Paging Rose Mary Woods: Andersen Destroyed Enron Docs

Firm says it disposed of files related to Enron audit. Industry observers stunned, SEC investigating. Elsewhere: Nothing quite as dramatic.

Now here’s a first.

In a truly bizarre twist to the Enron debacle, audit firm Andersen yesterday reported it had notified the SEC and the Department of Justice that employees disposed of “a significant but undetermined” number of electronic and paper documents relating to its audit of the now-bankrupt energy company. Andersen management said it suspended its current records management policy effective immediately. The Big Five firm also instructed all partners and personnel to retain existing documents until further notice.

In the wake of the fiasco, management at the accounting firm also asked former U.S. Sen. John Danforth to conduct an immediate review of Andersen’s records management policy and to recommend improvements. “Andersen’s suspended document policy required in certain circumstances the destruction of certain types of documents,” the auditor said in a statement. “In recent months, documents, including electronic files related to the Enron engagement, were disposed of or deleted.”

Andersen management went on to note that millions of documents related to the Enron audit still exist, and said the firm has successfully retrieved some of the deleted electronic files. “The firm is continuing retrieval efforts through electronic backup files,” Andersen management added, “and is continuing in its efforts to fully learn and understand all the facts related to this issue.”

You can bet the SEC will be doing the same thing. In a statement issued yesterday the Commission’s director of enforcement, Steven Cutler, said the destruction of Enron documents by Andersen was “extremely serious.” He also asserted that the SEC would not be deterred from its investigation, according to wire service accounts. “Destruction of documents is obviously an extremely serious matter,” Cutler said. “Documents are an essential ingredient in our investigations. The destruction of documents by Andersen will not deter us from pursuit of our investigation and will be included within the scope of our investigation.”

Most accounting firms keep their audit records for at least three to four years, Arthur Bowman, editor of the newsletter Bowman’s Accounting Report, told Reuters. He added this was the first time he had seen such a disclosure in the 22 years he has covered the industry.

Less than a month ago, Andersen Chief Executive Joseph Berardino told Congress that Andersen’s auditors made an error in how it accounted for one of Enron’s off balance sheet entities.

In a related story, the U.S. attorney’s office in Houston yesterday recused itself from the Enron investigation, citing ties to people affected by the Enron bankruptcy and the appearance of conflict of interest. Earlier in the day, Attorney General John Ashcroft recused himself from the Justice Department’s probe of Enron. Apparently, Enron and Enron executives contributed to Ashcroft’s campaign for Senate. A spokesperson for the White House also acknowledged that two cabinent members had been contacted by Enron executives over the past few months to discuss the company’s financial woes.

And to think this all started out as a simple accounting story.

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