Accounting Firm Settles with Regulators on Silverado Charges
WASHINGTON (AP) _ The accounting firm of Coopers & Lybrand, charged by federal regulators with making a faulty audit of a failed Colorado savings and loan, has agreed to tighten its auditing procedures, the government announced Wednesday.
The Office of Thrift Supervision said its settlement with Coopers & Lybrand was its first major enforcement action against a big accounting firm. Experts have noted that accountants played an important role in the $500 billion savings and loan scandal, but until now regulators have focused their attention mainly on S&L operators and directors.
The charges against Coopers & Lybrand stemmed from its 1986 audit of Silverado Banking, Savings and Loan Association of Denver, whose board of directors included President Bush’s son Neil. The collapse of Silverado in December 1988 is expected to cost taxpayers $1 billion.
The Office of Thrift Supervision had accused Coopers & Lybrand and Arthur L. Knight, who headed the firm’s team that handled the Silverado audit, of, among other things:
-Accepting an unjustified understatement of Silverado’s allowance for loan losses on its $1.3 billion loan portfolio.
-Relying on appraisers’ judgments that were not justified by market conditions or by financial statements applying to the properties behind the loans.
-Not following accounting principles.
The loan loss allowance should have been $35 million higher, the Ofice of Thrift Supervision said.
The auditors ″did not possess the expertise required to properly complete the Silverado audit,″ the office asserted in a legal brief released with its announcement.
″This is a significant case for OTS, for those who provide professional services to insured institutions and for the public,″ said Timothy Ryan, director of the office, in a written statement. ″It says loud and clear that we hold accountants, lawyers and other professionals accountable for their actions, just as we do S&L directors and officers.″
In its settlement, the accounting firm agreed to meet a number of auditing requirements over the next five years. In addition, Knight agreed not to audit any insured savings institutions.
″In today’s emotional and super-charged environment Coopers & Lybrand decided as a prudent business matter not to incur the expense, aggravation and substantial publicity that would have been associated with fighting the Office of Thrift Supervision,″ the firm’s general counsel, Harris J. Amhowitz, said in a statement of his own.
Amhowitz’s statement indicated that Coopers & Lybrand believes its Silverado audit was not faulty.
″During the relevant 1986-87 period, the firm conducted several hundred audits of savings institutions with no indication of any endemic audit failures,″ the statement said. ″The GAO’s report to Congress regarding audits by various accounting firms of failed savings assocations expressed no criticism of Coopers & Lybrand’s audits.″
Coopers & Lybrand agreed, among other things, to ensure that employees on S&L audits are competent, and to comply with accounting principles for those audits.
If Coopers & Lybrand had not settled the charges, it could have been required to participate in a public administrative hearing. That hearing could have resulted in orders to the firm to do, or stop doing, certain things.
Neil Bush has been charged with conflict of interest in not fully disclosing his business ties with two big Silverado borrowers. The thrift agency is seeking an administrative order against Bush, an oil and gas developer, that could lead to barring him from the banking and savings industries.
Bush, 35, has denied any wrongdoing. Administrative Law Judge Daniel J. Davidson is expected to recommend by Jan. 2 what sanctions, if any, should be taken against Bush.
Bush and other former Silverado directors, as well as the thrift’s law firm, have been charged with negligence in a $200 million lawsuit filed in September by the Federal Deposit Insurance Corp.