Look Who’s Not Talking

Citing inflammatory public comments, former Enron CEO decides not to appear before Congress. Also: Enron internal report says CFO Fastow made $4.5 million on $25,000 investment in company partnership.

The report also says that Chief Accounting Officer Richard Causey, Chief Risk Officer Richard Buy and Jeff Skilling, former chief executive officer, as well as the entire Enron board, failed to rigorously control how the partnerships operated. “No one in management stepped forward to address the issues as they arose, or bring the apparent problems to the board’s attention,” the report asserts.

Further, the report states that auditor Andersen advised Enron managers on these partnerships–and billed the company $5.7 million for advice on two of them.

Andersen’s Oversight Board

Speaking of which: on Sunday, Andersen named former Federal Reserve Board Chairman Paul A. Volcker to head up an Independent Oversight Board (IOB) to help the Big Five accounting firm make fundamental changes to its audit practice. “We are pleased that Paul Volcker has agreed to help us in this effort,” said CEO Joseph Berardino. “Mr. Volcker is one of the most independent and innovative thinkers in American finance. Andersen, our clients, and America’s investors will jointly benefit from his active participation and leadership.”

The oversight board will be provided with a professional staff and assured free access to all information relevant to a full review of the policies and procedures of the firm, Andersen said in its statement. The board will also have full authority to mandate changes in such practices.

“Some months ago, in addressing the International Conference of Financial Executives, I stated that my concern was that ‘the profession of auditing and accounting is in crisis.’ That crisis is now evident to everyone,” Volcker said in a statement. He is also the current chairman of the trustees of the International Accounting Standards Committee Foundation.

“I trust that the efforts of the Oversight Board and the Andersen partners will together reaffirm Andersen’s leadership in quality auditing. I anticipate that our work will assist in the broader effort toward needed reform of a profession that, by its nature, must be the trustee of truth and transparency in our capital markets,” he added.

Andersen management also said the accounting firm will no longer accept assignments from publicly traded U.S. audit clients for the design and implementation of financial information systems. In addition, Andersen will no longer accept engagements to provide internal audit services to publicly traded U.S. audit clients.

“The overriding purpose of these measures — and those that follow — will be to provide assurance to clients and the investing public that the firm will be restructured to achieve one essential objective: quality auditing,” Berardino said.

Short Takes

  • Regeneration Technologies, Inc. announced on Friday that CFO Richard Allen and James Abraham, vice president, sales and marketing, have resigned. The health products company also said it is delaying the release of its fourth quarter and 2001 results and is determining whether to restate previously reported quarterly results, citing “inventory issues.” The review will take into account whether those issues affected previously reported quarterly results, Regeneration management said in a statement.

  • Montreal is the most cost-competitive business location in the world among large international cities, according to a recent study by KPMG. The study measured 27 location-sensitive cost components, including labor, telecommunications, utility, transportation and financing costs, in 86 cities across North America, Europe and Japan. According to the study, Montreal has “significantly lower costs” than U.S. cities, “with low costs for labor, construction, office leasing, and corporate taxes driving the advantage.”

The next four large international cities (cities with a metro area population over 2 million) ranked behind Montreal are Atlanta, Phoenix, St. Louis and Chicago. New York ranked 16, two notches below Newark.

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