Kucinich unveils bill to create Federal Bureau of Audits
Feb. 27, 2002

By Lee Drutman
Citizen Works

Citing the failure of the private sector to do its job, Rep. Dennis Kucinich (D-OH) today called for the creation of a Federal Bureau of Audits, a new government agency that would review the financial statements of all publicly-trader U.S. companies.

"The problem is that for-profit, private auditors have an inherent conflict of interest," Kucinich said. "They're hired and fired by their audit clients…As a result, auditors have a strong incentive to sign off on substandard financial statements rather than losing a client. In other words, a hidden debt resulting from a recalculation isn't an uncommon corporate auditing practice."

The most prominent example of this was Arthur Andersen's miserable (and perhaps even willing) inability to point out Enron's financial problems. As a result investors and employees billions of dollars.

But there are other examples. Rite Aid, audited by KPMG, lost $800 million in stock value after a financial restatement. Sunbeam, audited by Andersen, lost $1.2 billion in stock after a financial restatement.

"If their draft audit doesn't please the firm they are auditing, [auditing firms] may lose future business unless they change their calculations to please the firm," Kucinich said.

The only way to eliminate this conflict and ensure a truly fair and independent audit, Kucinich noted, is to create a neutral government agency.

The bill, introduced as the Investor Shareholder, and Employee Protection Act of 2002, H.R. 3795, prohibits any departing FBA employees from working for a firm that they audited for 10 years following the audit to avoid conflicts of interest.

The top directors of the agency would be appointed by the President, with the consent of the Senate, for twelve-year terms.

Kucinich has received support for the bill from Citizen Works founder and consumer advocate Ralph Nader.