Just a short walk from the Andersen Interactive Classroom, two partners of embattled Arthur Andersen who are also Fairfield alumni met with a concerned university community this past Thursday.
Norm Solomon, dean of the School of Business, characterized this as an “open town meeting” for the benefit of the university. For this reason, off-campus media organizations were not permitted to attend. External press might “inhibit” the “free flow” between the university community and the Andersen representatives, said Doug Whiting, the associate vice president for Public Relations.
“Our future is very bright,” said John O’Neill, ’71, of Andersen, though he would later admit that his company “will end up writing a check, a big check,” as a result of the collapse of Enron and actions by certain members of Andersen. Frank Prudente, ’89, echoed the sentiment of a bright future and vowed that Andersen would be a pioneer in its industry.
Andersen was the principle accounting firm for Enron; which filed for bankruptcy protection after its stock plummeted. Enron’s executives have testified in front of several Congressional panels currently investigating the former energy giant’s staggering collapse. The Chief Executive Officer of Andersen, Joseph Berardino, ’72, has also testified in front of Congress twice.
Berardino told Congress that his company is taking “immediate steps” to improve their practices and their dwindling public image. Those steps which Berardino mentioned to Congress were echoed within a few days by the Andersen partners at Fairfield. As outlined by O’Neill on Feb. 7, the steps Andersen has begun include the establishment of an oversight board, an Office of Audit Quality and an Office of Ethics.
However, some members of Congress were displeased with a lack of “specifics” in Berardino’s answers, according to MSNBC.com. “Your ship is going to go down and you’re going to be lashed to the mast unless you start talking to us,” said Rep. Gary Ackerman, D. – N. Y.
Prudente called Enron a “business failure… not an audit failure.” He dubbed the Andersen employees who looked into Enron as a “SWAT team” once problems in accounting were apparent.
In August an executive at Enron, Sherron Watkins, wrote a memo to CEO Kenneth Lay voicing concern over accounting irregularities and Chief Financial Officer Andrew Fastow. Enron had used a legally accepted maneuver of a “special purpose vehicle” (SPV) to improve their apparent profit numbers.
The SPV in question, known as Chewco Investment L. P., is a partnership which can be treated independently of Enron as long as sufficient equity from the partnership is provided by a source other than Enron. This equity was provided by a “large international financial institution,” according to Berardino’s testimony in front of Congress in December.
However, Enron had a separate agreement to further aide in the equity of Chewco, according to Berardino who denied knowledge of this fact until November. According to the Wall Street Journal, this financial institution was Barclays PLC. Berardino’s testimony to Congress in December was inaccurate, also according to the Journal, because Barclays merely lent money to two other companies which then made the equity investment in Chewco.
Additionally, the Journal reports that Barclays was told in 1997, before Berardino’s time as CEO, that “Arthur Andersen had reviewed the Chewco financing structure… and approved it.”
A Securities Exchange Commission (SEC) probe began in mid-October and an Andersen partner allegedly destroyed a significant number of documents, according to Prudente and published reports. The partner, David Duncan, was also the top auditor for Enron and has since exercised his Fifth Amendment right when called to testify in front of Congress. Prudente called this an “unfortunate” and “poor decision.”
The Wall Street Journal discussed Chewco in late October and by November Arthur Andersen reported that that the equity of this SPV prohibited it from being declared independent. As a result, the disclosure compelled Enron to reduce their earning reports retroactively from 1997 onward by a total of $ 400 million.
Prudente said that Andersen “made an error in judgment” but O’Neill cautioned the painting of 80,000 Andersen employees with the same “brush that you paint a handful of people in Houston.”
It was a “bad decision by a very small number,” was the belief which Dean Solomon expressed. James Hays, ’04, an accounting major, said that judgment on Berardino and his company should be reserved until all the facts are available.
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