Things are not looking great for Andersen right now.
According to a story published on Time magazine’s web site, employees of the auditing firm were instructed to destroy all audit material, except for the most basic “work papers,” related to Enron Corp. The article alleges that the instruction went out in a memo on Oct. 12 — just four days before the energy giant shocked the world and announced its $618 million third-quarter loss.
“Supervisors at Arthur Andersen repeatedly reminded their employees of the document-destruction memo in the weeks leading up to the first Security and Exchange Commission subpoenas that were issued on Nov. 8,” the magazine reports.
Last week, in a stunning announcement, Andersen management revealed that some employees had destroyed “a significant but undetermined number of documents” related to the Enron audit. Andersen management did not refer to the Oct. 12 memo that Time cited in its article, however.
Indeed, in its announcement last week, Andersen management stated the destruction of Enron documents occurred before the SEC came into the picture. “Discarding of documents occurred during the months before the SEC issued a subpoena to Andersen,” company management claimed. “After receiving the SEC subpoena, the firm issued an instruction to preserve documents.”
But according to Time, sources close to Andersen confirm the basic contents of the Oct. 12 memo, which they say authorized the destruction of Enron-related documents.
Meanwhile, over the weekend the White House acknowledged that Enron CEO Kenneth Lay, a longtime friend of President Bush, had lobbied Commerce Secretary Don Evans and Treasury Secretary Paul O’Neill. Lay is said to have asked the Bush Administration to help Enron maintain its credit rating.
And on Sunday, the New York Times reported that Enron insiders sold $1.1 billion worth of stock from 1999 through mid-2001, thanks in large part to the large amount of stock options they received over the years.
Of course, these latest developments raise serious questions about the value of outside corporate audits. For years, some industry watchers have questioned whether auditors can maintain their independence when they’re generating huge fees from the very companies they’re auditing. The Enron debacle is sure to put that issue back on the table, with Congressional legislation now a real possibility.
Room to Spare: Office Vacancy Rate Soars
No surprise here: In 2001, the U.S. downtown office vacancy rate rose its highest level in four years. The reason? Corporate cutbacks and 9/11, according to property broker Cushman & Wakefield (C&W)
The vacancy rate finished at 12 percent for the year, up from 7.1 percent in 2001. The rate was at 10.8 percent at the end of September. But the effects of the terrorist attacks on New York and Washington drove the rate up another 1.2 percentage points, according to C&W.
The cities with the biggest increases in downtown office vacancies: San Francisco, Seattle, and Boston, which have large exposures to technology and technology-related companies.
The rise in vacancy rates “started with the tech companies and the dot-coms giving up space, and it moved on to financial services and other industries,” Maria Sicola, senior managing director of research at Cushman & Wakefield, told Bloomberg.
In fact, the wire service notes that in 2001, companies gave up 34 million square feet more than they leased. That’s the first time the industry has had “negative absorption” for a year, according to Raymond Torto, head of real estate research firm Torto Wheaton. “Some landlords have resorted to offering free Porsches or South Pacific vacations to brokers who bring them tenants,” says Torto in the Bloomberg story.
The suburban vacancy rate currently averages 17 percent, up from 15.3 percent in September and 10.4 percent a year earlier.
At the same time, the average rental rate in North America is falling. Rents fell 9.1 percent in 2001, according to Bloomberg.
What city had the lowest downtown office vacancy rate? Washington D.C, which weighed in with a 6.8 percent rate, up from 3.8 percent a year ago, according to Cushman & Wakefield. Washington was followed by midtown New York, at 8.2 percent, and Houston, 9 percent.
Looking ahead, Bloomberg says downtown vacancy rates probably will range from 12 percent to 14 percent for the next two years. It hit the high teens in the early 1990s.
(For a look at how the economic downturn is dramatically effecting companies with synthetic property leases, see “Double Whammy,” a CFO special report.
But Do They Own Camrys?
- Toyota Motor Co. announced it is forming a North American Diversity Advisory Board to improve the company’s diversity and job training programs. The seven-member board will be chaired by former Labor Secretary Alexis Herman and include former Congressman and Housing and Urban Development Secretary Jack Kemp and former Transportation and Energy Secretary Federico Pena.