Some public pension funds and money managers that use Chicago-based Arthur Andersen LLP's auditing services are joining other clients in heading for the exits.
Although not a major player in the pension fund auditing business, several public plans have decided to replace Andersen as external auditor or to rebid their auditing contracts early. The funds include the $12 billion State Universities Retirement System, Champaign, Ill.; the $4.8 billion Oklahoma Public Employees' Retirement System, Oklahoma City; and the $2 billion Milwaukee County (Wis.) Employees' Retirement System.
Several large asset management and financial services companies also decided to drop Andersen: AMVESCAP, parent of Atlanta-based INVESCO; Northern Trust Corp., Chicago; Hartford Financial Services Group, Hartford, Conn.; SunTrust Banks Inc., Atlanta; and the Chicago Mercantile Exchange. A spokesman for Neuberger Berman Inc., New York, said the firm's auditing contract with Arthur Andersen is "being reviewed."
Several Andersen auditing clients said privately they were reluctant to part ways with the talented professional staff at regional Andersen offices but found it difficult to defend the firm publicly. Some Andersen clients said they were concerned about the ultimate viability of the firm given the number of clients and staff who have left.
The State Universities fund decided to rebid its auditing contract to make sure its annual auditing process continues without a hitch. "This year, because of the widely reported uncertainty surrounding the availability of Arthur Andersen for future work and their ability to commit the same experienced staff to our audits, we decided to rebid," said Jim Dalquist, an auditor in the Springfield office of the Illinois auditor general. The auditor general is responsible for screening and selecting auditors for SURS.
Spurred by `situation'
Andersen was in the fourth year of a six-year auditing deal with SURS, renewable annually. SURS Executive Director James Hacking said he submitted a letter to the auditor general requesting Andersen's replacement "given the situation."
The Oklahoma Public Employees fund decided to find another auditor even though it is in the fourth year of a five-year contract with Andersen, renewable annually.
"We have been very pleased with Andersen's service," said Steve Edmonds, executive director, "but the board decided not to wait until the fifth year before going out to look." He said there was some discussion of Andersen's legal problems before deciding to rebid the audit contract. "There is a lot of uncertainty" regarding Andersen, he said.
The Milwaukee County system is seeking bids to replace Andersen, which is in the second year of a three-year contract. Jac Amerell, pension administrator, said Andersen provided reliable and efficient service and that if it were up to him, "I personally would retain them."
Fort Lauderdale holds firm
Andersen also provides audit services to the $280 million City of Fort Lauderdale, Fla., General Employees' Retirement System. David Desmond, pension administrator, said there are no plans to replace Andersen, which just completed auditing the plan and the city's financial statements. He said the plan is audited every two years and "whether in two years the board decides to go in another direction, they will decide then." He said there has been no discussion about Andersen's legal problems. "Obviously, the Arthur Andersen group here had nothing to do with what happened in Houston," he said.
Gary Findlay, president of the National Association of State Retirement Administrators and executive director of the Missouri State Employees Retirement System, Jefferson City, said he doesn't expect many public plans to continue using Andersen.
"It's an annual decision for most plans, but I'd guess that it would be unlikely people would use them (Andersen) in the future given the uncertainty," he said.
Northern Trust cuts ties
Northern Trust dropped Andersen March 22 after more than 60 years of continuous service, according to a spokeswoman. The decision to replace Andersen was made "after careful consideration" by the board of directors and came after weighing the company's legal situation, according to the spokeswoman.
Hartford Financial Services announced March 25 it was selecting finalists to replace Andersen, which served as its auditor for the past 30 years.
In a March 21 SEC filing, AMVESCAP said it is in the market for a new auditor after Andersen notified the company "it would not be seeking reappointment" at the AMVESCAP annual meeting in April. Andersen officials did not respond to inquiries about why they chose not to seek reappointment. A resolution will be submitted to AMVESCAP shareholders that Andersen be replaced by Ernst & Young LLP.