From Communists to Accountants, a History of Capitol
Scorn
January 25, 2002
FLOYD NORRIS
The New York Times
The right not to be forced to incriminate oneself is a fundamental one in
American justice, and one that is normally respected. A witness who will not
testify does not provide information, and so there is little reason to force him to
show up and invoke his rights under the Fifth Amendment.
But Congress has been willing to subject some people — normally those deemed to
be beneath contempt — to televised humiliation. In the early 1950's, suspected
Communists were paraded before the House Un-American Activities Committee.
Later, Mafia bosses were given the treatment.
Now it is auditors.
"Enron (news/quote) robbed the bank; Arthur Andersen provided the getaway car,
and they say you were at the wheel," Representative Jim Greenwood of
Pennsylvania, chairman of one of the many subcommittees investigating Enron,
told David Duncan. He was the Andersen auditor who led the audits of Enron, and,
then, Andersen says, organized the destruction of documents after the Securities
and Exchange Commission began looking into Enron's accounting.
After the speeches, Mr. Duncan, who was fired by Andersen, was asked whether he
tried to "subvert governmental investigations." He refused to answer, as his
questioners knew he would.
The document destruction makes Andersen look horrible.
So does the fact that its document policy — which was
written by a top Andersen partner at the same time the
S.E.C. was using subpoenaed documents to investigate
that very partner — did not specifically discuss whether
documents should be preserved after an auditor learns of
an S.E.C. investigation. There are good reasons to suspect
that Enron abused accounting rules to produce
misleading financial reports and that some destroyed
documents showed that Andersen employees knew more
than they would now like to recall. But public humiliation
is not proof.
The latest leak of Andersen documents indicates that Mr.
Duncan was at least trying to do his job. Days before
Enron issued the Oct. 16 earnings release that set off a
cavalcade of questions that eventually brought the
company down, he warned that parts of that release were
misleading and mentioned the possibility of an S.E.C.
enforcement action. Enron ignored his advice to make
changes.
How did Andersen's Chicago headquarters respond to
that? An Andersen lawyer recommended that Mr. Duncan
delete from his memorandum "language that might
suggest we have concluded the release is misleading." It
does not sound as if a tough auditor was what Mr.
Duncan's bosses wanted.
The real answers about who, if anyone, acted badly at
Andersen will come from the S.E.C. and Justice
Department investigations, with little help from what went
on on Capitol Hill yesterday.
But the accounting industry cannot wait for those
determinations. The other members of the Big Five need
to take clear steps to distinguish themselves from
Andersen. If companies are forced to disclose ways in
which they twisted accounting rules to produce dubious —
but legal — results, people may conclude that auditors are
doing their job and the Enron debacle is an outrageous
exception, not business as usual.
Auditors might also tell companies that if they issue
misleading news releases, as Enron did despite
Andersen's advice, the auditors will point that out to the
S.E.C.
Being treated like Communists and gangsters is a warning
to any industry. Thirteen years ago, it was Charles H.
Keating Jr., the boss of Lincoln Savings, who cited his
Fifth Amendment rights at a Congressional hearing. Four years later, he was in
prison, a symbol of the savings and loan scandal.
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