Andersen Under Fire, Part 2
nytimes.com
March 18, 2002
Andersen Misread Depths of the Government's Anger
(Page 2 of 3)
The new rules were sent via e-mail to every Andersen employee that May. They required employees to preserve audit work in a central file, while related documents — including e-mail, notes and drafts — were to be destroyed as soon as possible. The problems created by the Waste Management records were never to be repeated.
Then early last year, to cut costs, Andersen dismissed some employees who handled the newly required shredding, and paper began stacking up. By June, accountants handling Enron in Houston were virtually buried in documents that, under the policy, should have been shredded long before.
That same month, on June 19, Andersen finally settled with the securities commission in the Waste Management case. It paid a fine and accepted a judgment that imposed an injunction forbidding the firm from future wrongdoing. Gary B. Goolsby, the partner in charge of global risk management, signed the agreement. He worked in Andersen's Houston office.
Awkward Records
The pile of old memorandums about Enron arrived at Andersen's Chicago headquarters from the Houston office in mid- September. A group of the firm's top audit specialists, who wanted to review their old work, pored through the papers and were aghast: The memorandums indicated — incorrectly, in the specialists' eyes — that they had approved certain Enron accounting decisions that had since proved to be horribly wrong.
By then, Andersen was seeing the first signs of the accounting scandal about to envelop Enron.
For years, Enron had been using a collection of partnerships to move debt off its books and improve earnings. But beginning in August, the accountants recognized mistakes that led Enron to overstate its shareholders equity by $1.2 billion.
Now these memorandums from Houston seemed to say that Andersen's Chicago office had approved the mistakes. After Waste Management, that was a disaster: a bunch of inaccurate memorandums might be used to trace the blunders once again back to Chicago. The two sets of auditors debated in almost daily conference calls how to correct the memos.
They were joined by Nancy Temple, a lawyer at the firm, who reminded everyone about Andersen's policy on destroying unnecessary records. In another discussion, Mr. Goolsby made the same point.
Urged to comply with the document destruction policy, senior auditors in Chicago began deleting old e-mail related to Enron by the second week of October.
In Houston on Oct. 10, Michael C. Odom, Andersen's practice director there, stood in a conference room to remind his accountants about the importance of destroying documents. According to an investigation by Andersen's lawyers, Mr. Odom explained that in past lawsuits, Andersen had been forced to produce documents that should not have been retained.
"If documents are destroyed and litigation is filed the next day, that's great," Mr. Odom told the crowd. "We've followed our own policy, and whatever there was that might have been of interest to somebody is gone and irretrievable."
[[Ed.: So, apparently it is fine to lie and cheat, as long as you shred the evidence?? What kind of a warped mindset is running the show at Andersen, anyway? ]]
The message had its effect. Andersen personnel headed back to their desks, and some employees began deleting an unusually large number of e-mail messages, computer records show. The government said in its indictment that the document destruction that day had been the first attempt to obstruct justice.
In that same week, on Oct. 12, Ms. Temple sent an e-mail message to the Enron team suggesting changes to a draft memorandum about the problems with the Raptor partnership. Forty minutes later, she sent a second e-mail message to Mr. Odom, again nudging him about Andersen's rules on destroying documents.
"It might be useful to consider reminding the engagement team of our documentation and retention policy," she wrote, adding that it would "be helpful to make sure that we have complied with the policy."
Mr. Odom forwarded the e-mail message to David B. Duncan, head of the Enron team. Mr. Duncan had little time to do anything about it.
In that week, the Enron situation exploded. On Oct. 15, the company announced that it was deducting $1 billion from its third- quarter earnings, producing its first quarterly loss in more than four years. Millions of dollars of those losses were soon attributed to Enron's dealings with a group of partnerships controlled by its chief financial officer, Andrew S. Fastow.
Over in Fort Worth, the regulators in the regional office of the S.E.C. watched the developments with amazement. Investigators sent Enron a letter, asking for documents to aid a preliminary inquiry.
Andersen auditors learned of the commission's inquiry that same week. But on Oct. 22, the news became worse.
Mr. Duncan and another auditor heard from Enron officials that a further letter from the commission was imminent, this time requesting accounting information.
The shredding at Andersen began in earnest the next morning.
Worry About Litigation
David Duncan stepped out of his 37th- floor office at Three Allen Center to ask his executive assistant, Shannon Adlong, for a favor. The Enron team needed to attend a meeting at 1:30. Could she let everyone know about it?
Ms. Adlong agreed, sending e-mail notes, labeled "Urgent," to partners around the office.
The accountants heard the same message repeatedly that day: Get the files into compliance with Andersen's document retention policy. Notes taken at the meetings show that the S.E.C. inquiry was cited.
Documents arrived in the shredding room in scores of trunks and boxes. The machines were relatively small so secretaries waited in a long line.
Frustrated, they hired a courier and started shipping trunks and boxes to Andersen's main Houston office, about six blocks away. Between 20 and 30 trunks of documents were shipped over and stacked inside the shredding room and out in the hallway.
The sudden increase in the demand for shredding attracted attention there. Mike Luna, a facilities manager at Andersen, bumped into Sharon Thibault, who reviewed documents before they were shredded, that week. She was going through a large number of boxes from the Enron team, she said. Days later, the two met again and discussed all the news about Enron's troubles. "Well, maybe that's why they sent over some shredding," Mr. Luna, in a deposition, recalled Ms. Thibault as saying. "Maybe they are cleaning up the office."
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