Andersen and sources at KPMG confirmed Tuesday that the rival firm has struck a tentative deal to take over about 1,200 audit and tax partners and employees in offices around the country.

Of Andersen's current 49 U.S. offices, those in St. Louis, Denver, Los Angeles, Philadelphia, Boston, Seattle, Portland and Boise have all agreed to move to KPMG as part of the deal. And several other offices, including Orlando and San Diego, are said to be considering mergers with KPMG or other Andersen competitors.

While a spokesman for KPMG declined to comment, one source at the firm said: "Yes, we are about to begin due diligence on a deal."

The development, said Lynn Turner, a former chief accountant at the Securities and Exchange and now an accounting professor at Colorado State University, means "it's pretty well over with for Andersen now. This deal clearly shows that there is no one at the top in control of Andersen."

Still, the agreement is not expected to stop the firm's effort to settle the Justice Department's criminal case against it. To the contrary, some observers said, Andersen needs to negotiate a resolution of the obstruction of justice charge and a raft of civil lawsuits to continue to sell off its operations.

The firm's settlement talks with the Justice Department continued Tuesday, said Andersen lawyer Rusty Hardin, who was reluctant to say when a deal would be completed.

Andersen sources said the talks are complicated by the need to coordinate legal strategies on several fronts. As well as a potential deal with the Justice Department, the beleaguered firm is in negotiations with the Securities and Exchange Commission to ensure it doesn't face sanctions that could stop it from auditing public companies. It also trying to finalize a $300 million deal to cap its liabilities in regard of civil litigation bought relating to Enron.

The deal with KPMG suggests Andersen partners are not, as they had previously indicated, working to comply with a plan put forward last month by former Federal Reserve chairman Paul Volcker that would have helped Andersen reinvent itself as a major player in the accounting industry, said former Andersen Chief Executive Duane Kullberg.

Volcker was brought in by Andersen in January to recommend fundamental changes to the firm's business practices. In March, Volcker proposed the dramatic steps of replacing management with a new governing board that he would head and separating Andersen's auditing functions from other tax and consulting services.

Andersen audit partners had said publicly they intended to back the Volcker proposal. But Kullberg said Tuesday that the firm appears unlikely to survive and the reform plan now seems to be dead in the water.

"Even though there was a statement at the outset that they supported the Volcker plan, it seems to me to have been supported only in words and not deed," said Kullberg. "The idea of Volcker's plan seems to have been answered by the partners deciding to go somewhere else."

In a brief interview late Tuesday, Volcker said he was disappointed by developments at Andersen. "We tried to help a month ago," said Volcker. "But we haven't had an appropriate response yet. I think they had a good opportunity. Only time will tell now what happens."

Kullberg, who along with other retired partners filed a lawsuit against Andersen last month to protect their retirement benefits, said the prospect of offices leaving was a factor in the former partners' decision to sue.

"The bulk transfer that you are seeing now has at least the tacit approval of the U.S. leadership," said Kullberg. "Presumably whatever impediments or otherwise there might have been will be set aside if those kinds of deals are cut."

But Andersen partners at the firm's Chicago head office said the KPMG deal formed part of a plan to bring the firm's operations in line with Volcker's plan to build a scaled-down audit operation.

"A number of our public companies have moved their business and those partners are looking for new spots," was how Susan Gallagher, an Andersen audit partner in Chicago, characterized the talks with KPMG. She expected the firm to be compensated by KPMG as part of the deal but could not detail the extent of any payments that may be forthcoming.

Although Andersen laid off of 7,000 of its 26,000 U.S. employees last week, Gallagher said there were still substantially more people at the firm than work available for them. This had led to partners making a "personal decision" to look for work outside Andersen, particularly those with skills auditing public companies, many of which have either left or are in the process of ditching Andersen's audit division, she said.

To critics who suggest that Andersen now has little chance of survival, Gallagher said: "I hope we'll be able to show them." Gallagher added that there were still many partners at the firm who support Volcker's plan.

Countered Turner of Colorado State: "I really don't see the partners getting behind the Volcker plan. They really haven't shown any commitment by their actions."