.

In late May, Cooper and her group discovered a gaping hole in the books. In public reports the company had categorized billions of dollars as capital expenditures in 2001, meaning the costs could be stretched out over a number of years into the future. But in fact the expenditures were for regular fees WorldCom paid to local telephone companies to complete calls and therefore were not capital outlays but operating costs, which should be expensed in full each year. It was as if an ordinary person had paid his phone bills but written down the payments as if he were building a phone tower in his backyard. The trick allowed WorldCom to turn a $662 million loss into a $2.4 billion profit in 2001.

Internal auditors, by definition, work in pursuit of a gotcha. So discoveries like this produce a strange “adrenaline rush,” says a WorldCom audit employee, “and at the same time, there’s a great sadness.” Cooper’s mother Patsy could see that the investigation had taken its toll. “I noticed a change in her countenance,” she says. “There was no cadence to her speech. I noticed a lack of, well, it seemed to be energy.”

On June 11, Sullivan called Cooper and gave her 10 minutes to come to his office and describe what her team was up to, says a source involved with the case. She did, and Sullivan, known for his poker face, remained calm. He then asked her to delay the audit, according to a WorldCom timeline of events filed with the SEC. She told him that would not happen. The meeting was a turning point for her because she, like her colleagues in the industry, considered Sullivan the gold standard. “It was terribly disappointing,” says Cooper.

The next day, Cooper told the head of the audit committee about her findings, but she still held out hope that there was a reasonable explanation. She and her team began looking for ways to somehow justify what they had found in the books. Finally, they confronted WorldCom’s controller, David Myers, who admitted he knew the accounting could not be justified, according to an internal-audit memo.

That’s when Cooper’s heart sank. Soon after, she called her mother in exhaustion. “‘There are some things terribly, terribly wrong at WorldCom,'” Patsy remembers her daughter saying. “And I was just pained at the tone of her voice.” Several times Cooper told her colleagues she was concerned about what this would mean for the families of implicated WorldCom executives. “One of the things about Cynthia,” says an employee who has worked closely with her, “is that if she has to step on toes, she’s not uncomfortable doing that. But at the same time, she has great empathy. Those are two things that don’t always go together.”

A showdown was scheduled for June 20. Cooper and a member of her team headed to Washington for an audit-committee meeting of WorldCom’s board of directors. Sullivan would be there to present his side of the story. “We kept waiting up until the very end for Scott to pull a rabbit out of a hat,” says a person close to the case. Relations had become so tense that at the last minute, when Cooper and her colleague learned that the management team was booked at the same hotel, they switched to another one.

At the meeting, Sullivan tried to explain the accounting strategy and asked for more time to fully support his argument. The committee members gave him the weekend. But he could not convince them. On June 24 the audit committee told Sullivan and controller Myers that they would be terminated if they did not resign before the board meeting the next day.

Sullivan refused to step down and was fired. Myers resigned. The next day, WorldCom came clean about its books. Cooper went directly to her parents’ house and sat down at the table in stunned silence. It was an appropriate pausing place. Cooper attributes her endurance in the investigation to her mother. “She would say, ‘Never allow yourself to be intimidated; always think about the consequences of your actions.'”

Cooper, like the FBI’s Rowley, rejects any attempt to link her actions to her gender. “I had two men standing right next to me,” she says of her investigation. “In the end, it is what life finds in us that makes us different.”

Never did Cooper imagine she would become the public face of the WorldCom audit. But in early July reporters showed up at her home and her parents’ place in Clinton. Republican Congressman Billy Tauzin of Louisiana, who chairs the House Energy and Commerce Committee, had released her audit memos to the press, declaring, “This is Fraud 101.” A WorldCom representative phoned her and said, “The press is calling, and they want to make you a hero.” Cooper could not stomach the attention. “I’m not a hero. I’m just doing my job,” she said. “There was nothing to celebrate,” she remembers.

For three days after the announcement, her husband Lance recalls, she did not come home at all. “At times I felt like I was in a very dark place,” Cooper says. She read and reread the 23rd Psalm: “Yea, though I walk through the valley of the shadow of death, I will fear no evil: for thou art with me.” At various times during the ordeal, she has been screamed at and she has been patronized, say her colleagues. She continued to work, keeping long hours to help the accounting firm KPMG redo Andersen’s audit and staying at her parents’ house because it was closer to the office. Finally, Lance piled their two kids into the car and drove to the Ferrells’ house so he could see her. “I just told her, ‘Don’t worry about losing your job. We’ll find a way.'” Lance was a cheerleader in college. He knew how to listen and knew not to try to talk his wife out of taking action. “I never once said, ‘Are you sure you want to do this?'”

Meanwhile, Cooper, a woman known as a perfectionist, was losing control over her domain at WorldCom. One day she walked into the office and found eight investigators perusing her files. All her phone and email messages are being collected, to this day. And she continues to cooperate with a steady stream of investigators, from the FBI to the Securities and Exchange Commission, says her attorney, Bob Muse.

In August, Sullivan was indicted on charges of securities fraud. He faces up to 65 years in prison. The California public-employees’ retirement system–the largest state pension fund in the country–is suing to regain some of the $580 million it lost in the WorldCom debacle.

Cooper still looks distantly like the Clinton High prom princess she once was, and the past nine months have not left her jaded. “We have 62,000 employees working very hard. These employees did not do this. The vast majority of WorldCom is made up of capable, honest employees trying to do the right thing. Only a handful of people were involved in any wrongdoing,” she says. “I feel a personal obligation to see this thing to some kind of conclusion.” When asked what that might be, she answers, “I don’t know yet.”

Whenever Cooper admits to having had painful moments at WorldCom, she follows the acknowledgment with a big, beaming smile. But when I hand her a picture of Ebbers and Sullivan–her former mentors–holding up their hands to be sworn in before Congress, Cooper’s eyes well up with tears. She turns the picture over and says, “I don’t ever want to see that again.” Friends estimate that Cooper has lost close to 30 lbs. The other day she had to laugh when her skirt nearly fell off while she was talking to a colleague at the office. A safety pin saved the day.

So far, Cooper says, she is encouraged by the changes at her firm. The company has carried out many of her recommendations. And she firmly believes there is a point to all of the loss. “There really is a corporate-governance revolution across the country. Internal-audit departments are going to be taken more seriously,” she says, noting that the Sarbanes-Oxley law passed by Congress last July requires all public companies to maintain internal-audit departments. She has received more than 100 letters and e-mails from strangers who want to thank and encourage her.

But she has not been personally thanked by a single senior executive at WorldCom, her colleagues say. And there is grumbling that some employees think the company could have borrowed its way out of its problems and avoided bankruptcy if she had stayed quiet. Some people who used to smile and chat with Cooper and her team by the coffee maker don’t do that anymore. “What gets me angry is that after all she has done, you would think she would be rewarded,” says a friend and colleague at WorldCom. “She went through a battle, one of the biggest battles in corporate America. And that promotion didn’t come.” Cooper will not comment on any possible resentment, except to note that a member of the audit committee did send her a grateful note and that she is looking forward to working closely with the new management team.

In November, WorldCom’s new CEO, Michael Capellas, held a rally to try to light a spark in the demoralized WorldCom work force. He called members of his management team onto the stage, and the all-male ensemble sang, “If you’re happy and you know it, clap your hands!” Cooper was not there; the rally was in Virginia, and she was back in Mississippi, with her team, watching via webcast.