Tue, Jan 22, 2002 page21

• Andersen CEO places blame on Enron

  ACCOUNTABILITY On NBC's `Meet the Press' Sunday, Joseph Berardino, the head of Arthur Andersen, said that Enron went bankrupt because it used a bad business model

  • REUTERS
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  The head of accounting giant Arthur Andersen, under fire as auditor of bankrupted Enron Corp, sought on Sunday to cast the company's spectacular collapse as the consequence of a failed business model rather than a result of illegal practices.

  "To my knowledge, there was nothing that we've found that was illegal," Andersen Chief Executive Joseph Berardino said on NBC's "Meet the Press" current affairs program.

  

  PHOTO: AP

  "This is a company whose business model failed. The accounting reflects the results of business activities. And the way these events were being accounted for were clear to management and to the board.

  "But at its base, this is an economic failure," he said.

  Berardino also denied that problems at Enron, coming on the heels of accounting controversies involving other large clients, put Andersen's survival at risk. "I don't think we're finished at all. We're meeting with our clients," he said.

  Enron, the Houston-based energy trading company with ties to US President George W. Bush and other Republicans, was once a darling of Wall Street with a soaring stock price and a future made bright by the promise of energy deregulation.

  But the company faltered last year and collapsed in the biggest bankruptcy filing in US history, wiping out the life savings of many workers while senior executives reaped huge profits by selling shares.

  In the unfolding scandal, Enron's aggressive bookkeeping practices have come under scrutiny by government investigators, while Securities and Exchange Commission Chairman Harvey Pitt has proposed tougher accounting oversight.

  On Sunday, Pitt said it was too early to say whether investors were treated fairly in the marketplace as Enron imploded.

  "From everything I've seen and heard, this is a situation that is incredibly troublesome and requires very vigorous and firm relief, both enforcing existing laws against those who have done the wrong thing and making certain that our rules protect investors," he told ABC's "This Week."

  Enron and Andersen were scheduled to be the focus of congressional committee hearings this week by the House Energy and Commerce subcommittee on oversight and investigations and the Senate Governmental Affairs committee.

  US Secretary of State Colin Powell found himself fielding questions about a Bush administration decision to intervene with Indian officials last year in a bid to salvage Enron's troubled US$2.9 billion Dabhol power project, which had been financed in part by the US government.

  The White House has denied that involvement by senior officials including Vice President Dick Cheney was influenced by Enron's political contributions.

  Powell told Fox News Sunday there was "nothing inappropriate" about US-Indian contacts. "It was something that was important to an American company, and why shouldn't the American government try to help one of its companies that is having difficulty," said Powell, who could not recall any discussions with Indian officials on the subject.

  Andersen has come under fire over Enron since evidence surfaced that the firm knew of crucial issues surrounding the energy giant's debt-laden partnerships as early as February.

  As auditor, Andersen signed off on accounting practices that hid billions of dollars in off-balance-sheet debt and led to a US$600 million reduction of four years' worth of earnings.

  "Those books were not cooked in February or in August. There were questions about the viability of some of the assets. And those were reflected in the accounts when the facts became known," Berardino said.

  Enron fired Andersen as its accountant last week.

  Meanwhile, Andersen fired its lead partner on Enron, David Duncan, after the Big Five accounting firm confirmed he ordered the destruction of Enron-related documents despite an SEC request for the files. "Frankly, we're very concerned about those activities," Berardino said. "At the least, in our opinion, [Duncan] displayed extremely poor judgment in his destruction of documents."

  He also defended Andersen against an assertion that the firm may have overlooked issues involving potential conflicts of interest and the off-balance-sheet financings because Enron represented US$100 million a year in consulting fees.

  "That's a lot of money, we understand that. But we're also a US$10 billion organization. This client was a fraction of 1 percent of our fees," Berardino said.

  "Everybody wants to talk about the off-balance-sheet liabilities. But those liabilities also were countered by off-balance-sheet assets. The key here is that those assets lost value very quickly," he said. "The work we had done for Enron, under any scenario, were appropriate and were disclosed to the board and to the shareholders."

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