Attorney General John Ashcroft Picks Arthur Andersen For FBI Review

The Justice Department has selected Andersen to conduct a comprehensive review of the FBI, including its antiquated computer systems.

The study is being undertaken on behalf of Justice's Strategic Management Council, a new organization that Attorney General John Ashcroft created to provide long-range planning. Ashcroft said that the council's review will include a management study of the FBI's policies and practices focusing on information technology, personnel, crisis management and other issues.

The FBI has been reeling from problems in recent years, including the discovery this year of its failure to turn over thousands of documents in connection with the trial of Oklahoma City bomber Timothy McVeigh. The delay in handing over those documents has been blamed in part on the FBI's inadequate computers.

Ashcroft, in a June 20 memo to deputy attorney general Larry Thompson, ordered the comprehensive review to "identify and recommend actions dedicated to improving and upgrading the performance of the FBI."

The contract specifies that "Andersen will evaluate the organizational structure and mission of the FBI, including the agency's own perception of its mission and core values and how well its organizational structure is suited to identify and act on institutional and operational problems," Justice said.

Andersen will review the FBI's policies, practices and procedures in several other areas:

Justice awarded the contract from a competition using the General Services Administration's Management, Organizational, and Business Improvement Services contract, department officials said.

Andersen, formerly known as Arthur Andersen LLP, was selected on the strength of its ability to assemble an experienced consulting team that could deliver recommendations based on its research in a short time frame, Ashcroft said.

The FBI already has two targeted reviews ongoing. The Justice inspector general is investigating the issues in the McVeigh snafu, and William Webster, former director of the FBI and CIA, is leading a group that will make recommendations for improving the bureau's national security measures. The Webster review was launched following the arrest of Robert Hanssen, a longtime FBI counterintelligence agent who is accused of spying for the Russians for 15 years.

Ashcroft asked that those investigations be completed by Nov. 1 so the findings can inform the Strategic Management Council's report, which will be completed by January."

By Terry Frieden
CNN Washington Bureau
August 10, 2001 Posted: 4:40 AM HKT (2040 GMT)

WASHINGTON (CNN) -- The FBI is the subject of yet another outside investigation -- this time for alleged double standards of discipline throughout the agency, and claims of retaliation against whistleblowers in the fallout from the siege at Ruby Ridge, Justice officials said Thursday.

Justice Department officials revealed the probe had been opened in May, but had not been made public. In recent weeks, Senate hearings on a series of FBI failures prompted some lawmakers to complain FBI leaders were not held to the same standard of discipline as rank-and-file field agents.

The review of possible retaliation by executives in the aftermath of the deadly 1992 Idaho siege marks the fourth probe of the FBI undertaken this year by Inspector General Glenn Fine and his investigators. That office is also looking into the Robert Hanssen spy scandal, the failure by the FBI to turn over documents during the trial of Oklahoma City bomber Timothy McVeigh, and the disappearance of hundreds of missing firearms and laptops in the FBI and other agencies.

In addition, Attorney General John Ashcroft has ordered two outside investigations of the FBI. A panel led by former FBI and CIA Director William Webster is examining the counterintelligence problems revealed by the Robert Hanssen spy case, and an independent management review is being conducted for Ashcroft by

Arthur Anderson

auditors.

Last month Ashcroft handed the Justice Inspector General increased authority to examine the FBI, in a move designed to help rein in the FBI's long-standing independence.

Justice Department officials said the Inspector General's review would not focus on the Justice decision rejecting a proposed censure of former FBI Director Louis Freeh in connection with the Ruby Ridge incident. Officials say they do not know whether the Inspector General will interview either Freeh or former Assistant Attorney General Stephen Colgate who rejected a task force recommendation to censure Freeh.

Freeh disciplined a dozen agents in 1994 following an internal investigation of the deadly Ruby Ridge shootout in which an FBI sharpshooter shot and killed Vicki Weaver, the wife of separatist Randy Weaver, in her mountain cabin. One day earlier, Weaver's 14-year-old son and a federal marshal were killed during a shootout.

Two agents have expressed bitter disappointment that the FBI had unfairly disciplined them, while top managers escaped any punishment. They testified before the Senate of alleged retaliation for their challenge to the FBI hierarchy's conclusions and actions in an internal review of the shootout at Ruby Ridge, Idaho.

