Andersen Admits Destroying Enron Documents
Posted by AccountingWEB in on 01/11/2002 - 19:30
In a startling announcement to the Securities and Exchange Commission and the Department of Justice late Thursday afternoon, Big Five firm Andersen admitted that members of the firm destroyed perhaps thousands of documents relating to the firm's audit of failed energy giant Enron.
The firm indicated the documents were destroyed according to firm policy requiring "destruction of certain types of documents in certain circumstances." Andersen has suspended its records management policy effective immediately and has instructed all partners and employees to retain all existing documents pertaining to the Enron audit.
Rep. Billy Tauzin (R-LA), Chairman of the House Energy and Commerce Committee, one of the groups investigating the Enron situation, referred to the admission as "deeply troubling" and stated that "Anyone who destroyed records simply out of stupidity should be fired. Anyone who destroyed records to try and subvert our investigation should be prosecuted."
"I have never in my life heard of people in an accounting firm doing something like this," said Lynn Turner, a former chief accountant for the Securities and Exchange Commission. "People in these accounting firms are well-educated professionals and supposedly well aware of their professional responsibility to the public."
Andersen stated that millions of documents relating to the Enron audit still exist, and that an effort was underway to retrieve some of the destroyed documents that were deleted from computers. The firm also indicated that the destruction of documents happened months before the SEC subpoena for documents was issued, but that at this time the firm has been unable to determine if the destruction continued after the subpoena was issued or not.
Andersen has issued a second press release clarifying some of the questions that were raised in its initial announcement.
Andersen has asked former U.S. Senator John Danforth to conduct a comprehensive review of the firm's records management policy and to recommend improvements.
Justice Department Joins in the Legal Battle
In related news, the Justice Department confirmed that it has begun a criminal investigation of Enron Corp. in an attempt to determine whether the company defrauded investors by deliberately concealing information about company finances.
In addition to the Justice Department investigation, Enron and Andersen are being investigated by the SEC. Other investigations by the Labor Department and four congressional committees are also pending. Several civil suits have been filed against current and former Enron directors and executives as well as against Andersen.
Enron attorney Robert Bennett welcomed the Justice Department investigation, hoping that the federal government will centralize its other investigations into this one inquiry.
Attorney General John D. Ashcroft and an aide have recused themselves from the investigation, having received significant campaign donations from Enron during the last election. The U.S. Attorney's Houston staff has also recused itself due to connections with Enron.
Enron announced in October that it had overstated profits on financial statements for the past four years due to what it called accounting errors resulting from debts being concealed in partnerships that were not included on the company balance sheet. Several senior Enron executives sold hundreds of millions of dollars in stock earlier last year, before the Enron's stock price began to plummet. Meanwhile, employees of the firm who owned company stock were locked into agreements preventing them from selling the stock until they reached age 50. Many Enron employees have watched their entire life savings dwindle to nothing in recent months.
Bush Administration Was Warned of Enron Problems
Yet another Enron-related announcement Thursday provided the news that senior members of the Bush administration met with Enron chairman and chief executive Kenneth Lay as many as six separate times prior to the announcement of the company's collapse.
Mr. Lay met with Treasury Secretary Paul O'Neill and Undersecretary Peter Fisher to discuss the fear that the company was unable to meet its bond obligations and was headed for bankruptcy. In addition, Mr. Lay had a telephone conversation with Commerce Secretary Don Evans in which the same problems were discussed. The government officials agreed that no government action should be taken to intervene in the Enron situation.
President Bush indicated concerns about finding ways to protect investors from losing their pension funds in company failures, and also expressed his concern about a need for more understandable financial statement disclosures.
- 10015 reads
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Gail Perry, CPA
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Truth and the Media
For those that are interested . . . here is a link to the actual email sent to the lead partner on the Enron engagement, as well as the complete copy of the record retention policy for Andersen, all at the bottom of the linked page:
http://www.andersen.com/website.nsf/content/MediaCenterNewsReleaseArchiveAndersenStatement011402!OpenDocument
I had this crazy thought the other day - what if, by some crazy twist of time and space, the media did not report the true and accurate account of events within the pages of their publications? That would be too weird.
You can bet this is how it is.
Upon review of documents, the Anderson attorney KNEW certain memos and workpapers would incriminate the company, specific higher-up individuals, and demonstrate the incompetence of the staff. Full disclosure would destroy the company. But by becoming the lightning rod - sacrificing himself on the altar so to speak - the attorney covered the big boys. He has saved the company - at least to the degree that now it can only be ASSUMED that management and staff were negligent and incompetent; it will be harder to PROVE! - and will extract his reward. Oh yes, he will now tell the senior management "I saved your butts - you can fire me, make me the scapegoat, but I want the payola. If you don't pay up, I will tell the Feds everything." Don't think this scenario doesn't happen somewhere in our business world EVERY DAY.
