'Shredding documents was a serious error'

JOHN Ormerod, managing partner of Andersen, has been catapulted into the vortex of the Enron scandal. Even worse, the firm has its own Andersengate. Its links to Tony Blair's New Labour are being dissected to determine how the company, after years in the doghouse after the De Lorean cars fiasco, was rehabilitated so quickly and cheaply.

To add to the nightmare, Andersen's top clients are coming under pressure to get rid of the firm as auditor. Lawsuits have already been lodged in the US after the Enron meltdown, and the firm's partners are casting an uneasy eye over their insurance against being sucked in.

Some of the hottest issues are far from resolved. Andersen admits now that it received fees from the John Smith Institute - set up to commemorate the former Labour Party leader - for its work on Labour's tax policy before the 1997 General Election.

That begs the question of why former Paymaster General Geoffrey Robinson believes he paid for the work. Ormerod cannot rule out that Andersen took payments from Robinson, saying there were 'none that I'm aware of'.

Having taken over as managing partner only last March, he must be wondering what has hit him. But he has followed the party line that Andersen was only the auditor at Enron, arguing that 'just because you're at the scene of an accident doesn't mean you caused it'.

No doubt Ormerod needs to rally morale at his troubled firm. But it still seems to be in denial. Outsiders say Andersen has to walk a tightrope to survive. Enron is far bigger and worse than the Polly Peck collapse, which ended the independence of auditors Stoy Hayward.

Enron was America's seventh largest company. In an epic of deceit, directors concealed the true extent of its liabilities, leading to bankruptcy and the loss of thousands of jobs.

Many investors had fortunes wiped out. Tragically, many Enron staff had pensions that were largely invested in its shares, now all but worthless. Several executives netted millions, selling their shares at the top of the market. A former director and whistle-blower killed himself.

A public row

As the auditor that signed the accounts showing that Enron was apparently making billion dollar profits, Andersen is well up the firing line. It promoted itself further by shredding many documents, while a public row over the attempt to confine blame to its office in Houston, Texas, added to its problems.

Ormerod argues doggedly that blame for the dodgy accounts lies with Enron's management. 'The important thing to recognise is that we don't prepare the accounts,' he says. 'The actual accounting records, the choices of which accounting policy to use, the decision as to how much to disclose, that's the company's decision.'

It may be more accurate to regard the audit process as an accountant's opinion of the financial statements provided by the company, he says. 'An audit is not a guarantee. It's really something that helps give shareholders some degree of reassurance on the reliability of the information they've got.'

Enron's audit committee must share some of the blame, he says. It 'makes recommendations to the board about the approval of the financial statements. The board approves the financial statements that the audit committee recommends'.

Sadly, this stuff about 'offering an opinion' is unlikely to wash in the real world, and is little comfort for investors wondering whether more Enrons are about to emerge.

Concealed in small print

As Ormerod sees it, shareholders need to read the small print of company accounts. 'People look at how much money companies make, the profit,' he says. 'The danger is that far too many people look at that one number. They think you can judge the health of a business or its historical performance from one number. You can't at all. Enron's 2000 financial report contained 16 pages of footnotes.'

But what use is an audit if the most important information is concealed in pages of small print? Ormerod does concede half a point here, that reports and accounts alone do not provide a reliable assessment of company health. Shareholders need access to a wider range of information. For example, data on sales per sq ft, a valuable performance measure, are not included in retailers' accounts.

'The issue is not whether we need to change what financial statements are saying and what auditors are doing,' says Ormerod. 'It's whether we need to look at some other standards and other sources of information that are equally or more important.'

Though some will see this as blame-shifting, it it is hard not to feel a little sorry for Ormerod. His future has been threatened by the transgressions of a group of people in far-away Houston. He now spends his days reassuring clients and employees. 'It's a new pleasure,' he quips.

Ormerod comes close to criticising his colleagues only when describing the document shredding as 'a serious error of judgment'. He quickly adds that at least Andersen owned up.

'No one else identified this. Andersen identified it. We had no hesitation about drawing this to the attention of all the appropriate authorities immediately.'

Ormerod, 53, sticks to the company line like a true Andersen man. A 31-year veteran of the firm, he has had only one employer since leaving Queen's College, Oxford, where he read physics.

He refuses to entertain the possibility that Andersen may collapse-under the weight of US litigation. 'If there are errors in the financial statements, the primary responsibility is with people who prepared them, and that is the management.' He insists clients are more supportive in private than public comments suggest.

One reason Andersen keeps its cool is that it has overcome trouble before. Up to the 1997 election, it had been banned from government work. The ban was imposed by the Thatcher government after the downfall of Belfast car firm De Lorean. Andersen audited the disgraced group, which collapsed amid allegations of fraud in 1982, causing hefty losses to the taxpayer.

The firm helped Labour to prepare the tax policy that swept it to a landslide poll victory, and was rehabilitated six months later, paying £21m to settle a government lawsuit claiming £200m.

Secret links with Labour

There was nothing sinister in the relationship with Labour, says Ormerod. 'It is really important that taxes are practical and sensible. It seems good for business to help develop a practical tax framework.'

Why, then, was the relationship a secret? Two Andersen partners vehemently denied any links to Labour ahead of the election.

'There was no secret,' Ormerod insists. 'We have not been trying to hide this. Since the matter has become public we've been happy to explain the position. We've not been seeking to obfuscate. Client work is often confidential. It is not up to us to disclose what we're doing with our clients or our clients' affairs.'

Ormerod a father of four, claims Andersen has always acted properly, and argues that the authorities should refrain from slapping any hasty regulations on the industry. 'We have got to respond to the needs of capital markets and that is better done in an anticipatory, self-regulatory way so that we have the flexibility to keep moving as new demands arise,' he says.

'I think it's a mistake to look at audit on its own. You have to look at the whole framework of corporate governance. What is the responsibility of directors, or the users of financial information?'

His faith in his staff is touching; he clearly believes Andersen is performing within the letter of the law. US lawyers believe differently, and it is in the US courts that the firm's future will be decided.

For all Ormerod's brave words, he knows that Andersen is fighting for its life.

Interview by Laurie Laird