The Fall of Andersen - Chicago Tribune Part 1 of 4 - The f all of Andersen chicagotribune.com

The Fall of Andersen - Chicago Tribune Part 1 of 4 - The f...

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12/17/12 The f all of Andersen - chicagotribune.com 1/17 chicagotribune.com A FINAL ACCOUNTING The fall of Andersen In its drive to boost profits, the Chicago auditing legend diluted its lofty standards, rewarding partners who generated hefty consulting fees and forcing out its blunt bookkeepers. CHICAGO TRIBUNE September 1, 2002 First of four parts This series was reported by Delroy Alexander, Greg Burns, Robert Manor, Flynn McRoberts and E.A. Torriero. It was written by McRoberts. Trading his customary dark suit for a pair of jeans, Mike Gagel trudged over pallet after pallet of multicolored bricks in the central Ohio storage yard. The summer heat was stifling as he counted once, then twice. Something was wrong. Arthur Andersen, the prestigious Chicago accounting firm, had sent the eager young auditor for a routine task: to certify the inventory of a million bricks baking in the sun near Marion. But each time Gagel counted the pallets, he came up 100,000 bricks short. At first, the factory owner reacted angrily when Gagel confronted him with his findings. He grabbed the phone and asked Gagel's boss why he had sent such a rookie.
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The boss told Gagel to count the bricks again. On his third pass, Gagel once again counted 900,000 bricks; only this time, the owner checked into the discrepancy. He discovered that a plant manager had been ripping him off, secretly selling truckloads of bricks out of the back gate at night. Gagel's brickyard math is a classic example of the vigilance that made the name Arthur Andersen the gold standard of the accounting profession for decades. But the incident 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 an auditor of publicly traded companies under a cloud of scandal and shame. Its felony conviction for obstructing a federal investigation into Enron Corp., its now-notorious client, cost Andersen the heart of its practice. It will continue with a tiny fraction of the 85,000 employees it spread across the globe just months ago. Andersen's leaders have portrayed the firm as the innocent victim of overzealous prosecutors and a dishonest client. But a close examination of Andersen's collapse reveals a very different story. In the 1990s, the firm embarked on a path that valued hefty fees ahead of bluntly honest bookkeeping, eroding Andersen's good name. Andersen shunted aside accountants who failed to adapt to the firm's new direction. In their place, Andersen promoted a slicker breed who could turn modestly profitable auditing 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.
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