http://www.arizonarepublic.com/news/articles/0104andersen04.html

Enron auditor inquiry is urged

By Max Jarman The Arizona Republic Jan. 04, 2002 12:00:00

Arizona Attorney General Janet Napolitano on Thursday called on Congress to investigate auditing firm Arthur Andersen for its involvement in various scandals, saying Arizona investors and companies have been especially harmed.

The latest example, she said, is the collapse of Houston-based Enron Corp., in which Andersen approved financial statements that investigators say vastly understated the energy trader's earnings because money-losing investments were placed off the books. The Arizona State Retirement System lost $35 million attributable to Enron's stock plunge, state officials said, though it represented only a fraction of the fund's $23 billion assets. State utilities, including Pinnacle West Capital Corp., Salt River Project and Tucson Electric Power, also could lose a total of nearly $30 million owed them by Enron for energy trades.

"I'm very troubled by the similarities between the allegations against Andersen by Enron's investors and the facts our office have discovered in our various investigations of Andersen," Napolitano wrote in a letter Wednesday to U.S. Sens. John McCain, Tom Daschle and Fritz Hollings. "I strongly urge the appropriate Senate committee to examine Andersen's role in auditing Enron's financial statements."

She said her office intends to recoup the $35 million from Enron.

"It's worth fighting for," said Napolitano, who is widely hailed as the leading Democrat for Arizona governor later this year.

Andersen spokesman David Tabolt said the company is cooperating fully in Enron investigations.

"Our firm will not shrink from its responsibilities," he said. "If we made errors in judgment, we will acknowledge them, and if changes are required, we will make them."

McCain was out of the country and unavailable for comment. An aide to Hollings said Andersen employees have testified before the Senate Commerce Committee investigating Enron.

In Arizona, Napolitano has sued Andersen, accusing it of accounting fraud for its role as auditors of the ill-fated Baptist Foundation of Arizona, whose own spectacular collapse cost 12,000 investors almost $600 million. The case is awaiting trial.

The Attorney General's Office and the Arizona State Board of Accountancy also have investigated accounting fraud claims in connection with Andersen's services to California's Lincoln Savings & Loan, whose collapse in 1990 cost taxpayers more than $2 billion. They also probed the collapse of Phoenix-based American Continental Corp., run by Charles Keating, which cost investors close to $1 billion.

In another matter, the state investigated Andersen's audits of UDC Homes, which filed for bankruptcy protection in 1995 and was subsequently acquired by Shea Homes. No action was taken, and Andersen was cleared in a civil suit related to the bankruptcy.

"We're the only AG's office in the country with expertise in this matter (Andersen's accounting practices)," Napolitano said in offering to share information with Congress.

She added, "Arizona needs to know whether Andersen has undertaken a systematic campaign or practice of fraudulent financial accounting."

Tabolt said the firm and the accounting profession have been shaken by high-profile financial collapses and are committed to restoring public confidence.

-- Anonymous, January 04, 2002

Answers

I hope they nail Arthur Anderson on this. I have worked with Arthur Andersen consultants and they are nothing but kids right out of college with no real world experience.

-- Anonymous, January 04, 2002

I totally agree, Beckie. That firm cries out for an investigation.

-- Anonymous, January 04, 2002

Ex-roomie used to be with AA. He said the annual audits were how the new folks got their experience. Somehow, I don't think they would have been left alone with a company as large as Enron, though. It had to have been reviewed higher up.

I remember working as an office manager at a small software company during an annual audit. I really didn't know what I was doing, but it wasn't until the auditor asked for a bill of lading, I believe, that I realized they didn't know either. I gulped and asked what a bill of lading was. They looked confused and just tabled the question. Okey dokey, so long as we know where we both stand...

-- Anonymous, January 04, 2002

This is nothing new about Arthur Andersen, or countless other firms that perform the same function for corporations all over the US. The name of the game is to make the numbers look good to stockholders and inverstors. I have watched this sort of smoke and mirrors, creative accounting, going on for decades. I always wondered how or why they were permitted to fudge and massage the numbers the way they do. The only reason that AA is being targeted here is that the underlying firm, Enron, is taking down so many investors. If *all* the other companies that AA reports on, or other such accounting firms report on, were to be put under the microscope there would be 100's of gross mistatements uncovered. We live in a world of deceptive accounting.

-- Anonymous, January 04, 2002