FBI Director Robert Mueller recently told a Senate panel that he believes the top executives at the FBI should be held to an even higher standard of conduct than the men and women they lead. Mueller said the FBI had "outgrown" its current management structure, and promised to make changes when he takes over in September.

#345: 07-20-01 DEPARTMENT OF JUSTICE COUNCIL ANNOUNCES CONTRACT AWARD FOR MANAGEMENT STUDY OF FBI

WASHINGTON, D.C. Attorney General John Ashcroft announced that the Department of Justice has awarded a contract to the firm of

Arthur Andersen LLP

to conduct a management study of the Federal Bureau of Investigation. The study is being undertaken on behalf of the Department of Justice's Strategic Management Council, a formal board of top Justice officials chaired by Deputy Attorney General Larry Thompson, which was created last May to provide direction and leadership on a wide range of Department matters. On June 20, Ashcroft requested that the Council conduct a comprehensive review of the FBI. As part of that review, Ashcroft requested the Council commission a study by a private firm to review the policies and practices of the Bureau regarding information technology, personnel matters, crisis management, and related issues.

"This study by a firm of Andersen's caliber will provide valuable information to enhance the institutional integrity and performance of the FBI. By addressing the many challenges facing the Bureau and finding the appropriate solutions, we will reinforce the FBI's effectiveness as the premier law enforcement organization in the world," said Ashcroft.

Selection of Andersen resulted from a competition conducted under the General Services Administration's (GSA) Management, Organizational, and Business Improvement Services (MOBIS) Schedule, which has proven invaluable in allowing federal managers to quickly access a broad range of experienced management consulting firms. Andersen was selected on the strength of its ability to assemble an experienced consulting team that could deliver recommendations based on its research in a short time frame.

As outlined in the contract, Andersen will evaluate the organizational structure and mission of the FBI, including the agency's own perception of its mission and core values and how well its organizational structure is suited to identify and act on institutional and operational problems. In addition, Andersen will review the Bureau's policies, practices, and procedures in several other areas, including its records and data management and the way the agency approaches the procurement and maintenance of information technology systems; its approach to human resource management, including the recruitment, selection, hiring, and retention of employees, as well as its approach to human capital planning and resource deployment. Finally, Andersen will review the manner in which the Bureau reacts to crises, emphasizing the effectiveness of its communication structure, its decision making and command authority, and the relation of Headquarters officials to those in field offices.

The results of the study will inform the Strategic Management Council's recommendations, due to the Attorney General at the beginning of next year, for overall improvements to the FBI.

From here:

Earned $7,706,500 in speaking fees in 2000 (about $60,000 each) for 108 speeches to various corporations, including JCPenney, GE Power, Kentucky Fried Chicken, Consolidated Edison, Paine Webber, Miller Brewing, Goldman, Sachs, Wells Fargo Bank, Credit Suisse, Alex Brown & Sons, American Express, Clorox, Coca-Cola, Arthur Anderson, American Chemistry Council, Walt Disney, Twentieth Century Fox, Pillsbury, Auto Zone, Lotus and Fidelity Institutional Retirement Services.

The FBI is under the microscope, facing a barrage of investigations into everything from alleged threats against whistleblowers to lost weapons.

It's quite a switch for an agency that is used to doing the investigating and operates largely in secret. The scrutiny is coming from all directions. Congress, the Justice Department and outside experts are looking into a series of bungles that have dogged the FBI in recent years.

"While it's a significant burden, FBI employees understand the need for this oversight and at the same time are fulfilling their law enforcement and national security responsibilities," said spokesman Mike Kortan.

The scrutiny and a steady stream of headlines extolling the latest blunder have taken a toll on morale, observers say.

"It's something very different from what they are accustomed to," said Michael Bromwich, a former Justice Department official who investigated problems with the FBI laboratory. "The spotlight is on the FBI."

FBI officials were bracing for the release Monday of portions of a review highly critical of the bureau's handling of the Wen Ho Lee case.

Lee, who had worked on top-secret nuclear weapons programs since the 1970s, was indicted on 59 felony charges alleging he transferred nuclear weapons information to portable computer tapes. He spent nine months in solitary confinement, but all but one charge against him was eventually dropped.

At least six other investigations into the FBI under way. Officials confirmed last week that the Justice Department's Office of Inspector General, an internal watchdog, is investigating allegations of retaliation against agents assigned to look into the bureau's handling of the 1992 standoff with white separatists in Ruby Ridge, Idaho.

