Formally terminating a troubled relationship, bankrupt energy company Enron today fired its accounting firm, Arthur Andersen LLP.
"While we had been willing to give Andersen the benefit of the doubt … we can't afford to wait any longer in light of recent events, including the reported destruction of documents by Andersen personnel," said Enron CEO Kenneth Lay in a statement released this evening.
Andersen issued a sharp response later in the evening.
"As a matter of fact our relationship with Enron ended when the company's business failed and it went into bankruptcy," said a statement released by the firm. "Andersen is committed to continuing to address the issues related to the collapse of Enron in a forthright and candid manner."
The two firms are entangled in a federal investigation of Enron's stunning collapse late last year. Justice Department officials and congressional committees are trying to determine how much executives at both firms knew about enormous losses at Enron which were not disclosed in the company's financial statements.
The move also comes after revelations that officials at Andersen discussed irregularities at Enron as far back as last February. Congressional investigators have released an internal memo from Feb. 6, 2001, showing officials at the accounting firm conferred about the structure of Enron's finances at a meeting the day before.
Senior managers at Andersen apparently discussed whether or not the firm should retain Enron as a client, and tried to assess the size of the losses Enron was masking through its use of off-the-books investment partnerships.
"Significant discussion was held regarding the related party transactions with LJM including the materiality of such amounts to Enron's income statement and the amount retained 'off balance sheet,'" notes the memo. LJM was one of the partnerships in which Enron hid bad financial news.
An Andersen spokesman said the conference was a "routine annual meeting." Nonetheless, Congressional investigators sent a letter to Andersen today demanding the company turn over all documents related to the February meeting.
The firing also comes as reports emerge that Enron managed to avoid paying income tax in four of the last five years. The embattled energy company used almost 900 offshore companies as tax havens and may still have to reduce its past earnings by $1.3 billion more than it already has.
Enron Whistle-Blower Warned Andersen, Too
On Wednesday, members of congressional committee indicated that Sherron Watkins, the Enron employee whose August letter to CEO Kenneth Lay warned of potential "accounting scandals" at the energy company, also disclosed her concerns to officials at the accounting firm at the same time.
On Aug. 20, Watkins, an Enron vice president, called a friend in senior management at Andersen's Houston office and discussed her concerns. A meeting of Andersen's top Houston-based officials followed, which included David B. Duncan, Andersen's chief auditor for Enron, who was very publicly fired by Andersen on Tuesday.
A resulting Andersen memo described Watkins' concerns as serious, but the accounting firm did not take immediate action.
For his part, Duncan, a day after being fired, told congressional investigators his side of the story Wednesday.