Andersen's Bermuda blues

THE latest twist in the scandal engulfing Andersen, auditor to fallen giant Enron, is one that will deliver a further body blow to the battered reputation of the accountancy profession.

Over Easter it emerged that, astonishingly, the Andersen network owns an insurance company that supplies its satellite firms with cover for sloppy auditing. The insurer in question is called Professional Services Insurance Co, based in the tax haven of Bermuda.

Problems surrounding this insurer are likely to make the task of saving Andersen an even more difficult one. Partners are to hold another soul searching teleconference over the fate of the business today, and some are now questioning whether the firm is technically solvent.

Unfortunately for anyone trying to squeeze money out of Andersen, the Bermuda company certainly appears somewhat strapped for cash. At the weekend, Andersen backtracked on an agreement to pay £150m through the insurer to settle claims relating to an investment scam at the Baptist Foundation of Arizona.

Five officials at the foundation were indicted last year on 32 counts of fraud, racketeering and theft, but the auditors - guess who - did not notice anything amiss. Some 11,000 investors lost around £400m.

Andersen's claims that the insurers can't afford to pay up in the Baptist case bode ill for Enron. The accountants recently offered £264m to settle claims related to the energy giant, £176m of which was to come from the Bermuda insurance company. The insurer is believed to be technically insolvent because Andersen's American arm did not make a £70m premium payment.

Andersen in the US claims it has done nothing wrong. Its argument is that the insurer is owned by the member firms of Andersen Worldwide, a Swiss cooperative that runs the rapidly disappearing global network. The American firm says it only owns 5% and so does not exert any control over which claims the insurer does, or does not pay.

Whatever. The fact is, it is absurd that accountants should be allowed to insure themselves in this way. The insurers should be fully independent, and make a dispassionate assessment of claims and risks.

The Andersen affair is sad for thousands of decent, hardworking staff who could do nothing to affect the behaviour of a handful of colleagues in Arizona or Enron's Houston headquarters. But the more we learn about it, the more it drives home the point that auditing is in need of urgent and far reaching reform.

Pensions pain
AS IF we weren't all terrified enough about our pensions, the European Union is now sticking its nose in. Spanish delegates are demanding stringent controls on funds, insisting that the amounts they owe to scheme members should be covered by their investments at all times. It sounds reasonable - but the proposals would cause havoc in the UK, where funds are allowed latitude over their long-term liabilities.

Our system gives funds greater scope to invest in shares, which are riskier, but historically have delivered far superior long-term returns.

The UK government recently agreed to scrap our own minimum funding requirement, which forced schemes to make expensive adjustments to their portfolios without delivering any discernible improvement in security for members. It is now fighting the Spanish proposals.

Britain has the best funded, most sophisticated private pension provision in Europe, with £850bn invested in pension funds - more than the rest of the EU put together. Pensions are already under threat. Droves of companies are using changes to accounting rules to close generous schemes. An ill-thought out diktat from Brussels via Madrid could be the final straw.

Knapp's debt deal
PERVERSELY, NTL's default on a £68m interest payment due on Monday is probably good news. The company decided to hold on to the money at the request of an unofficial committee of bondholders who are allowing it to use the cash to help in its rescue plan.

Barclay Knapp, the chief executive, has publicly apologised for the mammoth debt at the cable TV company. He is now showing every sign of working constructively with creditors. Rival Adam Singer of Telewest claims he is not suffering similar woes, and that he is more likely to elope with a supermodel than have to restructure his balance sheet. Let's hope for his sake he is right.