Andersen CEO, grilled by congressional panel on auditing firm’s role, says he lacks answers
WASHINGTON (AP) — Enron’s auditing company failed to arouse suspicions about the energy company’s finances because vital information was withheld, the Arthur Andersen firm’s chief executive told skeptical lawmakers Tuesday.
In the end, Joseph Berardino said, Enron and not Andersen must bear responsibility for Enron’s collapse.
Under more than four hours of grilling by members of a House Financial Services subcommittee, Berardino insisted Andersen auditors were out of the loop on many details involving Enron.
“I don’t know with authority what we knew and when we knew it,” he said. “I did not do the audit of this company.”
Rep. Paul Kanjorski of Pennsylvania, the subcommittee’s senior Democrat, told him: “You’re not some innocent.”
Said Berardino: “At the end of the day, we do not cause companies to fail.”
Andersen, one of the Big Five accounting firms, has come under scrutiny by lawmakers, the Justice Department and the Securities and Exchange Commission, all investigating the Enron collapse. Chicago-based Andersen acknowledged last month massive destruction by its employees of documents related to the Enron audit in the face of an investigation by federal regulators.
At the time, Berardino said the firm’s own investigation of the shredding could point to executives much higher than lead Enron auditor David Duncan. He was fired by Andersen and recently cited his Fifth Amendment right against self-incrimination in refusing to testify to another congressional panel.
“I’m embarrassed by what happened in my firm,” Berardino told the hearing. Still, he added, millions of documents remain that are relevant to the inquiries.
As he testified, another congressional panel heard devastating details of how Enron senior managers were found to have used partnerships to hide some $1 billion in debt and improperly enrich themselves.
Lawmakers wanted to know about Andersen’s involvement in setting up some 3,000 partnerships and whether the big auditing firm purposely ignored accounting improprieties.
Berardino repeatedly said he didn’t have the answers, which drew anger from several members of the panel.
“We’ve been listening to you for a while, and we’ve basically gotten nothing,” Rep. Gary Ackerman, D-N.Y., told him. “Maybe it’s better to be dumb than culpable, but we want some answers.”
Berardino disputed the conclusion of an internal Enron investigation headed by William Powers, dean of the University of Texas Law School, that Andersen played an active role in setting up the partnerships. Berardino said Andersen’s auditors only gave their opinion to Enron executives about whether the partnerships complied with accounting rules.
“It depends on what ‘involved’ and ‘setting up’ means,” he said. “We were very much involved as the company was setting up these transactions.”
With Andersen’s reputation on the line, the firm announced Sunday it brought in former Federal Reserve Chairman Paul Volcker to lead an effort to revamp its business practices.
As a first step, Andersen said it no longer will provide certain kinds of consulting services to the companies whose books it audits, joining other accounting firms in an effort to restore confidence in their profession in the wake of the Enron calamity.
Enron did not provide critical information to its Andersen auditors about one of the partnership arrangements with Barclays Bank of Britain, Berardino testified. He said that if the auditors had been given that information in 1997, Andersen would have objected to Enron’s accounting for the partnership.