Andersen puts blame on auditor

As Duncan pleads 5th, executives say he did shredding

Enron hearings in Congress

Ex-SEC chair tells Senate of flaws in oversight system

January 25, 2002|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - Senior officials of the Arthur Andersen accounting firm testified before Congress yesterday that the Andersen partner who oversaw the auditing of the Enron Corp. was solely to blame for the destruction of documents related to Enron.

On the opening day of what is expected to be months of congressional hearings into Enron's collapse, David B. Duncan, the former Andersen executive who was in charge of auditing Enron, declined to testify about the document shredding before a House subcommittee. Duncan invoked his constitutional right against self-incrimination.

At the same time, a Senate committee held a hearing in which a former chairman of the Securities and Exchange Commission warned that Enron's debacle exposed gaping flaws in the system for overseeing U.S. capital markets. He contended that conflicts of interest have weakened the checks and balances in that system.

The House Energy and Commerce panel is seeking information about why Andersen, which was also receiving millions of dollars in consulting fees from Enron, failed to sound an alarm about Enron's highly questionable financial deals. Enron became the largest U.S. company to file for bankruptcy protection, and its shareholders and employees lost billions of dollars.

"Enron robbed the bank, Arthur Andersen provided the getaway car, and they say you were at the wheel," the subcommittee chairman, Rep. James C. Greenwood, a Pennsylvania Republican, told Duncan.

When Greenwood asked Duncan whether he had given an order to destroy documents to "subvert governmental investigations," the witness invoked his constitutional right to remain silent.

Other Andersen executives told the panel that Duncan alone had been responsible for ordering the destruction of records, e-mails and computer files last fall just as the SEC was beginning a formal investigation of Enron. Duncan was fired by the company last week.

"We are certainly not proud" of the destruction of the records, said Dorsey Baskin Jr., the managing director of Andersen's professional standards group, who placed the blame for the shredding of Enron-related documents squarely on Duncan. "But we are proud of our decision to step forward and accept responsibility."

Skeptical panel

Lawmakers were openly skeptical of the notion that Duncan had acted on his own to order the destruction of documents related to Enron.

"Is Mr. Duncan being made a scapegoat here this morning?" asked Rep. Cliff Stearns, a Florida Republican.

Rep. Chris John, a Louisiana Democrat, told the Andersen officials, "It is perplexing to me that no one in the highest management of Arthur Andersen had any indication" of the shredding of Enron documents.

Of particular interest to the subcommittee was an Oct. 12 e-mail written by Nancy Temple, an Andersen lawyer, in which she offered guidance on the destruction of records. Temple told the subcommittee that she "was not aware of any shredding activities" and had not advocated any.

"I only wish someone had raised the question," she testified.

Duncan previously told investigators that he was following company guidance on document destruction laid out in Temple's e-mail message.

A second Andersen document obtained by the committee - an Oct. 24 memo from an Andersen manager - informed employees that the disposal of Enron documents was so important that they should work "on an overtime basis, if necessary for the remainder of this week or for however long it takes."

As the House panel was trying to ferret out the details of what went wrong in the Enron case, the Senate Governmental Affairs Committee sought to determine how a giant public company could go belly-up almost without warning. Mindful of the thousands of employees and investors who lost their life savings, the senators said they were looking for ways to prevent similar disasters.

Arthur Levitt, who served as chairman of the SEC from 1993 until last year, told the Senate committee that the task would require sweeping reforms in the regulation of capital markets, in which, he said, all the purported gate-keepers are compromised by conflicts of interest.

"Enron's collapse did not occur in a vacuum," Levitt said. "Its backdrop is an obsessive zeal by too many American companies to project greater earnings from year to year."

That pressure, Levitt argued, is facilitated by a "culture of gamesmanship" in which managers, auditors, analysts and corporate directors are encouraged to "bend the rules, tweak the numbers and let obvious and important discrepancies slide."

Reforms urged

Chief among the reforms Levitt urged is the creation of an independent board to oversee the accounting profession. Such a change would end the current policy of allowing an accounting firm such as Andersen to audit Enron's books at the same time that it was receiving consultant fees from Enron.

"It's well past time to recognize that the accounting profession's independence has been compromised," Levitt said.

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