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2.22.02
Politics and Economy:
Transcript: Accounting for Congress
More on This Story:
Lynn Turner, Former Chief Accountant at the Securities and Exchange Commission

Transcript

With the debate that surrounded the passage of the campaign reform bill in the House of Representatives last week, we've all been made aware of the power of "soft money." But what about the problem plain old direct contributions pose? And, how does this "hard money" influence votes on Capitol hill?

REP. MICHAEL OXLEY, (R-OH) Feb. 4th: This committee oversees the financial and capital markets…we take our work very seriously, and we're committed to doing what is right.

BILL MOYERS: It has become almost a daily ritual. The chorus of voices from Capitol Hill expressing anger and dismay over the collapse of Enron.

REP. W.J. TAUZIN (R-LA), Feb 5th: We have substantial evidence of illegal activity by Enron and its management.

REP. JIM GREENWOOD (R-PA), Feb 5th: Clearly, there is much troubling information in this report for us to consider as we move forward.

MOYERS: Among the most vocal critics-the chairmen of the Congressional committees investigating the Enron disaster.

PAM GILBERT, FORMER EXEC. DIR. CONSUMER PRODUCTS SAFETY COMMISSION: Sometimes you do shake your head and wonder, "where were they?"

MOYERS: Pamela Gilbert is the former executive director of the Consumer Products Safety Commission. She is also a lawyer who has spent much of her career fighting for the rights of investors.

GILBERT: I know full well that they know partly how this could have happened, because it's been some of their handiwork that has enabled this kind of shenanigans to go on.

MOYERS: Gilbert is talking about several opportunities Congress had in recent years to enact safeguards to mitigate a scandal like Enron. But each of those efforts went down in defeat—shot down by some of the same politicians who are now investigating the scandal.

GILBERT: They were told over and over again that this was going to hurt real people...they just turned their backs on those arguments and sided with members of industry who were financing their campaigns.

MOYERS: One thing that might have helped prevent Enron: the so-called "auditing independence rule." Three years ago, the Securities and Exchange Commission proposed a rule that would have stopped accounting firms, such as Arthur Andersen, from doing both auditing work and consulting work for the same company. The SEC saw this as an enormous problem. Such relationships were fraught with conflict of interest, they said. Lynn Turner was the Chief Accountant at the SEC.

LYNN TURNER, FORMER CHIEF ACCOUNTANT at the SECURITIES AND EXCHANGE COMMISSION: We were seeing cases where auditors had actually identified the problems during the course of the audit and knew the numbers were wrong, and yet still gave a clean bill of health on those numbers. And in some cases, the consulting fees were quite high, so we're concerned about whether or not the consulting fees had led to a less than objective audit, if you will.

GILBERT: Well, when that same accounting firm is relying on that company to hire it to consult on all sorts of matters...its in the interest of the accounting firm to be very kind to the company.

MOYERS: And that's exactly the kind of behavior for which Arthur Andersen is being investigated—ignoring wrongdoing at Enron so it could keep on collecting big consulting fees. The accounting firm pocketed 27 million dollars a year in consulting fees from Enron...at the same time it was making 25 million a year to audit Enron's books.

GILBERT: As we're seeing in the Enron situation, it's hard to say Enron without saying Andersen as well. Everything that Enron did along the way, Andersen was there reviewing and giving a clean bill of health to their audits.

MOYERS: Andersen's accounting division , like all auditors, is supposed to be an independent outsider-ready and willing to blow the whistle. By law, accountants are the guardians that are supposed to make sure corporate America isn't cooking the books.

BARBARA ROPER, DIRECTOR, INVESTOR PROTECTION, CONSUMER FEDERATION OF AMERICA: There's no way that accountants who have too much at stake in a client to be willing to walk away can claim to be independent.

MOYERS: Barbara Roper is director of investor protection for the Consumer Federation of America. The SEC enlisted the federation to help make the case in Congress for separating auditing and consulting work.

ROPER: Before there was even word one on paper of what those proposed rules were going to look like, the accountants were already up on the Hill, trying to line up members of Congress to back them in their opposition to the SEC's proposed rule.

TURNER: You had the profession itself hiring lobbyists and doing a phenomenal amount of lobbying and putting a lot of money in the campaign re-election funds that year.

MOYERS: Members of Congress embarked on an aggressive campaign against the proposed rule. There were meetings, hearings, and most notably, a wave of protest letters to the SEC. We were shown some of those letters from Congress. Among them: three letters from Representative Billy Tauzin; two from Representative Michael Oxley. Both men are now chairing key committees investigating what Anderson did wrong.

TAUZIN, Feb 6th: We've also found that Enron's auditor, Andersen, knew or should have known, or should have discovered, the fraudulent nature of the Fastow transactions.

MOYERS: Congressmen James Greenwood also holds a key position in the Enron investigation. He, too, opposed cleaning up the accounting rules.

REP. JAMES GREENWOOD, Feb. 6th: Enron's accounting tactics went well beyond the aggressive, violating or circumventing some the accounting profession's most basic rules.

MOYERS: Members of the Senate weighed in too, especially Democrats Charles Schumer and Evan Bayh and Republican Robert Bennett. All three now sit on Senate committees investigating Andersen and Enron.

ROPER: The accountants went to Congress and they lined up people who were willing to intervene, and I think a reasonable person assumes that the amount of money that the accountants gave influenced those decisions.

MOYERS: How much did the accounting industry give? Here are some of the figures.

