The Securities and Exchange Commission, which regulates the accounting industry, borrows executives from the major auditing firms to staff a large portion of the office that advises it on accounting policies.

The commission, which since the collapse of Enron Corp. has spent much of its time investigating numerous accounting fraud allegations, defends the program. SEC officials say borrowing experienced accountants -- known as professional accounting fellows -- for two years gives the commission valuable expertise.

The accounting firms generally subsidize each fellow's salary with a large, lump-sum payment, so none has to take a pay cut. The payment, which is often in the six figures, is typically made in the days before a fellow begins government service, according to agency and industry sources. The accounting firms also pay moving expenses.

There is a similar accounting fellows program at the Financial Accounting Standards Board, a private nonprofit group the SEC authorizes to set accounting rules for publicly traded companies.

The program, which was established in 1973, illustrates how closely the accounting industry works with the agency that is supposed to police it. The close relationship between accountants and regulators is now drawing close scrutiny in the wake of the collapse of Enron.

The SEC program provides six of 25 staffers in the office of the chief accountant, which advises the agency on accounting policy and oversees the FASB. About eight of the board's 45-member technical staff are usually on loan from accounting firms, according to FASB spokeswoman Sheryl Thompson.

The SEC and FASB fellows programs are unique, according to government officials and experts on federal agencies. Bank regulatory agencies, like the Office of the Comptroller of the Currency and the the Office of Thrift Supervision, have one or two accountants or economists who come from the private sector for a year or two. But these agencies say the employees they hire quit their jobs, aren't subsidized by the firms and typically don't return to work for them.

"I've never heard of anything like it," said Paul Light, vice president for governmental studies at the Brookings Institution. "To have this substantial goodbye gift and a revolving door back into the company suggests an appearance of being a conflict."

No one recalls a fellow being accused of bending the rules or otherwise favoring his accounting firm. But investor groups and congressional staffers say the program raises serious conflict-of-interest questions.

Ann Yerger of the the Council of Institutional Investors said the program is "troubling." She said fellows "should be subject to stringent ethical standards, particularly regarding any dealings with former clients and former employers." She and other SEC critics in the investment community have long accused the agency of being a lax overseer of the accounting industry, and they say this arrangement may have contributed to that approach.

SEC spokeswoman Christi Harlan said there are restrictions on the activities on the chief accountant fellows. The accounting fellows "do not make policy, and they don't make decisions," she said. In addition, fellows are prohibited from participating in matters directly involving their former employers. During their last three months at the SEC, they can communicate with former employers to negotiate their returns, she said.

The SEC's chief accountant, Robert K. Herdman, who was a fellow 20 years ago, said the program has provided the agency with enormous expertise and is operated ethically. "The SEC has been fortunate to have in place the professional accounting fellow program over the years," he said. He said he got a large payment from his firm as a fellow, but doesn't recall how much.

Lynn Turner, Herdman's predecessor, was also an accounting fellow. He received a $120,000 check from his firm, Coopers & Lybrand, a few days before joining the fellows program in 1989, according to sources.

Turner worked on issues that could have affected Coopers & Lybrand and its successor firm, PricewaterhouseCoopers, and frequently talked with his former Coopers colleagues during his stint as an SEC fellow, according to sources.

When Turner returned to his firm in 1991, he was made partner. Today it's not uncommon for partners at the biggest accounting firms to make $500,000 or more annually. The firm also paid Turner's moving expenses when he went to and from the SEC.

Herdman said the payments by the accounting firms break no ethics rule as long as they are part of the firm's established compensation policy. A spokesman for PricewaterhouseCoopers confirmed that his firm participated in the program, and supplemented fellows pay. Spokesmen at KPMG International, Ernst & Young and Deloitte & Touche declined to comment on the program.

Turner said the accounting fellow program makes an "outstanding contribution to the SEC and investors." But, he said, the program also "has the potential for conflict." And because it has been used to address severe staffing shortages, it will be hard to eliminate.

"The fellows have have been a fantastic resource but there's no question there's this conflict," he said.

Mike Sutton, chief accountant at the SEC from 1995 to 1998, agrees. "I viewed the fellows as a valuable part of the staff that had experience the permanent staff didn't have," he said. "But I can understand in today's environment the concern. I just never thought of it that way."

At the FASB, the arrangement is slightly different. Accounting firms continue to pay fellows' salaries while they are at the FASB. The board then reimburses the firms on average $150,000 a year for each accountant on loan, FASB sources say. That means the board pays the top four or five accounting firms more than $1 million a year to borrow staff. Thompson declined to discuss the compensation.

FASB fellows work on key issues before the board, which has been criticized for acting too slowly on accounting problems. Past fellows have worked on things like the treatment of off-balance-sheet partnerships, a topic that figured prominently in the collapse of Enron, sources familiar with the FASB say.

Thompson said the FASB fellows may answer questions from the firms they are on loan from, but noted that typically groups of people confer before questions are answered, so no one person dominates that process.

Timothy S. Lucas, who was director of research and technical activities at the FASB and oversaw the fellows at the board until stepping down earlier this month, praised the program.

"I think if FASB lost that resource, it would be very traumatic," he said. "FASB can't go out and hire people of that caliber very often. The firms have offered us some of their most capable, up-and-coming stars."

Light, of the Brookings Institution, said the key concern is whether such programs give the impression that regulators are too close to those they are supposed to regulate.

"It damages public confidence in government institutions," he said. "The way to recruit talented people for government is to pay them a decent wage and give them meaningful work."

Former Securities and Exchange Commission chief accountant Lynn Turner was an accounting fellow at the SEC from 1989 to 1991. Before and after his fellowship he worked for Coopers & Lybrand.