Can the Enron Syndrome Infect Your Firm?

Source: CPA Practice Management Forum

Gary Shamis, managing partner of SS&G Financial Services, Cleveland, Ohio, says that an Enron type fraud can occur at smaller firms, though the probability of such is low.

Arthur Andersen employed a decentralized form of governance. There were perhaps six Andersen partners dealing with Enron, with each partner earning over $1 million per year. Decisions on Enron were made by Andersen’s Houston office and influenced by these six partners, who worked almost exclusively on Enron. It is apparent that greed influenced their decisions.

Most firms, other than sole proprietorships, have some decentralization of governance, as did Arthur Andersen. Every partner, even in a two-partner firm, is in a position to make decisions that can impact the firm and its partners. Many firms have attempted to centralize decision-making, but these firms may be unprotected from a partner who elects to withhold information from the decision-making group.

Firms must pay close attention to all client relationships that are significant to any partner’s personal income. They must have trustworthy partners and centralized review processes.

From CPA Practice Management Forum, CCH Incorporated, 800-449-8114,
September 2005, p. 8.