12/17/12The f all of Andersen - chicagotribune.com1/17chicagotribune.comA FINAL ACCOUNTINGThe fall of AndersenIn its drive to boost profits, the Chicago auditing legend diluted itslofty standards, rewarding partners who generated hefty consultingfees and forcing out its blunt bookkeepers.CHICAGO TRIBUNESeptember 1, 2002First of four partsThis series was reportedby Delroy Alexander, Greg Burns, RobertManor, Flynn McRoberts and E.A. Torriero.It was written by McRoberts.Trading his customary dark suit for a pair ofjeans, Mike Gagel trudged over pallet afterpallet of multicolored bricks in the centralOhio storage yard. The summer heat wasstifling as he counted once, then twice.Something was wrong.Arthur Andersen, the prestigious Chicago accounting firm, had sent the eager youngauditor for a routine task: to certify the inventory of a million bricks baking in the sunnear Marion. But each time Gagel counted the pallets, he came up 100,000 bricksshort.At first, the factory owner reacted angrily when Gagel confronted him with hisfindings. He grabbed the phone and asked Gagel's boss why he had sent such arookie.
The boss told Gagel to count the bricks again. On his third pass, Gagel once againcounted 900,000 bricks; only this time, the owner checked into the discrepancy. Hediscovered that a plant manager had been ripping him off, secretly selling truckloadsof bricks out of the back gate at night.Gagel's brickyard math is a classic example of the vigilance that made the nameArthur Andersen the gold standard of the accounting profession for decades. But theincident occurred in 1969, and it, like Andersen's reputation, is history.On Saturday, a firm that once stood for trust and accountability ended 90 years as anauditor of publicly traded companies under a cloud of scandal and shame. Its felonyconviction for obstructing a federal investigation into Enron Corp., its now-notoriousclient, cost Andersen the heart of its practice. It will continue with a tiny fraction ofthe 85,000 employees it spread across the globe just months ago.Andersen's leaders have portrayed the firm as the innocent victim of overzealousprosecutors and a dishonest client. But a close examination of Andersen's collapsereveals a very different story.In the 1990s, the firm embarked on a path that valued hefty fees ahead of bluntlyhonest bookkeeping, eroding Andersen's good name.Andersen shunted aside accountants who failed to adapt to the firm's new direction. Intheir place, Andersen promoted a slicker breed who could turn modestly profitableauditing assignments into consulting gold mines.Repeatedly, Andersen rewarded those involved with the firm's most troubled clients,while guardians of the company's legacy, like Gagel, were shown the door.