Search the Internet          Tips  Sites: Finance, Investment

Andersen denies memo shows it knew of Enron problem

The White House denied on Thursday a senior Democrat's allegations that its 2001 energy plan was crafted to benefit Enron Corp, as auditor Andersen confirmed its executives discussed debt kept off the energy trading giant's books long before the deals triggered its collapse.

Houston-based Enron fired Andersen as its auditor, blaming it for destroying Enron documents government investigators were seeking for a probe into the energy trader's aggressive and murky bookkeeping, while the top US securities regulator proposed tougher accounting oversight.

But Andersen denied that a memo about off-book debt meant the accounting firm knew about any improprieties, despite concerns over whether the auditor should have questioned Enron's finances further, or whether an Enron consulting contract that paid it $1 million a week in 2000 kept the accounting firm mum.

The White House on Thursday tried to distance itself from the widening scandal, denying its energy plan had been crafted to benefit Enron, President George W Bush's biggest political patron. A White House spokesman called a senior Democrat's report on the matter a "waste of taxpayers' money."

The White House also rebuffed repeated calls for the release of information about contacts between Vice President Dick Cheney's energy task force and energy companies, including Enron.

NEW WATCHDOG PROPOSED

In response to the Andersen-Enron debacle, Securities and Exchange Commission Chairman Harvey Pitt called for a supervisory body with new powers that would eclipse those of the profession's present overseer.

"We initially envision a public body that will be dominated by public members with two primary components -- discipline and quality control," Pitt said at an afternoon news conference. "We are at the early stages of this proposal and many details remain to be worked out."

Enron filed for the biggest bankruptcy in US history last month, throwing thousands out of work and leaving investors holding worthless shares in the once giant energy trader.

Pitt said he did not envision a new role for the American Institute of Certified Public Accountants, a trade group that previously governed the profession on its own, conducting reviews and disciplining accounting firms.

Andersen has become embroiled in the Enron scandal following disclosures last week its employees destroyed thousands of Enron-related documents in recent months.

The Andersen memo, confirmed by the company, relates how a meeting of top managers had long discussions on Enron's myriad off-shore partnerships and moves to keep debt off its books. The memo also mentions "conflicts of interest" involving an Enron chief financial officer who ran some of the partnerships.

Andersen spokesman Charlie Leonard said the meeting described in the memo of February 6 was simply a standard annual review of Enron. The executives discussed whether the auditor should retain Enron as a client, he said.

'NOTHING IMPROPER'

"Nothing in the meeting or the memo indicated that any illegal actions or improper accounting was suspected," Andersen said in a statement late on Thursday. "It was not until (Enron executive Sherron) Watkins notified the firm that we became aware that individuals within Enron believed that there may have been accounting improprieties."

On Wednesday, congressional investigators revealed that Andersen was warned of trouble at Enron last summer by an internal whistle-blower. In a conversation with an unidentified Andersen partner, Enron executive Sherron Watkins raised concerns about accounting problems with the off-balance-sheet partnerships that Andersen signed off on in February.

Watkins, a former Andersen employee, also telephoned a friend at the accounting firm, prompting another examination of its relationship with Enron. Andersen was assured by Enron that outside law firm Vinson & Elkins had been hired to investigate Watkins' concerns, said Leonard.

"She informed the audit team in Houston of her concerns and the audit team in Houston did exactly what they were supposed to do," said Leonard. "They informed Enron's general counsel."

Enron chairman and chief executive Ken Lay said the directors decided to fire Andersen at a meeting on Thursday.

"We can't afford to wait any longer in light of recent events, including the reported destruction of documents by Andersen personnel and the disciplinary actions taken against several of Andersen's partners working in its Houston office," Lay said in a statement.

Andersen viewed the firing as moot, however.

"Our relationship with Enron ended when the company's business failed and it went into bankruptcy," said Andersen spokesman Patrick Dorton.

DEMOCRAT ALLEGES UNDUE INFLUENCE

The White House is eager to distance itself from the scandal surrounding Enron, which collapsed after trying to solicit aid from the Bush administration. The White House says it did nothing to help the company and did nothing wrong.

A report by California Rep Henry Waxman, the senior Democrat on the House of Representatives' Government Reform Committee, found that at least 17 policies in the White House energy plan were advocated by Enron or benefited Enron.

The policies cited in Waxman's report include deregulation initiatives promoted by Enron, support for trading in energy derivatives and proposals to facilitate natural gas projects.

"This creates the unfortunate appearance that a large contributor received special access and obtained extraordinarily favorable results in the White House energy plan," Waxman wrote in a letter to Cheney, who headed the administration's energy task force.

OFF-BALANCE-SHEET TRANSACTIONS

Enron's use of off-balance-sheet transactions to keep debt off its books has come under scrutiny since the company collapsed late last year and filed for bankruptcy on December 2.

In an example of how Enron tried to massage its earnings, Thursday's Wall Street Journal reported Enron claimed $110.9 million in profits from a short-lived venture that sharply limited losses from its once highly touted broadband unit.

As a result of the venture, broadband losses at Enron were limited to $67 million over two quarters. Enron claimed its broadband unit was promising, though still losing money, and in January 2001 said it would eventually generate $45 billion in revenues, which helped prop up its high-flying stock price.

Enron stunned analysts in October with its first quarterly loss in more than four years. Lumped in the third-quarter loss of $618 million were losses from that venture, which at its peak had about 1,000 test customers, many of whom did not pay for the service offering movies over telephone lines.

ALSO READ:
The Enron Saga