Governor Arnold Accused of Pandering to Accountants

California Governor Arnold Schwarzenegger is under attack from the press and a public interest group for allegedly pandering to the accounting profession.

The Los Angeles Times claims that recent actions by the California State Board of Accountancy “underscore the political clout of the accounting profession,” which the newspaper says has contributed about $500,000 to campaign funds that support Schwarzenegger’s political agenda.


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The newspaper claims that the board of accountancy, apparently with Schwarzenegger’s blessings, is pushing for state legislation that would liberalize out-of-state accountants’ ability to practice and offer tax shelters in California. It also says that Schwarzenegger had tried to fill an opening on the board with a an attorney who has represented some Big Four firms, and that the personnel change was only blocked after a state legislator complained that it represented a potential conflict of interests.

Separately, the nonprofit Foundation for Taxpayer and Consumer Rights (FTCR) has for the past year been calling on the governor to return more than $53,000 in campaign contributions from PricewaterhouseCoopers because that Big Four firm was the auditor of insurance giant AIG, whose stock price stumbled after an accounting scandal was unveiled last year. The stock value drop caused the California’s Public Employees Retirement System to reportedly lose $400 million from its AIG stock holdings.

In its prosecution of AIG, the New York State Attorney General’s office claimed the company manipulated its books to deceive regulators and the investing public for more than seven years and that its top management engaged in numerous fraudulent transactions that exaggerated the strength of the company's underwriting business.

“As the AIG fraud wreaks disaster on Californians’ pension and 401K plans, the governor’s conflict could not be more evident,” FTCR Executive Director Douglas Heller said during the height of his group’s attack on Schwarzenegger over this matter. The group, which publishes the weblog http://ArnoldWatch.org, also called on the governor to return $123,000 in campaign contributions from AIG.

Schwarzenegger’s office stifled attacks on its board of accountancy appointment by asking Marcus McDaniel, an attorney in the international law firm Latham & Watkins, to step down after serving only one month on the board. The office, which has not named a new replacement for the board vacancy, has been quoted as saying that McDaniel’s appointment and its potential for a conflict had “slipped through the cracks."

The 15-member state board of accountancy remains under attack for its support of liberalizing legislation regarding out-of-state accountants. Julianne D'Angelo Fellmeth, administrative director of the Center for Public Interest Law in San Diego, told the Los Angeles Times that the board “has become a wholly owned subsidiary of the accounting profession. It has voted to weaken auditing regulations that the board itself adopted only three years ago in the wake of Enron. This is a board that does not understand its public protection role."

Ronald Blanc, Board of Accountancy president, denies the charges. "I believe that we are very conscious of consumer protection," he said in the same newspaper report. "We vet these things carefully. Some groups might not agree, but I don't see consumer interests are diluted or compromised at all."

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