Accounting

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Rival “Big Four” accounting firm KPMG KPMG.UL has also been under scrutiny for tax shelters. In 2005, KPMG agreed to pay $456 million, accept an outside monitor and admit to wrongdoing to resolve a federal investigation into questionable tax shelters it sold to wealthy individuals.

Sixteen of the KPMG’s former employees are due to face trial over the shelters in September.

(Additional reporting by Martha Graybow)

<a href="http://www.reuters.com/article/ousiv/idUSN3041538520070530">Read full article</a>

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GANGS OF AMERICA

The answer can be found by following the money. In the ten years

preceding the scandal, corporations had doled out over $1.08 billion in

campaign contributions: $636 million to Republicans and $449 million

to Democrats. No one, it seemed, had any incentive to rock the boat. In

the decade prior to the Enron scandal, there had been three major fights

in Congress having to do with the accounting industry practices and

accountability. In all three cases, big business lobbying overwhelmed

potential reforms:

Stock Options: In 1993, the Financial Accounting Standards

Board (FASB) attempted to close the loophole that allowed

companies to reward stock options to employees and executives

without reporting those options as expenses. Big business

mounted a huge lobbying effort, and Congress, led by Democratic

Joseph Senator Lieberman, pressured the FASB not to

treat stock options as a corporate expense.

Tort Reform: Part of the “Contract with America” that fueled

the Gingrich Revolution of 1994, in which Republicans gained

a majority of the House of Representatives, was “tort reform.”

Proponents of tort reform denounced the prevalence of frivolous

 lawsuits and passed legislation making it much more difficult

for investors and others to sue corporations and their accounting

firms. In 1995, Congress passed (over President

Clinton’s veto) the Private Securities Legislative Reform Act

limiting the rights of investors to sue management. It also

shielded accounting firms from being charged with aiding and

abetting fraudulent activities. The result was a slack environment

with little fear of lawsuits.

Conflicts of Interest within Auditors: In April, 2000, SEC

chairman Arthur Levitt proposed that auditing firms not be allowed

to consult with the same companies that they were auditing,

since wearing both hats puts auditing firms in a position

where they have an interest in not rocking the boat. Levitt was

not speculating about problems that might happen as a result

of such conflicts. Already, he had ample evidence that the

practice of issuing “managed earnings” had “absolutely exploded.”

And Arthur Anderson had already been fined $7 million

for its role in advising Waste Management Inc., which

paid $457 in penalties for overstating its earnings between

1993 and 1997. To defeat the proposal, Anderson was joined

by two other major accounting firms, KPMG and Deloitte &

Touche, in an all-out lobbying campaign that included nearly

$23 million in campaign contributions to both parties. One

well-positioned Congressman, Billy Tauzin of Louisiana, had

received $300,000 from the accounting industry over the prior

decade. Seven lobbying firms worked on Capitol Hill to kill

the proposal. The committee that oversees the SEC put pressure

on the agency to abandon the proposal. This despite multiple

convictions of Arthur Anderson and other firms.  gangs of america