The army of auditors trained to keep quiet

TIME for a confession: I once belonged to the now-vilified auditing classes, working for a firm that was then, and still is, one of the Big Four. That was in the days when exciting multi-million-pound consultancy contracts were a twinkle in the eye of senior partners, and being an auditor fully deserved its reputation for unutterable boredom.

But even that long ago, and that far down the food chain, it was clear that these rapidly swelling partnerships were nurturing the seeds of their future failings. My generation of trainees was gaily dispatched to tick and bash at a mammoth business such as Ford UK or British Steel. There was not a word of what we were really there to do - to act as the eyes and ears of shareholders, making as sure as we could that companies were not cooking the books.

Often we would fail to find an invoice or the book-keeping entry we sought. So we pretended we had. Often accounts staff, who resented the arrival of outside auditors, would not give satisfactory answers. We pretended they had. And why not? Lacking a clear sense of mission, few of us had any compunction about overlooking the odd error.

It was also clear that colleagues who had checked the books the year before had indulged in the same short cuts. And as a further disincentive to asking awkward questions, even lowly auditors were sometimes offered staff discounts on the products of the companies they were checking. Those with the temerity to ask why we were ticking this rather than that were told: 'Because the audit manual says so.' Asking more than once branded me an anarchist.

With this training, it is a wonder that there are any accountants with the guts to question something dodgy, let alone blow the whistle, as did Cynthia Cooper at WorldCom. Now that accountancy firms are using the audit as a loss leader to secure lucrative consultancy work, there are huge pressures on their lowly armies of tickers and bashers. This makes a skimpy job even more likely.

Trade Secretary Patricia Hewitt last week said she planned to make audit committees responsible for appointing auditors, and might insist on compulsory rotation of audit firms. But this will go only part of the way. Clearly, an auditor's life is not made easy if, as in the case of a Robert Maxwell or a WorldCom, senior executives deliberately set out to fiddle the figures.

But it is alarming that major shareholders seem happy to indulge in handwringing of the 'crooks will be crooks' kind, rather than applying their minds - and their infrequently used muscle - to remove some of the most obvious incentives for executives to cook the books. For a start, they must dismantle the rewards system at the top. This encourages executives to massage short-term profits to trouser oodles in share option gains. As a fund manager told me last week, any fool can manipulate a share price for three years to trigger their windfall. And just look at the eight-figure packages commanded by the bosses of Enron, Tyco, WorldCom et al.

The debate about what are appropriately tough targets for executive share options - and some are still ludicrously based on the simple need to increase revenues rather than profits - is fraught. But however undemanding the targets, it would be a start if shareholders insisted that executives could not get their hands on the loot for at least five years. That would do far more to align the interest of executives with long-term investors - and might even deter some of their hit-and-run financial wheezes.