October 16, 2000

Accounting firm charged in Arizona case
___By Bob Allen
___Associated Baptist Press
___ PHOENIX (ABP)--Arizona officials allege that the Baptist Foundation of Arizona's auditor aided and abetted fraud by giving the organization a clean bill of health despite warnings to the contrary.
___ Accounting firm Arthur Andersen has requested a hearing to challenge charges by the Arizona Corporation Commission's Securities Division that it either knowingly or negligently helped Foundation officers mislead trustees and investors about financial losses.
___ Last year, securities officials alleged that officials of the Baptist Foundation conducted a ponzi scheme by making bogus transactions between various corporations to hide the fact that investments were losing money.
___ The Foundation eventually collapsed and filed for Chapter 11 bankruptcy protection last November.
___ In the new allegations, however, state investigators say auditors continued to rely on material provided by Foundation officers even after former employees warned them of irregularities and a Phoenix newspaper ran a series of investigative articles accusing the agency of shady dealings.
___ Losses to investors of perhaps more than $350,000 "could not have occurred without Arthur Andersen knowingly or recklessly ignoring the repeated warnings or 'red flags' uncovered during its audits," according to a Securities Division notice issued the last week in September.
___ Arthur Andersen officially requested a hearing Oct. 3 to answer charges.
___ "We have been a trusted and respected member of the Arizona business community for more than 40 years and always have been guided by what we believe is objective and professional," Andersen official David Scullin told the Arizona Republic.
___ A 35-page complaint posted on the Arizona Corporation Commission website helps vindicate Foundation board members, who previously have been portrayed as incompetent in the scandal, said Berry Norwood, former chairman of the board.
___ Norwood, pastor of First Baptist Church in Scottsdale, Ariz., sent a letter and excerpts of the report to Baptist state papers and denominational leaders. He said the information "should help people understand why our truly competent board--two-thirds of which were always current or former CEOs, financial advisers, business owners, etc.--was unaware of problems.
___ "Our board knew BFA's balance sheet and audits thoroughly but had no way of knowing hidden transactions and improper relationships that the state discovered," he said.
___ According to the latest state investigation, auditors should have suspected reports from senior management that showed appreciation in real-estate investments when the Phoenix property market was in decline. Auditors should have sought third-party verification but relied on management, claims the state charges.
___ Audits were "seriously flawed" between 1991 and 1994, the state says, but beginning in 1995 the facts indicate "that Arthur Andersen not only aided and abetted the securities fraud being perpetuated on investors but in fact may have directly or indirectly participated in that fraud."
___ Current and former employees warned auditors beginning in 1996 that they believed financial statements were being deliberately manipulated and misstated. Auditors also should have recognized an additional audit risk when key accounting personnel left their jobs, the state alleges.
___ Even after an April 1998 series of articles in the New Times investigative newspaper called "The Money Changers," which contained allegations of fraud and insider dealings, the auditor continued to give an unqualified opinion of financial statements "in accordance with generally accepted auditing standards."
___ The state's complaint seeks fines and restitution for Arthur Andersen.


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