Jewish World Review Jan. 29, 2002 / 16 Shevat, 5762
Specifically, Congress should ensure that investors and the public are protected by clean audits of companies. But two years ago, dozens of congressmen helped accounting firms dodge proposed regulations that would have kept them honest and might have forestalled Enron's collapse.
That's the gist of one of the better investigative stories published about the Enron scandal, which appeared in the business section of USA Today on Jan. 17.
It recounted how a proposal by former Securities and Exchange Commission Chairman Arthur Levitt was torpedoed by the accounting industry in 2000 through Congressional pressure.
Levitt, who will go down in history as one of the most aggressive SEC chairmen on behalf of investors ever (he's also a former owner of Roll Call and a friend), wanted accounting firms to choose between doing audits for companies and consulting.
On the basis of past cases involving Arthur Andersen, which may now go under amid the Enron affair, Levitt was convinced that audits were being compromised because the firms were protecting their consulting businesses.
This seems to be just what happened in the Enron case. Andersen, which did about $90 million in business with Enron last year, turned a blind eye -- or worse -- as the energy giant misrepresented its financial condition by hiding huge quantities of debt.
As USA Today's Gregg Farrell reported, Levitt's effort to end conflicts of interest by the accountants was resisted by 38 House members and 14 senators, most of them members of committees overseeing the SEC. And the congressmen involved were recipients of large campaign donations from the accounting industry. They include Rep. Billy Tauzin, R-La., who's now in the forefront of investigating Enron, and Sens. Charles Schumer, D-N.Y., and Phil Gramm, R-Texas.
In July 2000, Tauzin, chairman of the House Energy and Commerce Committee and recipient of $143,424 in accounting industry campaign money from 1995 to 2000, wrote a letter to the SEC that was co-signed by 20 other House members. The letter said that there was "no evidence" of a problem justifying the SEC's proposed action.
Tauzin's office now acknowledges that the chairman has taken a fresh view of the matter since Enron's collapse and Andersen's disgrace.
Schumer, who received donations worth $329,600 from accounting firms over five years, sent a letter in May 2000 that former SEC officials said was almost certainly composed with the assistance of the accounting lobby. Since the Enron scandal broke, Schumer has turned over $68,800 in Enron and Andersen contributions to a fund for Enron employees whose savings were wiped out in the collapse.
And Gramm, then-chairman of the Senate Banking Committee, wrote the SEC in September 2000 questioning whether any evidence existed that accounting firms were "cooking the books" or "looking the other way."
As USA Today reported, Gramm and other senators were shown such evidence - which involved Arthur Andersen's audits of the Waste Management Corp. -- but Gramm did not change his attitude. He'd received more than $200,000 from accounting firms over five years.
No one can prove that campaign contributions "bought" House members' intervention; there won't be any investigations of members' motives. What they need to do is clean up their mistakes and protect the public in the future.
This involves ensuring that the accounting profession receives adequate oversight from the government or an independent body -- not from a board financed by the industry itself, as at present.
The current chairman of the SEC, Harvey Pitt, a former lawyer for accounting firms, has proposed a private-sector overseer. Congress needs to make sure that oversight is tough enough to keep the industry honest.
So far, the Enron scandal has not caused an earthquake in the general economy, but it could if other major companies go under, and it turns out that their audits were as unsound as Enron's.
Besides ensuring clean audits, Congress needs to enact legislation -- previously defeated -- to protect employees from having their retirement plans overly invested in company stock.
It needs to consider repealing legislation passed in 2000 reducing regulation of derivatives, the financial instruments Enron used to construct its shaky empire.
And it needs to pass tax-law changes ensuring that, when they are profitable, high-flying companies like Enron can't utterly escape taxes.
Of course, Congress should demand that the administration reveal the process that led Vice President Cheney's Energy Task Force to adopt an energy policy containing at least 17 proposals on Enron's wish list. But, at the moment of Enron's collapse, the evidence so far indicates that the Bush administration did nothing to rescue it. Meantime, what Congress did and didn't do allowed the crisis to develop. It's up to Congress to clean up the mess and prevent future ones.