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American Morning
New Memos Show Accounting Firm Expressing Concern about Enron's Bookkeeping Practices Almost a Year Ago
Aired January 18, 2002 - 07:40 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR: Bringing you the latest now on the Enron scandal. It just keeps getting bigger. The company fired its auditor, Arthur Andersen, for destroying those documents. New memos now show that the accounting firm was expressing concern about Enron's bookkeeping practices as long ago as last February, almost a year ago.
The "New York Times" reporting this morning the CEO, Kenneth Lay, sold stock only days after employee Sherron Watkins warned of significant accounting problems within the firm. And also at the time that he was assuring everybody that things were good at Enron.
According to another report released by a non-profit organization, Enron was doing some very creative accounting work when it came to its taxes, or lack there of. At least lack of paying them.
CNN's Allan Chernoff has this report.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): The analysis of Enron financials from citizens for tax justice looked at the five years between 1996 and 2000, a period when Enron's pre-tax income was more than $1.7 billion. "Only in 1997," the study says, "did the company pay income tax." Enron's total refund during the five years: $381 million.
ROBERT MCINTYRE, CITIZENS FOR TAX JUSTICE: On average, the big companies in America pay about a fifth of their profits in federal income taxes. When you find one like that, you say, "Wait a minute, what's going on here? How come this company is paying less than zero?" And you look into it and you say, "Gee, they really shouldn't be allowed to do that."
CHERNOFF: The large print in Enron's annual report indicates the company did pay taxes. It's after factoring in financials contained in footnotes that the analysis reveals Enron's tax refunds.
Many companies use tax havens, but Enron was extremely aggressive, creating 881 subsidiaries in havens like the Cayman Islands to reduce its tax bill.
Former IRS Commissioner, Donald Alexander. DONALD ALEXANDER, FORMER IRS COMMISSIONER: Sure, sure it's fishy. Why do they have so many of them? I don't understand that. I can understand, all right, a corporation with major international activities -- and they had those -- having a number of subsidiaries, all right, in tax favored (ph) countries, as well as high tax countries. But I can't understand why you would have almost 700 in the Caymans unless you were up to something.
CHERNOFF: Enron also cut its tax bill dramatically through deductions for stock options that were lavishly granted to executives like CEO Ken Lay and former President Jeff Skilling. A perfectly legal deduction that most public companies employ.
(END VIDEOTAPE)
CHERNOFF: CNN called Enron repeatedly for comment, the company did not return any of the phone calls. Andersen also had no comment -- Jack.
CAFFERTY: Apparently, Andersen, at one point, discuss whether or not to keep Enron as a client. Was Andersen aware of these 700 tax haven deals that were going on elsewhere?
CHERNOFF: Well, we can't be sure. They certainly should have had a good idea, and they certainly knew that there were a tremendous number of these havens, because, after all, they were the auditor for the company.
CAFFERTY: Yes.
CHERNOFF: They knew about these off-balance sheet partnerships.
CAFFERTY: But at the end of the day, they decided, "Well, we'll keep them as a client," because one reported fee that I heard was as high as $100 million a year they were paying.
CHERNOFF: They were hoping to get that, $52 million is what they did get in the year 2000.
CAFFERTY: Unbelievable. I have a feeling you and I will be doing a lot of these little visits on the couch. Thanks Allan, very much for your input.
A lot of big companies don't pay taxes, and are not exactly in the same circumstances that are alleged concerning Enron. In the next hour, we will sound off about that, including the notion that corporations should never have to pay income tax -- Anderson.
ANDERSON COOPER, CNN ANCHOR: Thanks Jack.
In just three weeks the world comes to Salt Lake City for the 2002 winter Olympics. When the games begin, there will be unprecedented security, as we told you about, but there will also be a new system in place to make sure that the athletes compete on a level playing field, even when they're going downhill. Independent drug testing has already begun and will continue right through the closing ceremonies. The World Anti-Doping Agency was created in 1999 to oversee the process, and the group's Chairman, Dick Pound, joins us now from Montreal.
Thanks very much for being with us this morning.
RICHARD POUND, WORLD ANTI-DOPING AGENCY: I'm looking forward to it.
COOPER: You've been testing athletes for the upcoming Olympics in Salt Lake City. How many athletes, so far, have been tested, and how many have tested positive for drugs?
POUND: We've performed already about 2,600 out of 3,500 planned tests. The remaining 900 are either in progress now or will occur between now and the time the athletes participate in the games. We have about 24 elevated test results, some of which will translate into positive tests.
(CROSS TALK)
COOPER: I'm sorry, go ahead.
POUND: No, I just -- what we're trying to do is a (ph) top line here, is to make sure that these are the most drug-free games in history. That the Olympians are heroes and not just winners, and...
COOPER: But let me ask you about that. In an article that Steve Kelley in "The Seattle Times" said, quote, "With the system the way it is; with the technology of the cheaters seemingly always a step ahead of the testers, the only thing any governing body can do with certainty is embarrass the athletes who fail the test."
Can you guarantee that these Olympics will be drug free?
POUND: You can never guarantee that they'll be drug free, but I think the fact that we're out there as an independent agency, with the best technology and performing these tests on a -- the level playing field you're discussing, I think deters a lot of people that otherwise think about cheating.
COOPER: Your agency was created in 1999, originally by some money from the IOC, but it is an independent body. What was wrong with the way athletes were being tested prior to 1999? Why did your agency need to be created?
POUND: Well, the real reason was a lot of the international federations didn't have an out of competition testing regime. And we've helped them develop that, and then we've -- we perform the service of doing the tests for them. And it takes away any suggestion that there's favoritism for one country or another or one sport or another. And I think that the confidence that athletes have that there's an independent agency out there doing this really gives them a feeling that they don't have to cheat. You don't have to get into that downward spiral. And I don't think most athletes want to do that.
COOPER: We've all heard stories about athletes who, you know, took a cold tablet and then tested positive. How accurate are these tests?
POUND: Well the tests are extremely accurate. I mean -- and we can -- we can determine parts per trillion in urine and whatever other substances are being analyzed. So you don't end up with somebody getting a false positive. I mean, there's nobody who's innocent that actually gets caught or penalized.
COOPER: Just very briefly, we only have a little bit of time left, in the Atlanta Olympics, two athletes tested positive; in Sydney, 35 athletes tested positive. (UNINTELLIGIBLE) had 24 athletes testing positive ahead of these games. Is the (UNINTELLIGIBLE) getting worse or is the testing just getting better?
POUND: I think the testing is getting better and the level of confidence amongst the athletes that it is getting better is keeping the totals down. I mean, we're well under one percent of a positive -- and these are just laboratory positives, not necessarily unexplained positives. I think that, you know, if you're an athlete out there wondering whether or not you should get into this downward spiral, you can look down and say, "Hey, I don't have to do this." Because if there's somebody out there cheating, they'll catch them.
COOPER: All right. Richard Pound, Chairman of the World Anti- Doping Agency, thanks very much for being with us this morning. We hope to check in with you as the games proceed.
POUND: I look forward.
COOPER: All right.
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