Billy Tauzin is the number one recipient in the House of donations from the Andersen accounting firm. And since 1995, he received over $l53,000 from the accounting industry as a whole.

  • Michael Oxley has collected over $87,000 dollars from the industry.

  • Charles Schumer, $386,000.

  • Robert Bennett, over $87,000.

  • Evan Bayh, over $90,000.

All of that was in what's called "hard money," in other words, direct campaign contributions. To get around the $1000 limit on individual contributions, companies often use "bundling," collecting checks from many employees and sending them in together. And that would still be legal under the legislation passed last week by the House.

Also, all of them have taken money from the Enron Corporation itself. We asked to interview several of these members of Congress; none accepted.

ROPER: I think most people do smell a rat. I mean, people believe that companies give money for a reason.

TURNER: I think there was a correlation, and in some cases a direct correlation, between the money that some members of Congress were receiving and their efforts, either through telephone calls, or meetings, or writing letters opposing the rule making effort.

ROPER: You know, thousands of people are out of their jobs, retirement plans that have been cleaned out. I mean, that's what the evidence of a blown audit looks like, and it's this cynical argument on the Hill you face, that there has to be blood in the water. You have to show the victims before you can get an effective response. And so now, we've got the victims.

MOYERS: In the end, the supporters of the accounting industry won-the independence rule never passed. But the woes of many of those Enron victims may soon grow even worse. Roper cites another example of how Congress helped the accounting industry.

ROPER: It is in many ways the same cast of characters. Many of these same people are the same people who were doing the accountant's bidding on the Private Securities Litigation Reform Act.

MOYERS: The Private Securities Litigation Reform Act was passed in 1995. It's what's known as a "tort reform" law. It is an effort to reduce lawsuits, in this case, lawsuits by investors seeking to recover money for securities fraud—investors like those who owned stock in Enron.

ROPER: In the simplest terms, what it does is make it more difficult to sue for securities fraud. And should you successfully sue for securities fraud...makes it less likely that you will recover your damages.

GILBERT: One of its major elements was that it would relieve or very much limit the liability of people who assist in fraud. So they may not be the mastermind behind the swindle, but they are the accountants or the lawyers or the brokers who enable the fraud to go on.

MOYERS: Limit the liability of accountants like Andersen-now being sued for its Enron audits. And who wrote this law? Some familiar names: Billy Tauzin and Michael Oxley, Republicans, and, in this particular case, Senator Christopher Dodd, a Democrat. The accounting industry has given Dodd over half a million dollars.

GILBERT: The legislation was going to protect criminals and swindlers and white collar defrauders, and unfortunately, because of the gobs and gobs of campaign cash in the system the voices of the people with the special interests in the debate won out over the voices of the people who were going to be directly affected, which were consumers and small investors.

MOYERS: Small investors like Tom and Karen Padgett.

TOM PADGETT: At the high point...it was worth about $615,000. Today, it's probably worth less than $10,000.

MOYERS: The Padgetts are one of those families that had a 401k plan with Enron. They were a few months away from retirement when Enron went into its death spiral. They're part of a lawsuit to recover their money, but don't hold out hope they'll see much of anything.

KAREN PADGETT: If Enron doesn't have the money, then where we gonna get it from?

MOYERS: Like many other people in 40lks, the Padgets made the mistake of keeping too much money in one pot-in their case, Enron stock. They say they believed the optimistic predictions being made by Enron management. But even these 401k losses could have cut by yet another proposal that ended up dead-on-arrival in Congress.

SENATOR BARBARA BOXER (D-CA): It's Economics 101. When bad things happen, if your risk is spread, you'll be okay.

MOYERS: In 1996, well before the Enron crisis hit, Senator Barbara Boxer was concerned about the need for diversifying 401k money, so she proposed a cap on holding too much company stock.

BOXER: So I said, look, I got to do something about this and I wrote a bill that would have put a ten percent cap on any one company's stock...I got slaughtered, to be honest. I got slaughtered.

MARK IWRY, FORMERLY OF THE U.S. TREASURY DEPARTMENT: Well, the political battle was not that much of a battle back then.

MOYERS: Mark Iwry was a Treasury Department official who advised and supported Boxer's effort to limit the amount of company stock in 401k plans.

IWRY: Unfortunately, there were very few others who were lined up in favor of working hard to protect the workers as much as possible…and the forces who were in favor of the status quo were far more powerful and prevalent at the time.

BOXER: You know, certain things are clear. It's clear that you're going to put your whole retirement at risk if you're not diversified. It's clear that if an auditor is also making money from the company as a consultant, they just may not be willing to tell the truth. These things are clear. So the same people who are fighting me now fought me then, they're the same people responsible for this problem.

MOYERS: There's now a new effort to cap company stock in a 401k. Boxer hopes Congress has gotten the message. Meanwhile, thousands of people have lost their jobs, billions of dollars in investments have disappeared, and the leaders of Congress are on television practically everyday, asking, "How could this have happened?"

TAUZIN, Feb 6th: In the end, it turns out that the Enron debacle is an old-fashioned example of theft by insiders, and a failure of those responsible for them to prevent that theft.

TURNER: I would turn around and say that some of those up on the Hill who led the opposition to us…also need to turn around and ask themselves the question, "What role did they play in not getting this problem fixed earlier?" And I'm willing to give them the benefit of the doubt at this point in time…but at the end of the day, if we don't get substantial reforms, then I would say that unequivocally, this is the irony of ironies.


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