Auditing Firms Gaining Muscle in Washington
The New York Times
January 19, 2002
BUSINESS
" The profession's growing influence is perhaps most
apparent at the S.E.C. Last month, President Bush said
he would nominate partners from two of the Big Five
accounting firms, PricewaterhouseCoopers and Ernst &
Young, to two vacancies on the five-member commission."
By STEPHEN LABATON
WASHINGTON, Jan. 18 -
When Arthur Levitt Jr.,
then chairman of the Securities
and Exchange Commission, tried
to impose tough
conflict-of-interest rules on the
accounting industry two years
ago, he was hit by a barrage of
high-powered lobbying, including
calls from 10 or 11 senators. The
senators, whom he did not
identify, warned that if he did not
relent on the new regulations,
the agency's appropriations could
be cut, he said.
Executives from the auditing
firms said the proposals were
unduly burdensome and
unnecessary. But speaking of the
episode this week, Mr. Levitt said
the calls reflected the political
influence of the industry, which
ultimately succeeded in
weakening his proposals to
reduce the potential conflicts of
interests at accounting firms.
"I have never been subjected to a
more intensive and venal
lobbying campaign," said Mr.
Levitt, who led the S.E.C. for
almost eight years, the
longest-serving chairman in the
commission's 67-year history. "I
spent nearly all of my time
during those months responding
to senatorial and congressional
queries and visits. It was totally
time consuming."
Now, with revelations of
document destruction at Arthur
Andersen, the auditors for the
Enron Corporation (news/quote),
and the losses of more than $60
billion by Enron shareholders,
accounting firms are preparing
for a new fight against regulation.
The battle waged against Mr.
Levitt shows how difficult it may
be for more stringent proposals to
be adopted.
The accounting firms, including Andersen, are hiring
teams of lobbyists - former senior aides to lawmakers
and presidents, both Republican and Democrat - as well
as using their own formidable staffs. While there is talk in
Washington of significant oversight and toughened
enforcement, Congressional aides and some experts say it
will not happen, at least not without changes in campaign
finance rules, because of the industry's political muscle.
"It's just whimsical," said James D. Cox, a law professor at
Duke University who has written a textbook on accounting
and legal issues. "There will be a lot of posturing about
how bad Enron and Andersen are. But at the end of the
day, if we can't get campaign finance reform, it's hard to
believe we get tighter standards. These are two very
related issues."
The profession's growing influence is perhaps most
apparent at the S.E.C. Last month, President Bush said
he would nominate partners from two of the Big Five
accounting firms, PricewaterhouseCoopers and Ernst &
Young, to two vacancies on the five-member commission.
Joel Seligman, who wrote a history of the S.E.C., said he
could not recall a partner at a leading accounting firm
ever being a commissioner. Moreover, the commission's
current chairman, Harvey L. Pitt, a securities lawyer, once
represented all five major accounting firms as well as the
American Institute of Certified Public Accountants before
he took over at the S.E.C. last summer.
On Thursday, Mr. Pitt announced plans to create a group
dominated by experts from outside the accounting
industry to discipline unethical accountants. That role is
now filled by an industry group. Unlike Mr. Levitt, Mr. Pitt
said that it was unnecessary to adopt any rules that would
restrict accounting firms from performing multiple
services for clients.
At the height of the fight between the industry and Mr.
Levitt in the second half of 2000, all the Big Five
accounting firms sharply increased their political
donations and spending on lobbying. Andersen doubled
its lobbying budget, to $1.6 million.
The investment paid off.
Among other proposals, Mr. Levitt sought to prohibit an
accounting firm from performing both accounting
functions and consulting services for the same company.
That proposal threatened billions of dollars in revenues at
the Big Five firms, and their defeat of the proposals in
2000 illustrated the industry's growing influence in
Washington. Had the Levitt proposals been in place, it
would not have been possible for Andersen to bill Enron
$27 million for consulting services last year while also
billing $25 million for audits.
The profession has succeeded in fighting off tougher
regulation over the decades, but it reached its apex in
political power only in the last few years, a reflection of
the industry's mushrooming campaign contributions and
increased lobbying.
As the firms have grown and become more profitable by
expanding into new lines of business, including lobbying
and political consulting, they have also spent considerably
more money in Washington, broadening their influence.
The industry has contributed more than $53 million since
1990 to congressional and presidential candidates. More
than $14 million of those contributions came in 2000,
putting accountants in the same category of more
established big donors like telephone companies, higher
education and the building trade unions.
For all the talk about Enron's influence, by some
measures the accounting industry has even stronger ties
to government. Of the 20 largest contributors to President
Bush's 2000 campaign, three accounting firms -
including Andersen - gave more money than Enron. All
Big Five accounting firms were among the campaign's top
20 contributors.
Moreover, 94 current senators and more than half the
current members of the House have received some
campaign donations from Andersen since 1989, according
to a study for the Center for Responsive Politics, a
nonpartisan group that studies the influence of money in
politics.
In recent years, the accounting firms have set up
Washington operations to represent their interests and
those of their clients. They have retained batteries of
former government and Congressional aides. And they
have been among the largest political fund-raisers and
donors.
During the last presidential election, Andersen was the
fifth-largest contributor to Mr. Bush's campaign, giving
more than $145,000 through its employees and political
action committee, according to the Center for Responsive
Politics. The fourth-largest was Ernst & Young, which gave
more than $179,000; PricewaterhouseCoopers was eighth,
contributing more than $127,000.
Enron, by contrast, gave about $113,800. Andersen also
organized a big Bush campaign fund-raiser.
The largest Congressional recipient of Andersen donations
has been Representative Billy Tauzin, the Louisiana
Republican who heads the House Energy and Commerce
Committee, one of the 10 Congressional committees
examining Enron's collapse. He has received $57,000 from
Andersen in the last decade.
The New York Times
Saturday, January 19, 2002
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