Accounting firm Andersen was warned of trouble at Enron Corp last summer by an internal whistle-blower, Congressional investigators said on Wednesday after quizzing a fired Andersen audit partner in a widening probe into the collapsed energy trading giant.
The revelation, unearthed in a review of thousands of documents by Congressional investigators, came as Andersen mounted an ad campaign to salvage its reputation, and the head of the US Justice Department's Enron probe rejected a call that he step aside because of a possible conflict of interest.
PHOTO: AP
David Duncan, whom Andersen fired on Tuesday, met for several hours with lawyers and House Energy and Commerce Committee staff, congressional aides said. The Big Five accounting firm alleged that Duncan ordered Enron documents destroyed after learning federal regulators wanted to see them.
Duncan's attorney, Robert Giuffra, could not be reached for comment on Wednesday. On Tuesday he said his client was only following instructions and was cooperating with all probes.
Andersen, whose reviews of Enron's finances have come under heavy fire, got a telephone call from Enron whistle-blower Sherron Watkins on Aug. 20 -- months before Enron fell apart, said Representatives Billy Tauzin and James Greenwood of the House Energy and Commerce committee, one of six in Congress probing the Enron affair.
In a conversation with an unidentified Andersen partner, Watkins raised some of the same concerns she outlined in an August letter to Enron Chairman Kenneth Lay about Enron's accounting policies, said Tauzin and Greenwood in a statement.
The conversation was uncovered in an internal memo, one of thousands being reviewed by the committee. The Andersen partner relayed Watkins' concerns to senior Andersen management on the Enron account and to the auditor's Houston office, the lawmakers said.
"This document raises additional concerns about Andersen's knowledge of potential accounting irregularities and the subsequent destruction of Enron-related documents," said Greenwood, a Pennsylvania Republican.
"We intend to request additional information from Andersen about this memorandum and the discussions that were held among its senior management team at that time," he said.
Watchdog groups also disclosed Wednesday that D. Stephen Goddard Jr., another Andersen partner who was stripped of management responsibilities, was a major fund-raiser for President George W. Bush's 2000 campaign.
US Securities and Exchange Commission Chairman Harvey Pitt said he will hold a news conference on Thursday on accounting regulation, at which he is expected to propose a new oversight system for the embattled profession.
The House committee is one of six in Congress looking into the Enron debacle and Andersen's part in it. The Justice Department, Labor Department and SEC are also investigating how Enron plunged in weeks from being the seventh-largest US company to filing the largest bankruptcy in US history on Dec. 2.
At the other end of the investigation, Deputy Attorney General Larry Thompson -- who is heading the Justice Department probe into Enron -- deflected criticism that he was not suited for that role because his old law firm, King and Spalding, had done some work for the company.
"I understand that King and Spalding did do some work for Enron -- transaction work. I never have represented that company," Thompson told reporters at the Justice Department.
Thompson spoke after Rep. John Conyers of Michigan, the ranking Democrat on the House Judiciary Committee, wrote to him to say he might have a conflict of interest because he was a former partner at King and Spalding, which has represented Enron.
Another lawmaker, Senator Patrick Leahy of Vermont, also wrote to Thompson on Wednesday, asking him about potential conflicts of interest between the department's Enron probe and its FBI reorganization -- for which, Leahy said, Enron's auditor Andersen is doing a management assessment study.
"With respect to my involvement in the case we have consulted with Department of Justice ethics officials and I have heard nothing that would cause me not to discharge my responsibilities as deputy attorney general," Thompson said.
Thompson took over the Enron investigation last week after Attorney General John Ashcroft removed himself from the probe because he had once received campaign contributions from the company.
Andersen, which faces ruin as it deals with possible criminal proceedings and lawsuits over its alleged accounting malpractice, took out full-page ads in major newspapers such as the Wall Street Journal, the New York Times and the Washington Post.
The prosaic black-and-white advertisements contained a letter from Andersen Chief Executive Joseph Berardino and listed measures the firm has taken in the aftermath of its audit of the collapsed energy trading firm -- including firing Duncan.
"Without question, this is the most difficult and challenging episode in our firm's history," Berardino wrote. "We also believe, however, that the ultimate test of an organization's character and resilience is how it responds to adversity -- and how it emerges from the experience."
A full-page ad in the national edition of the Wall Street Journal costs about US$167,000.
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