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Billing Could Be an Issue for WorldCom

Courts: The company may have overcharged its customers by as much as 10%. A judge sets March 31 for SEC trial to start.

July 04, 2002|From Times Wire Services

WorldCom Inc. may have overbilled its customers by as much as 10%, raising more legal and financial questions for a company already reeling from an accounting scandal that threatens its existence.

The billing issue arose as a federal judge Wednesday set a March trial date for the scandal-plagued telecommunications company, and the House Financial Services Committee withdrew two key witnesses from a hearing scheduled for Monday for fear their testimony could compromise other investigations.

The overbilling issue first surfaced in the spring, before WorldCom's accounting problems boiled over. Drake Johnstone, an analyst with Davenport & Co. in Richmond, Va., began to question WorldCom's finances after hearing claims from some WorldCom clients that they had been routinely overbilled.

One of them was Prieur Leary, owner of Miami communications services firm Infolink, who has fought a long-running battle with WorldCom over bills he says were chronically inflated. At one point last year, Leary said he owed WorldCom some $300,000 because of billing errors he claims were the telecom giant's fault.

WorldCom eventually credited Infolink--which contracted to buy Internet access and other services--for some charges, but others remain disputed. Leary said he sent a letter last year to Arthur Andersen, WorldCom's outside auditor at the time, alerting it to the overbilling, as well as to WorldCom executives and board members. He got no satisfactory response, he said.

Overbilling is not uncommon in the telecommunications industry. San Diego-based ProfitLine Inc., which audits telecom services bills for clients, said that telecom companies on average overbill customers by about 10% annually.

"If you took $20 billion in business revenue at WorldCom and applied the 10%, you'd get $2 billion," said Johnstone, the Davenport analyst. "That's a pretty sizable number. This overbilling is another huge issue. It's really the next shoe to drop."

WorldCom spokesman Brad Burns said, like others in the telecom business, "now and then we have billing issues." But Burns said the company would not comment on specific billing matters.

Burns also said the company didn't have "any conclusive evidence at this point" that overbilling would become an issue as it relates to revenue.

Dealing with overbilling is nothing new to WorldCom. The company agreed in March 2001 to pay up to $90 million to settle claims that its MCI unit overbilled customers for long-distance service.

Jeffrey Vandeventer, a former WorldCom customer service representative in San Antonio, said he frequently encountered overbillings as he worked with WorldCom clients who had disputes.

Vandeventer said he believed the mishaps usually occurred because of the staff's lack of training and were not intentional.

In Washington, U.S. District Judge Jed Rakoff set March 31 as the tentative date for the Securities and Exchange Commission to begin presenting its case accusing WorldCom of violating securities laws by covering up $1.22 billion in losses by improperly booking $3.9 billion in expenses.

The SEC is seeking unspecified monetary penalties and to bar the company from violating securities laws again.

Rakoff also appointed Richard Breeden, a former head of the SEC, to ensure no documents are destroyed by the company and that no payments that exceed $100,000 are made to current or former executives.

Meanwhile, the House Financial Services Committee scratched WorldCom's internal auditor Cynthia Cooper and the audit committee chairman, Max Bobbitt, from Monday's hearing.

Committee Chairman Michael G. Oxley (R-Ohio) "became concerned that testimony from these two individuals could potentially compromise other inquiries," said Peggy Peterson, spokeswoman for the committee. WorldCom is being investigated by the Justice Department and the SEC.

The Wall Street Journal on Wednesday reported that Cooper found the accounting errors on her own and the audit committee delayed taking action on her findings, differing from the chronology offered by WorldCom. A company spokeswoman declined to comment on the report.

Testimony was expected from WorldCom Chairman Bert Roberts, Chief Executive John W. Sidgmore, Salomon Smith Barney telecommunications analyst Jack Grubman, and Melvin Dick, once a senior partner at former WorldCom auditor Arthur Andersen.

Shares of the Clinton, Miss.-based company more than doubled in Nasdaq trading Wednesday, albeit only going to 22 cents from 10 cents, a day after Sidgmore apologized for the scandal and tried to stem the company's fall.

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Associated Press and Reuters were used in compiling this report.

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