Blame the Accountant

It would have been fun to be a fly on the wall that day in April when Halliburton Co. fired the firm of Arthur Andersen as its auditor. Although the year is not yet half over, this one will be hard to top as Best Capt. Renault Moment of 2002. Like the Claude Raines character in Casablanca, the company apparently was “shocked, shocked” to learn what Andersen had been up to.

Of course it’s no big deal to fire Arthur Andersen, ever since the firm got cooties last fall in connection with the Enron scandal. By now nearly every company lucky enough to have employed Arthur Andersen has seized the opportunity to establish its own enormous integrity by inviting the beleaguered bookkeepers to drop by for a chat, gently removing their glasses and eyeshades, punching their owlish faces in, and then kneeing them in the double-entry bookkeeping for good measure.

One imagines the scene: an orgy of self-righteousness. “You despicable swine!” these companies shriek at the trembling, cowering number-crunchers. “How dare you sully the sacred title of auditor? We counted on you to stop us from cooking our own books. That’s what auditors are paid to do. If you’re going to look the other way and then shred documents to cover up our misbehavior, there’s no telling the terrible things we might do. Shame on you, Arthur Andersen. Shame! Shame!”

It’s not true that some companies attempted to hire auditors from Arthur Andersen just for the thrill of firing them with a sanctimonious flourish. (In fact, no one has even suggested such a thing until this moment.) And it’s certainly not necessary to feel sorry for Arthur Andersen. Every company can benefit from a reputation for integrity, but an accounting firm is selling almost nothing except its reputation for integrity. It only takes one pork chop to put a kosher butcher out of business.

Still, Halliburton is a special case, because its CEO during most of those Accounting-a-Go-Go years that climaxed with the Enron scandal was Dick Cheney. Cheney now runs the country, they say, adopting the role of mild-mannered vice president in order to disguise his superpowers. And on Thursday Halliburton revealed that its accounting practices beginning in the Cheney era are under investigation by the Securities and Exchange Commission.

The New York Times, which first reported the Halliburton funny business, explained it pretty clearly: The company runs large construction projects, mostly for the government and the oil industry. Apparently, large construction projects work just like small ones, such as remodeling the bathroom. That is, the contractor states a price, runs over budget, then tries to get the customer to fork over the difference. Until 1998 Halliburton had the tact to wait until it got the extra money before putting it on the books. In that year, it began guessing how much of a disputed surcharge would ultimately get paid and crediting itself in advance. Why not? You only live once! This self-administered pick-me-up added $100 million in reported revenues to Halliburton’s books.

And where was Arthur Andersen while its client Halliburton was sauté-ing the spreadsheets? Looking the other way, apparently. Later, when the Enron story broke, Halliburton undoubtedly thought, “Goodness. We’d better get rid of Arthur Andersen and find ourselves an accounting firm with integrity. We certainly don’t wish to be associated with an auditor that will allow us to do the kind of thing we’re doing.” So they fired Arthur Andersen. Too late, too late. Due entirely to Andersen’s failure to stop it, Halliburton is now under investigation for doing what it did.

And where was the future vice president while this was going on? The company insists, graciously, that a mere $100 million flyspeck on the company accounts (1999 income: $438 million) was beneath the notice of a busy CEO like Dick Cheney. This is believable. Cheney’s income in 2000, his last year at Halliburton, was $36 million in salary, bonuses, benefits, deferred compensation, restricted stock sales, exercised options, frequent-flier miles, a turkey at Christmas, and other standard elements of the modern CEO compensation package. It is a vital responsibility of anyone who is that valuable to remain completely ignorant of anything improper going on around him. He owes it to the company to be untainted.

It’s true that Cheney was featured in a promotional video for Arthur Andersen, in which he says, “I get good advice, if you will, from their people based upon how we’re doing business and how we’re operating—over and above just the sort of normal by-the-books auditing arrangement.” The Wall Street Journal, which uncovered this video, had a good time with that patronizing dismissal of by-the-books accounting practices. But taken as a whole, this remark from Cheney is a pretty convincing performance of a man who doesn’t know what the hell he is talking about.

It would be the sheerest demagoguery to suggest that a person should take the blame for a company’s shenanigans just because he happened to be CEO at the time. Heck, no. That’s what accountants are for.