WorldCom Woes Hit Users

Audit cites customer support problems.

WorldCom Inc. continued to unravel last week with the resignations of its treasurer and general counsel. While the latest blow to the scandal-ridden company is not seen as an impediment to its emergence from bankruptcy, it is also not seen as a step toward rectifying WorldComs problems—many of which center on customer relationship difficulties.

In a letter to the WorldCom audit committee filed with the Securities and Exchange Commission last week, KPMG LLP cited problems with customer care and billing. According to KPMG, WorldCom does not have a consistent policy on retaining electronic and hard-copy records and cannot locate electronic files for some billing systems. KPMG also found that security deposits from customers were not recorded consistently and that some were recorded incorrectly as cash payments. WorldCom management concedes that record retention is an issue for the whole company, but it maintains that incorrectly recorded security deposits are an isolated problem.

As scandal has hit the company, service problems have mounted, forcing some customers, such as Chicos FAS Inc., to drop service. The womens clothing company, with more than 400 stores nationwide, left WorldCom last fall after experiencing a rapid decline in customer service, according to Ajit Patel, vice president and CIO of Chicos, in Fort Myers, Fla.

After WorldComs accounting fraud was disclosed in June of last year and the company began laying off employees, Chicos received less attention, Patel said. The retailer lost its dedicated account representative, and its stores were directed to contact any one of a half-dozen new representatives, he said, adding that none of the new contacts provided the previous level of service.

"It was a quagmire of confusion and chaos," Patel said. "They would say they were going to have our circuits in place by Friday, and then, all of a sudden, theyd say they were not going to be able to have service in place. I said to them, Dont you realize we have a store opening?"

WorldCom spokesmen say the company has not experienced any "spikes in attrition" among enterprise users.

WorldCom has taken big steps to disassociate itself from its past by renaming itself MCI, replacing top management and board members, and relocating its headquarters to Ashburn, Va. But questions linger about the scope of the $9 billion accounting scandal.

In addition to the letter from KPMG, two other investigative reports released last week seek to identify the roots of the WorldCom fraud. Upon announcing the results of an internal investigation June 9, Chairman and CEO Michael Capellas said, "No one even arguably associated with the past wrongdoing continues to work at the company." The following day, Susan Mayer, treasurer and senior vice president, and Michael Salsbury, general counsel and executive vice president, resigned.

A second report, prepared for the bankruptcy court, questions whether the companys treasury office provided accurate information about WorldComs finances to lenders. It also took to task the board of directors for insufficient oversight.