From Business Finance Magazine "Up Front: Six Sigma Meets Financial Reporting"

Could -- and should -- the statistical tools of Six Sigma, a quality discipline used in manufacturing and service processes by such behemoths as GE, Motorola and IBM, be applied to the financial reporting process? A recent research report by The Faltin Group in Ballston Spa, N.Y., suggests that if the methodology had been applied to WorldCom's financial reporting, it could have prevented billions of dollars in losses.

Six Sigma tools are designed to help users understand normal operations, then to raise questions about any unusual behavior. Using publicly available data, the Faltin Group tested the theory that this approach can uncover problems in financial reporting.

The firm found that starting in April 2002, WorldCom began to dramatically restructure its debt. Investors enjoyed share prices around $15 in mid-2002, but the research indicates that Six Sigma might have signaled the company's failing financial health at that time, prompting an inquiry into its causes.

"What's important for tracking any company's performance," notes Frederick W. Faltin, managing partner and author of the report, "is that rigorous systems be in place for analyzing a comprehensive group of key financial measures and for asking questions when unusual patterns arise." In WorldCom's case, intervention might have led to management changes in time to save the company from collapse.