Andersen, now facing public criticism for its work at Enron as well, has stepped up its efforts to "place fraud consideration at the heart of every audit, rather than make it a side issue," says Toby J.F. Bishop, the firm's partner in charge of fraud research and development. In this position, created about two years ago, Bishop is spearheading efforts toward more "professional skepticism." On the technology side, this means using the firm's ample database of fraudulent filings to "train" a new software product that will be able to analyze clients' financial statements for these features. The real focus, though, is on so-called tone at the top, or subjective assessments of executives' attitude toward fraud.

"We know that managers can override most internal controls, so we try to avoid excessive dependence on red flags," says Bishop. Starting this year, audit teams for Andersen's largest clients regularly brainstorm on "how someone could best cook the books and conceal it from auditors if they wanted to," he says, adding that "if it works well, we'll roll it out to all our clients."

And to be sure, investors themselves are more attuned to accounting shenanigans. The recent uproar at Enron is a perfect example, with that company's shares falling 19 percent on the news that the SEC was moving its previously disclosed investigation from a local office to its Washington, D.C., headquarters. Further proof is seen in the rising number of shareholder suits involving accounting allegations — topping 50 percent of the 200 securities class-action suits filed in 2000, compared with 40 percent in 1995, according to PricewaterhouseCoopers LLP's 2000 Securities Litigation Study.

Whether or not the SEC itself can more effectively combat accounting fraud, though, will be one of the more tantalizing questions of the next year. Pitt's new strategy seems entirely in character for someone who, as a prominent attorney in the private sector, represented such clients as Ivan Boesky, major brokerages, and the Big Five accounting firms. But before that, there was the Harvey Pitt who was the aggressive SEC general counsel.

"The question I've always had is: Which Harvey are we dealing with?" says Turner. "Until we see some big cases, I have no idea."

Alix Nyberg is a staff writer at CFO.

September Rush

For the SEC's fraud cops, the fiscal year-end is crunch time. Financial-statement fraud charges filed by the Securities and Exchange Commission, September 2001.

Source: SEC, December 2001

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