- The Washington Times - Saturday, January 26, 2002

The White House yesterday ordered a review of $70 million worth of federal contracts with Enron Corp. and the Arthur Andersen & Co accounting firm to determine whether the embattled companies are worthy of government business.

In a letter to the General Services Administration, which oversees government contracts, Office of Management and Budget Director Mitchell E. Daniels Jr. said charges of document shredding, manipulative accounting practices and other activities "could reflect poorly" on the companies and their ability to meet government ethics standards.

"These agencies should ensure that existing contracts with Arthur Andersen and Enron are being performed in accordance with contract terms and proper business practices," Mr. Daniels wrote.

Enron, a Texas-based company with ties to President Bush and numerous congressional Republicans and Democrats, filed for bankruptcy late last year after investors and workers lost fortunes in company stocks. Mr. Bush, a friend of former Enron Chairman Kenneth L. Lay, ordered a review of the nation's pension laws and approved a Justice Department criminal investigation into the company's actions.

Arthur Andersen, which kept the company's books, also is under investigation. Congress is holding hearings on the Enron collapse.

Mr. Daniels' letter does not say how many federal agencies have contracts with the firms, but an aide said Enron and Arthur Andersen hold $70 million worth of federal contracts.

"Recent reports have highlighted potential irregularities in work done by the accounting firm of Arthur Andersen LLP and the Enron Corp. Some of these allegations are serious in nature," Mr. Daniels wrote.

He said federal rules require firms seeking or doing business with the government to have "a satisfactory record of business ethics and integrity." The federal agencies were asked to determine whether Enron and Arthur Andersen still met that standard.

The agencies were given a summary of contracts awarded to the firms. Enron and Arthur Andersen, both of which were given copies of Mr. Daniels' letter, had no immediate comment.

With the investigations under way, an auditor's memo from October shows that some officials at the firm were worried about a "heightened risk" of fraud in Enron's books a week before the energy company shocked stockholders with huge losses.

The e-mail by Andersen auditor Mark Zajac warned that a computer analysis of Enron's financial activities in the third quarter of last year indicated "a red alert: a heightened risk of financial statement fraud," according to investigators.

The e-mail, released by Rep. John D. Dingell, Michigan Democrat, added to mounting evidence that Enron's outside accounting firm had strong misgivings about Enron business practices.

"We have considerable rascality," Mr. Dingell, ranking Democrat on the House Energy and Commerce Committee, said yesterday on CBS' "The Early Show." "We have to find out who is at fault for what."

Also yesterday, the White House confirmed that Bush adviser Karl Rove recommended Republican consultant Ralph Reed to Enron for a job in 1997. Mr. Bush, who was considering a presidential run at the time, wanted Mr. Reed to help him court conservative voters in the 2000 election.

"Our firm creates and manages grass-roots campaigns for Fortune 500 companies, and that's what we did for Enron, and we kept our political involvements completely separate," Mr. Reed said, adding that he had not known about Mr. Rove's help.

Enron and its employees contributed more than $500,000 to the Bush campaign last year and made numerous contributions to Democratic candidates. Mr. Lay, who this week resigned as Enron chief executive and chairman, has been one of Mr. Bush's strongest supporters over the years. Andersen gave Mr. Bush $146,000 during the past three years, according to the nonpartisan Center for Responsive Politics.

Meanwhile, the House Energy and Commerce Committe yesterday asked Mr. Lay to "explain in detail" his use of millions of dollars in Enron stock to repay personal loans he obtained from the company.

Rep. Billy Tauzin, Louisiana Republican and committee chairman, along with Mr. Dingell, said in a letter they wanted a "detailed listing of all loan transactions" in which Mr. Lay was involved, along with other top Enron executives.

The two congressmen, joined in the request by Reps. James C. Greenwood, Pennsylvania Republican, and Peter Deutsch, Florida Democrat, want Mr. Lay and the others to describe:

•The dates and amounts of each loan and any repayments, including whether they were in the form of Enron stock, and the amount of shares and the value assigned to each share of stock for the repayments.

•An explanation of the extent to which the Enron board of directors was made aware of any loans or repayments.

In their letter, the congressmen said that during the past three years Mr. Lay had exercised stock options and then sold stock for a profit of about $205 million. The New York Times reported last week that Mr. Lay had a $4 million revolving line of credit from Enron, which his attorneys said was raised to $7.5 million at some point in 2001.

The attorneys said Mr. Lay took out money from that loan, and then repaid it, on 15 separate occasions from February through October. In each case, the newspaper said, he repaid the loans by turning over stock to Enron. The congressmen said they were concerned about "the unreported nature of these transactions and their effect upon Enron shareholders and employees, particularly during the stock's steep decline in 2001."

Staff writer Jerry Seper contributed to this report.

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