As part of the inquiry, Inspector General Glenn Fine is looking into allegations that senior FBI officials are immune from disciplinary measures and punishments imposed on lower-ranking agents.

The Senate Judiciary Committee also is scrutinizing an alleged double standard that protects top managers from punishment.

Lawmakers are especially interested in whether the FBI's Office of Professional Responsibility, which for years had primary responsibility for investigating wrongdoing at the bureau, helped foster a double standard.

Robert Mueller, the newly installed FBI director, said the bureau would admit its mistakes, correct them and hold agents and senior officials accountable under his leadership.

-The FBI's performance in detecting and investigating Robert Hanssen, a veteran agent who has admitted spying for Russia

-Why the FBI failed to turn over documents to lawyers for Oklahoma City bomber Timothy McVeigh. That incident forced Attorney General John Ashcroft to postpone McVeigh's execution nearly a month.

-How the FBI keeps track of weapons, laptops and other equipment following the FBI's disclosure that hundreds of guns and computers are missing. One gun was used in a murder.

Not all of the inquiries have gone smoothly. Fine's investigators initially encountered problems obtaining documents from the FBI early in the Hanssen investigation, said sources familiar with the probe, speaking on condition of anonymity. They said the bureau now is cooperating.

Meanwhile, a commission headed by former CIA and FBI director William Webster is investigating the Hanssen matter and the Justice Department has hired consulting firm

Arthur Andersen LLP

to study the FBI's management structure.

All of these findings will be reviewed by a team of top Justice Department officials who are doing their own assessment of the FBI and will make recommendations to Ashcroft about how to best overhaul the bureau.

A group of former government leaders tapped to review FBI security policies will meet for the first time next month, according to a notice published in the Federal Register Tuesday.

Earlier this month, Attorney General John Ashcroft authorized the creation of a commission to study security policies for sensitive and classified information at the FBI. The commission, which will be chaired by William H. Webster, former director of the FBI and CIA, includes seven former government leaders and one designated federal officer.

The commission will review the quality of the FBI’s current security policies and programs and recommend how the agency can improve its handling of classified information.

Members of the commission include: William S. Cohen, Secretary of Defense in the Clinton administration; former Speaker of the House Thomas S. Foley, D-Wash.; and Carla Hills, Secretary of Housing and Urban Development in the Ford administration.

The commission will receive administrative support from the Justice Department and funding from the FBI. According to the Justice Department, the commission will need about $1.2 million to cover its costs.

The commission must complete its work by March 31, but the Justice Department can extend its term, according to the group’s charter.

All of the commission’s meetings will be closed to the public to protect sensitive information and the safety of intelligence personnel, according to a July 16 memo from the Justice Department.

“The potential release of this information could seriously jeopardize the integrity of our internal security programs and of ongoing intelligence and counterintelligence investigations,” wrote Janis Sposate, acting assistant attorney general for administration at Justice, in the memo.

In July, Justice and FBI officials revealed that more than 400 weapons and 180 laptop computers--including some holding sensitive and classified information--were missing from the agency. The FBI has faced harsh criticism over the last few months, most notably for its failure to turn over all documents to lawyers for Oklahoma City bomber Timothy McVeigh, a controversy that resulted in a temporary postponement of McVeigh’s execution.

The consulting firm Arthur Andersen LLP is currently conducting a review of the FBI’s management practices, including recordkeeping, technology and human resources issues.

SEC Probes Andersen For Conflict of Interest

WASHINGTON -- Among companies rocked by accounting scandals, Waste Management Inc. stands out. After a board-led probe turned up years of questionable accounting, the company took a $3.5 billion charge in 1998, and since then the trash hauler and its outside auditor, Arthur Andersen LLP, agreed to pay $220 million to settle shareholder litigation in the matter.

Now, Waste Management's accounting headache may turn out to be notable in another way.

At the same time that Arthur Andersen was conducting the audits that failed to halt the questionable accounting, the firm was pocketing big fees for consulting services it provided Waste Management. The Securities and Exchange Commission is currently probing whether the consulting fees may have compromised the independence of Arthur Andersen's auditing work, according to several people familiar with the case.

As a result, the case is shaping up as a possible centerpiece of a campaign by the SEC to demonstrate that conflicts of interest can be caused by the proliferation of consulting and other nonauditing services that numerous accounting firms routinely offer, the knowledgeable people said.

