July
2, 2002, 10:20 a.m. WorldCom-Class
Amtrak
Where’s the
accountability?
By Wendell
Cox
magine
this. WorldCom announces a $3.8 billion restatement of earnings due to
accounting irregularities. WorldCom had booked operating expenses as capital
expenditures, which had the effect of reporting profits rather than losses.
The auditor, Arthur Andersen, of Enron fame, had asked no questions in
return for its lucrative fees. The financial markets are uneasy, as the
share price plummets and bankruptcy looms. The Bush administration, seeking
to avert a crisis, sends the Secretary of Commerce to meet with WorldCom's
board of directors to keep the company afloat. After days of meetings,
the Commerce Secretary and the WorldCom chairman emerge, all smiles, to
issue a joint press release detailing how the Department of Commerce will
provide a loan guarantee to cover half of the loss, while Congress will
be asked for the rest of the money as either a loan or an outright grant.
In exchange, WorldCom promises to provide a monthly accounting and begin
outsourcing work to lower costs, and makes vague promises to begin serious
financial and operational reform. But there is a glitch. A day after the
joint statement is released, WorldCom executives announce that, despite
their board of director's commitment, they cannot deliver on the outsourcing
provision. The Commerce Secretary capitulates and revises the agreement.
Far fetched? Not
really. Just about the same thing happened in the case of Amtrak. Barely
one month ago, new Amtrak President David Gunn discovered and announced
a surprise shortage of $200 million, an amount similar in proportion to
Amtrak's revenues as the $3.8 billion is to WorldCom's revenues. While
it is not clear what went wrong, what is clear is that previous Amtrak
reports indicated no hint at such a crisis. Former Amtrak President George
Warrington had told Congress in February that Amtrak had enough money
to complete the fiscal year. Worse, last summer, both Mr. Warrington and
Amtrak Vice Chairman Michael Dukakis, leading the board after the resignation
of former Chairman and Health and Human Services Secretary Tommy Thompson,
announced that Amtrak would reach the congressionally mandated objective
of operating cost self-sufficiency by 2002. They won't even be close.
The earlier rosy results, as different as night from day as the later
admissions, must surely have arisen from financial shenanigans. Further,
the Amtrak Reform Council found that Amtrak had charged at least $500
million in operating expenses to congressionally earmarked capital funds
in prior years, the ruse copied by WorldCom and its Enronist auditors.
In the real-life
Amtrak story, the fictional role of the Secretary of Commerce above was
played by the Secretary of Transportation. There were meetings with the
Amtrak board of directors, a joint statement with the Amtrak chairman
and a subsequent secretarial climb-down. Amtrak got most of what it asked
for, and the taxpayers pay the bill. Amtrak's board of directors, who
in league with President Warrington deceived both Congress and the American
people, remain in place. Warrington is now comfortably installed in a
better job as executive director of New Jersey Transit. Meanwhile, various
members of the Senate and the House of Representatives issue fawning press
releases about how American needs a world class passenger rail system.
Then there are the outright lies like "there is no profitable passenger
rail system in the world," so graciously supplied by Amtrak's K Street
Corps and labor unions, whose lucrative tax supported incomes ensure a
strong lobby for yesterday.
But when WorldCom
pulled an "Amtrak," Washington's reaction was much different.
In barely 24 hours subpoenas were issued for WorldCom officials to appear
before congressional hearings, while congressional press releases were
rightly unanimous in condemning the improprieties.
Amtrak-WorldCom shows
that a double standard operates in Washington. Misreport private financial
results and the consequences begin with subpoenas. Misreport public financial
results and the rewards begin with photo-opportunities. But in a government
of laws, not men, similar improprieties would be punished similarly. Both
public and private misconduct should be sanctioned. Indeed, government
agencies should be held to a higher standard than private companies, because
their funds are compelled from the taxpayers, not provided voluntarily
by private investors.
Not all of Washington
has bought into the situational ethics of "who you are determines
how you are treated." Senator McCain called for resignation of the
Amtrak board of directors some weeks ago. Director of the Office of Management
and Budget Mitch Daniels noted that if Amtrak had been a private company,
the directors would have been forced to resign and would be facing "severe"
sanctions. And, at the end of last week, 14 senators signed a letter to
the president calling for tough and meaningful reforms.
Forget about world-class
passenger rail. Washington's insider games have given us a WorldCom-class
Amtrak, but without the accountability.
—
Wendell Cox is a member of the Amtrak Reform Council, principal of Wendell
Cox Consultancy and a visiting professor at Le Conservatoire National
des Arts et Metiers (CNAM) in Paris.
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magine
this. WorldCom announces a $3.8 billion restatement of earnings due to
accounting irregularities. WorldCom had booked operating expenses as capital
expenditures, which had the effect of reporting profits rather than losses.
The auditor, Arthur Andersen, of Enron fame, had asked no questions in
return for its lucrative fees. The financial markets are uneasy, as the
share price plummets and bankruptcy looms. The Bush administration, seeking
to avert a crisis, sends the Secretary of Commerce to meet with WorldCom's
board of directors to keep the company afloat. After days of meetings,
the Commerce Secretary and the WorldCom chairman emerge, all smiles, to
issue a joint press release detailing how the Department of Commerce will
provide a loan guarantee to cover half of the loss, while Congress will
be asked for the rest of the money as either a loan or an outright grant.
In exchange, WorldCom promises to provide a monthly accounting and begin
outsourcing work to lower costs, and makes vague promises to begin serious
financial and operational reform. But there is a glitch. A day after the
joint statement is released, WorldCom executives announce that, despite
their board of director's commitment, they cannot deliver on the outsourcing
provision. The Commerce Secretary capitulates and revises the agreement.