It's so obvious, because NO ONE could be this incompetent - EVEN Anderson auditors and counsel.
Auditors never, never destroy Working Papers
I was an auditor. And we never destroy working papers. Whether there was a civil or criminal or tax investigation into any of the firm's clients, we turn over our working papers and correspondence files as evidence we did what auditors would resonably have done to obtain assurance on the client's financials.What Andersen has done and its Records policy implies to me that it does not do proper work and assess the business of its clinets including the risks and did substandard work while charging huge fees which are well known to many in the industry. This I say having spoken to some of its staff and former staff.
Documentation, documentation, documentation...
If there is something that is abundant in a Big 5 environment, it's documentation. And it's often the case that documents are created, records are retained and meetings are scheduled and documented in an attempt NOT to get sued. I left the firm after the Enron situation surfaced, and I should note that I left for reasons not related to the Enron situation. But while at Andersen, at any given time I could pull up documentation and work papers electonically for work that had been completed since the early 90s and hard copy documents dating back to the late 70s for some clients; and the aforementioned clients didn't make Andersen's top 10 list.
Whether staff-person ignorance occured in discarding documentation that should have been retained or not, isn't it rather ironic that the key documentation can't be found for one of Andersen's top clients in the world? I for one think so.
Wrong.. Wrong... Wrong...
Mr. Lance Kronzer is Incorrect. I was an Andersen Auditor. We had messages to "Scub" the files when the Sunbeam, Waste Management, and Enron issues arose and it had nothing to do with "Copies". I think what is going on with Enron could be found in any Big 5 Firm. And it is not about the consulting fees.. it is about the audit fees. My beef with Andersen is rather than take out the people who were responsble for these problems they cut (Layed off) people all over (Including me!)who had nothing to do with all this. I wonder how they tell Companies how to do business when they can't run their own. (It doesn't take much of a manager to fire people).
RE: Enron Scandal Has Nothing to do with Bush Administration
I find it interesting to see how Republicans react to the same tactics they used on Clinton for the past 8 years. It doesn't matter if the events that led to the bankruptcy of Enron occurred well before "Mr. Bush" took office. He benefited enormously from their money (the largest contributor to "Mr. Bush" over several years), he was VERY CLOSE to Mr. Lay, Enron executives met at least six times with "Mr. Bush" representatives prior to the bankruptcy, and the only reason the White House didn't bail them out was because they realized a scandal was about to happen and they chose to finally "disassociated" from Enron. Don't you forget that the press today is the same as it was during the Clinton administration (FYI, newspapers don't change their editors with every government) so what makes you think that all of a sudden now they are persecuting "Mr. Bush"??
Now, what's really aggravating is to see political comments in an accounting website when we should be focusing more on our profession which is already tarnished by the AICPA's attempt to create a competing credential at an absurd cost (in terms of money AND time)! This is what you should be worried about, IF you are an accountant.
Scandals Sell - Welcome to the US
While I agree with Michael O'Connor's statement about the Press, it is just proof that our society loves a scandal. Clinton had "White Water" and maybe the Bush Administration will have "Black Water"?.
Scandals sell publications, period.
Signed, Bipartisan Reader
First get the full story on Andersen's destruction
Audit firms frequently destroy unneeded copies (read: duplicates) of documents used in the audit. They also destroy computer-generated reports used to analyze accounts. Keeping all those types of documents is obviously unnecessary and a waste of space.
If Andersen had original documents and destroyed those (which I doubt), that would be a different story. Let's first find out what kind of documents they destroyed before trying to blame them, even partially, for what seems to be Enron's attempts to conceal their mismanagement.
Enron Scandal Has Nothing to do with Bush Administration
I am really astonished at the amount of effort that the press is willing to undertake in order to smear the Bush administration.
The facts are clear that the only involvement any Bush Cabinet member had was initiated by Enron, fully disclosed by them, and in no way improper.
The scandal is real and I hope the perpetrators will be pursued with full vigor. It would be salutary if the people who benefited by selling stock right before the collapse based on insider knowledge were forced to pay back their ill gotten gains as well as penalized. This would allow the government to partially reimburse injured stockholders and employees. I also think that those who participated in cooking the books (both at Enron and Anderson) should go to jail.
But these event occurred well before Mr. Bush took office (except for the stock sales, which he could do nothing about other than to pursue enforcement action at the SEC). Why does every article I read on the matter refer to contributions to Mr. Bush's campaign? Does anyone have even a hint of evidence that he behaved improperly either as Governor of Texas or as President? It does not seem that they do. Thus, these persistent references are nothing more than a smear campaign.