From 1991 to 1997, Arthur Andersen received about $50 million in fees for consulting services at Waste Management sites world-wide, dwarfing the $10 million in audit payments during the same period, according to the knowledgeable people. The SEC, which declines to comment, is trying to determine if auditors looked the other way to keep consulting fees flowing.

David Barrett, an outside attorney for Arthur Andersen, said in an interview, "We're outraged someone leaked highly confidential information. Apparently it's being done to influence the SEC's rule making." He said that gross fee numbers can be highly misleading, but declined to comment further. Waste Management didn't immediately have a comment Thursday.

The general existence of a probe into Arthur Andersen's handling of Waste Management's financial statements has been known since April 1998, when the trash hauler, fresh from adopting more conservative accounting practices that increased truck-depreciation and other income-statement expenses, revealed the inquiry in an SEC filing.

At the time, an Andersen official termed it routine, saying an auditor's work is usually reviewed after a client restates earnings. The SEC, meanwhile, termed it "standard operating procedure in cases of alleged improprieties in financial statements to examine the accounting treatment that the statements received."

But since then, the SEC and some of the nation's biggest accounting firms have locked horns over the potential conflicts of interest that have arisen as revenue from consulting has dramatically run ahead of audit fees for the nation's biggest accounting firms. To the SEC, the desire of accounting firms to keep the consulting fees flowing threatens auditor independence by possibly prompting the accountants to overlook worrisome and too-aggressive bookkeeping practices. In June, the SEC proposed rules to significantly limit consulting services that auditors can offer corporate clients.

But public accountants, led by the American Institute of Certified Public Accountants, Arthur Andersen, KPMG LLP and Deloitte & Touche LLP, have mounted an aggressive counter-attack, arguing that there is no justification for new limits and that the regulation would actually hurt audit quality by reducing an accounting firm's scope of knowledge about client companies.

"There's never been a case where an audit failure in any way related to nonaudit services," said Shaun O'Malley, retired chairman of the former Price Waterhouse LLP, citing a recent audit-effectiveness study sponsored by the Public Oversight Board, an accounting self-regulatory group.

Historically, however, the SEC has steered clear of the high-risk legal strategy of trying to prove an auditor was conflicted by the consulting side of the business. The goal generally has been to establish that the auditors acted recklessly in failing to uncover fraud. Between 1994 and late 1999, the SEC has brought 676 enforcement cases that included alleged accounting violations, ranging from bookkeeping problems to fraud.

"It's very difficult, if not impossible to prove" an independence violation in a blown audit, said SEC Chief Accountant Lynn Turner: "You'd have to get into the auditor's head."

In the Waste Management case, according to one of the knowledgeable people, the SEC believes that it may have "smoking-gun documents." Among particulars of the situation, a big chunk of Arthur Andersen's consulting work was on the trash hauler's centralized computer system, the people familiar with the matter said. Information technology is one of the areas that the SEC has proposed banning as a cross-sold service to audit clients.

While the SEC is assessing the link between the trash hauler's accounting woes and the consulting services, the regulators are pursuing other avenues as well.

Earlier this month, for instance, Pinnacle Holdings Inc., a fledgling real-estate investment trust that owns and operates antenna towers, revealed in an SEC filing that the agency is probing allegations that its auditor may have violated independence rules. In a recent conference call with Wall Street analysts, Steven Day, the company's chief operating officer, said the SEC was given a tip that it examine Pinnacle's accounting last year for its $254 million acquisition of an antenna business from Motorola Corp.

The inquiry is in preliminary stages and the SEC has alleged no wrongdoing; an SEC spokesman declined to comment. A spokesman for PricewaterhouseCoopers, the Pinnacle auditors, said: "Our independence with respect to Pinnacle has never been impaired. All of the services provided to Pinnacle were appropriate and allowable under existing SEC standards." Pinnacle's Mr. Day added: "We're no criminals here. There are no accounting issues. We've done our accounting appropriately."

In Pinnacle's case, the SEC is looking at whether Pinnacle can justify how it valued the Motorola assets, as well as how it tallied acquisition-related expenses, according to a person with knowledge of the probe. According to an SEC filing, Pinnacle recorded the unit's current assets at $271.7 million. The SEC also is examining Pinnacle's $28 million in acquisition expenses: such things as legal, consulting and accounting fees, the person familiar with the probe said. If some of the figures of that type are on the high side, they could work to increase earnings going forward, accounting experts said.

