Auditing Firms Gaining Muscle in Washington
Auditing Firms Gaining Muscle in Washington
STEPHEN LABATON . NY Times . 19 january 2002
WASHINGTON, Jan. 18 When Arthur Levitt Jr., then chairman of the Securities and Exchange Commission, tried to impose tough conflict-of-interest rules on the accounting industry two years ago, he was hit by a barrage of high-powered lobbying, including calls from 10 or 11 senators. The senators, whom he did not identify, warned that if he did not relent on the new regulations, the agency's appropriations could be cut, he said.
Executives from the auditing firms said the proposals were unduly burdensome and unnecessary. But speaking of the episode this week, Mr. Levitt said the calls reflected the political influence of the industry, which ultimately succeeded in weakening his proposals to reduce the potential conflicts of interests at accounting firms.
"I have never been subjected to a more intensive and venal lobbying campaign," said Mr. Levitt, who led the S.E.C. for almost eight years, the longest-serving chairman in the commission's 67-year history. "I spent nearly all of my time during those months responding to senatorial and congressional queries and visits. It was totally time consuming."
Now, with revelations of document destruction at Arthur Andersen, the auditors for the Enron Corporation (news/quote), and the losses of more than $60 billion by Enron shareholders, accounting firms are preparing for a new fight against regulation. The battle waged against Mr. Levitt shows how difficult it may be for more stringent proposals to be adopted.
The accounting firms, including Andersen, are hiring teams of lobbyists former senior aides to lawmakers and presidents, both Republican and Democrat as well as using their own formidable staffs. While there is talk in Washington of significant oversight and toughened enforcement, Congressional aides and some experts say it will not happen, at least not without changes in campaign finance rules, because of the industry's political muscle.
"It's just whimsical," said James D. Cox, a law professor at Duke University who has written a textbook on accounting and legal issues. "There will be a lot of posturing about how bad Enron and Andersen are. But at the end of the day, if we can't get campaign finance reform, it's hard to believe we get tighter standards. These are two very related issues."
The profession's growing influence is perhaps most apparent at the S.E.C. Last month, President Bush said he would nominate partners from two of the Big Five accounting firms, PricewaterhouseCoopers and Ernst & Young, to two vacancies on the five-member commission.
Joel Seligman, who wrote a history of the S.E.C., said he could not recall a partner at a leading accounting firm ever being a commissioner. Moreover, the commission's current chairman, Harvey L. Pitt, a securities lawyer, once represented all five major accounting firms as well as the American Institute of Certified Public Accountants before he took over at the S.E.C. last summer.
On Thursday, Mr. Pitt announced plans to create a group dominated by experts from outside the accounting industry to discipline unethical accountants. That role is now filled by an industry group. Unlike Mr. Levitt, Mr. Pitt said that it was unnecessary to adopt any rules that would restrict accounting firms from performing multiple services for clients.
At the height of the fight between the industry and Mr. Levitt in the second half of 2000, all the Big Five accounting firms sharply increased their political donations and spending on lobbying. Andersen doubled its lobbying budget, to $1.6 million.
The investment paid off.
Among other proposals, Mr. Levitt sought to prohibit an accounting firm from performing both accounting functions and consulting services for the same company. That proposal threatened billions of dollars in revenues at the Big Five firms, and their defeat of the proposals in 2000 illustrated the industry's growing influence in Washington. Had the Levitt proposals been in place, it would not have been possible for Andersen to bill Enron $27 million for consulting services last year while also billing $25 million for audits.
The profession has succeeded in fighting off tougher regulation over the decades, but it reached its apex in political power only in the last few years, a reflection of the industry's mushrooming campaign contributions and increased lobbying.
As the firms have grown and become more profitable by expanding into new lines of business, including lobbying and political consulting, they have also spent considerably more money in Washington, broadening their influence.
The industry has contributed more than $53 million since 1990 to congressional and presidential candidates. More than $14 million of those contributions came in 2000, putting accountants in the same category of more established big donors like telephone companies, higher education and the building trade unions.
For all the talk about Enron's influence, by some measures the accounting industry has even stronger ties to government. Of the 20 largest contributors to President Bush's 2000 campaign, three accounting firms including Andersen gave more money than Enron. All Big Five accounting firms were among the campaign's top 20 contributors.
Moreover, 94 current senators and more than half the current members of the House have received some campaign donations from Andersen since 1989, according to a study for the Center for Responsive Politics, a nonpartisan group that studies the influence of money in politics.
In recent years, the accounting firms have set up Washington operations to represent their interests and those of their clients. They have retained batteries of former government and Congressional aides. And they have been among the largest political fund-raisers and donors.
During the last presidential election, Andersen was the fifth-largest contributor to Mr. Bush's campaign, giving more than $145,000 through its employees and political action committee, according to the Center for Responsive Politics. The fourth-largest was Ernst & Young, which gave more than $179,000; PricewaterhouseCoopers was eighth, contributing more than $127,000.
Enron, by contrast, gave about $113,800. Andersen also organized a big Bush campaign fund-raiser.
The largest Congressional recipient of Andersen donations has been Representative Billy Tauzin, the Louisiana Republican who heads the House Energy and Commerce Committee, one of the 10 Congressional committees examining Enron's collapse. He has received $57,000 from Andersen in the last decade.