Andersen Fires Lead Enron Auditor

Embattled accounting firm claims auditor ordered unauthorized destruction of Enron documents; auditor denies charges.
Stephen TaubJanuary 16, 2002

Another day, another Andersen stunner.

On Tuesday, the accounting firm fired partner David B. Duncan, who was in charge of the Enron audit. Andersen claims Duncan led a group of employees to dispose of Enron-related documents shortly after learning that the SEC requested information about Enron’s financial accounting and reporting.

The auditing firm also placed three other partners on administrative leave–Thomas H. Bauer, Debra A. Cash and Roger D. Willard.

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“We promised to be forthright and to take action where appropriate,” said Joseph F. Berardino, Andersen’s managing partner and chief executive officer, in a statement “This was a painful decision, but it was absolutely the right thing to do. We are prepared to take all appropriate steps necessary to maintain confidence in the integrity of our firm.”

Andersen says Duncan ordered the documents destroyed following an urgent meeting called on Oct. 23. Management claims the effort was undertaken without any consultation with others in the firm and at a time when the engagement team should have had serious questions about their actions.

“Nothing in an Oct. 12 e-mail, almost two weeks earlier, or so far as we know, other conversations around that time, authorized this activity,” Andersen management stated.

Duncan’s attorney Robert Giuffra of Sullivan & Cromwell in New York said his client did nothing wrong and was in Washington to meet with congressional investigators today, according to Reuters. “Mr. Duncan is cooperating with all investigations of this matter,” Giuffra told the wire service. “He properly followed the instructions of an Andersen in-house lawyer handling documents. He did nothing wrong.”

Separately, Andersen announced that it has assigned a new management team to head up its Houston office. As a result, four partners based in the Houston office have been relieved of their management responsibilities.

“Andersen will dismiss anyone found to have improperly destroyed audit work papers,” Andersen added in its statement. “Work papers constitute the principal record of the work done and the conclusions reached on significant matters. At this time, the firm does not believe that any work papers were destroyed.”

The firm added that it will take action against anyone found to have purposefully deleted Enron-related e-mails or destroyed Enron-related documents after having been informed that on Nov. 8, 2001 these documents were subpoenaed by the SEC. “If anyone is found to have acted in this way, they will be dismissed,” it added in its statement.

The auditor said it discovered activities including the deletion of thousands of e-mails and the rushed disposal of large numbers of paper documents. “These activities were on such a scale and of such a nature as to remove any doubt that Andersen’s policies and reasonable good judgment were violated,” it added.

Most of the activity to delete e-mails and discard desk files and other documents took place in the days following the Oct. 23 meeting, the auditor said. Andersen management added that it believes the activity ended shortly after the lead partner’s assistant sent an e-mail to other secretaries on Nov. 9–the day after Andersen received a subpoena from the SEC telling them to “stop the shredding.”

Andersen said its review of the disposal of documents and e-mails is continuing, and other individuals, including partners, are included in the scope of that review. The partners affected by today’s actions, as well as other individuals, could face additional disciplinary or administrative action based on findings of the continuing review. A related inquiry into Andersen’s actions on the Enron audit also continues.

The Houston-based partners being relieved of management responsibilities are: D. Stephen Goddard Jr., Michael M. Lowther, Gary B. Goolsby and Michael C. Odom.