In addition to auditing, PricewaterhouseCoopers has advised Pinnacle on possible deals, including "due diligence" work on possible targets -- about $3.7 million alone in consulting fees for work on the Motorola deal -- and it has consulted for the board on executive compensation, according to company executives. "We pay a lot of fees to our auditor's consulting side," Mr. Day said in the conference call, but declined to provide details.

The SEC, he said, "looked at that relationship and said, 'If you're paying a lot of fees, maybe [the auditors] let you have your way on accounting and maybe you can do whatever you want do.' That's their position and their fear."

Pinnacle has other close ties to its auditor. Mr. Day was a PricewaterhouseCoopers partner in the mergers-and-acquisitions group from 1986 until he joined Pinnacle as chief financial officer in 1997. When Mr. Day became Pinnacle's chief operating officer in July, he was replaced by Jeffrey Card, who had worked as a PricewaterhouseCoopers acquisitions partner since 1991.

The SEC's aggressiveness on the auditor-independence front follows years in which it spotted disturbing circumstantial evidence of fraudulent financials that might have been approved by a conflicted auditor. An example: the $500 million accounting fraud at Phar-Mor Inc., Youngstown, Ohio, which led the drugstore chain to seek bankruptcy-court protection in 1992. (It emerged from the bankruptcy proceedings in 1995.) In 1996, a federal jury in Pittsburgh hearing a shareholder suit found Coopers & Lybrand LLP liable under a fraud claim for signing off on financials recklessly without regard to whether they were true or false.

The audit partner viewed Phar-Mor as a "constant source of new business," plaintiff's attorneys argued in the case.

For their part, the accounting firms say the AICPA is an effective regulatory body. In addition to a policy-making role, it has a disciplinary panel and a full-time staff of 14 to investigate alleged violations. The SEC is "scratching in the mud everywhere they can to find an example, as if a single case would prove there's a significant risk to the economy," said Robert Elliott, AICPA chairman.

But the panel doesn't have the tools or authority to police the industry aggressively. It probes allegations made in SEC cases and in civil-shareholder lawsuits. But the panel has authority to investigate only its own members and doesn't have subpoena power to demand documents.

The AICPA has or is investigating 117 of the 676 SEC cases, so far resulting in 31 violations. Penalties range from public-auditing suspensions to reprimand letters. The big accounting firms note that board audit committees also exist to identify and handle potential problems.

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See my post above about "connecting the dots." That's what you're doing. Moving from a general claim - "the federal bureaucracy is out of control" - and then just arbitrarily drawing lines all over the map with no evidence for any of them, to arrive at the conclusion that Bush is corrupt, etc. If you really aren't crazy already, please, please, turn back from this unfortunate path.

What I see is that when Andersen was given the contract in the early part of last year, no one knew about the Enron mess, or the Global Crossing fiasco.

It is a CONTRACT, and cannot be cancelled at the whim of the government without incurring legal problems.

Now the DOJ is investigated Andersen, and I imagine if they are found criminally liable they will have their contract cancelled, because then there will be EVIDENCE, not merely suspicion.

What I see is that Arthur Andersen was a huge respected firm until this mess came to the surface. I imagine you can find contracts with AT&T, several national church organizations, Microsoft, local and state governments, etc. Not every connection indicates conspiracy. Sometimes, you surely realize, it is simply coincidence.

I already stated that I'm not of, or against, the Uncle Bill camp. I'm also not crazy thank you very much. I believe it is just as nutso to blindly support someone just because he heads your party and you elected him. Bush is on my $hit list and he stays there untill he takes his boot off Israels neck and turns the FBI and the INS upside down and inside out. It would also help if he would quit this nice guy crap and come out in support of his judicial nominees. He needs to quit this corrupt political crap and be a man. HE has the bully pulpit. He needs to publicly call out dasshole and squish him like a bug. But then that might upset somebody.

Being mad about decisions you think are wrong is different from creating a fantasy world of the kind I described. I disagree with some of Bush's actions too, especially the current stance towards Israel. But I don't think that posting to thirty thousand news stories "proves" that everything in them "adds up" to a masochistic fantasy of World Domination by "Them" in which the Bush family are all Insiders in the International Globalist Plot to destroy America.

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