Washington, Feb 27, 2002 - The failure of Arthur Andersen to provide an accurate audit of Enron for several years is not a new or isolated problem. All of the Big Five accounting firms have been implicated in failed audits that cost investors billions of dollars when earnings restatements sent stock prices tumbling. Some recent examples include RiteAid, audited by KPMG, which dropped $800 million in stock value after a recalculation of profits and losses. Sunbeam, audited by Arthur Anderson dropped $1.2 billion after a similar recalculation.

How does this happen? The problem is that for-profit, private auditors have an inherent conflict of interest. They're hired and fired by their audit clients. If their draft audit doesn't please the firm they are auditing - they may lose future business unless they change their calculations to please the firm. As a result, auditors have a strong incentive to sign off on substandard financial statements rather than risk losing a client. In other words, a hidden debt resulting from a recalculation isn't an uncommon corporate auditing practice. The integrity and independence of the audit is undermined by the profit-seeking motive of the private auditing firm.

Auditing a public company for the benefit of investors requires complete independence. What should society do when the private sector cannot perform adequately to meet the need for independent audits?

To ensure this independence, today I am introducing the Investor, Shareholder, and Employee Protection Act of 2002. This bill creates the Federal Bureau of Audits (FBA) to police corporate America's books by auditing all publicly traded companies.

Americans rely on the FBI to protect them from criminals and terrorists, the FBA will protect American stockholders from the silent crimes committed by corporate criminals. The Enron scandal suggests we need cops who carry calculators instead of firearms!

The FBA will become part of the Securities and Exchange Commission (SEC), and will maintain appropriate independence. The SEC will set the basic rules of auditing by incorporating the generally accepted auditing standards rules and making further refinements that are necessary and appropriate in the public interest and for the protection of investors.

The FBA will adhere to conflict of interest provisions to ensure that American taxpayers, investors, and employees get an accurate assessment of a corporation. For example, a departing employee of FBA would be prohibited for 10 years from working for any company that is audited. Another example would be the requirement for a blind trust for all investments of a FBA employee.

To avoid political tampering, the FBA will be protected from political interference by prohibiting the SEC from interfering in any individual audit by the FBA. In addition, the top directors of this agency will be appointed by the President with the consent of the Senate for twelve-year terms. The legislation also appropriates money for the next five years, preventing Congress from restricting the FBA budget in an effort to diminish its watchdog role.

I'm pleased to have the endorsement of consumer activist Ralph Nader and The Consumer Federation of America on this legislation.