- The Washington Times - Friday, May 10, 2002

HOUSTON (AP) The Arthur Andersen LLP official in charge of Enron Corp. audits stretched accounting rules "to excess" and ignored advice from an in-house watchdog, another Andersen partner testified yesterday in the firm's obstruction of justice trial.
Chicago-based Andersen partner Ben Neuhausen testified that David Duncan, who had led the Enron audit team until Andersen fired him earlier this year, had argued before the firm's "professional standards group" in favor of an accounting approach that would help Enron avoid posting a $300 million loss in the first quarter of 2001.
The in-house group advises Andersen auditors on complicated matters.
Enron and its audit team wanted to allow Enron to account for results from its four "Raptor" entities together, allowing proceeds from two successful Raptors to be assigned to cover losses of two unsuccessful ones.
Mr. Neuhausen said professional standards colleagues John Stewart and Carl Bass concluded Enron's plan "did not change the requirement needed for entities to be reported separately," but Mr. Duncan's team disregarded the advice.
In March, Enron learned of Mr. Bass' objections and asked Andersen to remove him from consulting on the company's books, a request Andersen granted.
Five months later, Enron Vice President Sherron Watkins separately voiced her worries about the Raptors to the chairman and chief executive, Kenneth Lay, and Andersen partner James Hecker, who was not on the Enron account. Neither Enron nor Andersen took direct action. Miss Watkins was hailed by some when her warning became public during a congressional investigation last winter.
When Andersen began reconstructing the events in a flurry of conference calls in September and October, the firm determined Mr. Bass was right and advised Enron its previous financial treatment of the Raptors needed to be restated.
Enron unwound the murky Raptor transactions in October as its stock collapse was well under way. The company ultimately removed about $1 billion in shareholder equity from its books, news that sent Enron's stock skidding. The company filed for bankruptcy Dec. 2.
Andersen is charged with one count of obstruction of justice for the reputed mass destruction of Enron documents as a Securities and Exchange Commission inquiry loomed. Mr. Duncan individually has pleaded guilty to the same charge and is expected to testify against Andersen.
Mr. Neuhausen testified he deleted most of his Enron-related e-mail in October after receiving a memo reminding employees of the firm's "document retention policy," which includes destruction of material considered outdated or unnecessary.
However, on cross-examination by Andersen attorney Rusty Hardin, Mr. Neuhausen said he might have deleted the e-mail before seeing the memo. Either way, Mr. Neuhausen denied deleting the e-mail because he wanted to hide something.
"No, that didn't dawn on me at all," he said.
If convicted, Andersen could face up to a $500,000 fine and five years of probation. It also could be fined up to twice any gains or damages the court determines were caused by the firm's action and would be suspended from auditing publicly traded companies, effectively dooming the firm.


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