Enron's Benefits Shell Game?
CBS News has learned that a year before bankruptcy, Enron made wholesale changes in its employee benefits department in what one critic says was an attempt to hide misspent millions.
One of those changes was replacing auditing firm Arthur Andersen with another Big 5 accounting firm, Ernst & Young, to audit benefits accounts worth more than a billion dollars. "Benefits" is where many companies keep their biggest pot of cash and where it's alleged that Enron managers raided millions from employee accounts.
Robin Hosea was Enron's senior benefits specialist and she believes that changes in the benefits department were intended to obscure the company's wrongdoing, reports CBS News Correspondent Sharyl Attkisson.
Was Enron in effect erasing a lot of the people who knew details within the benefits department?
"Yes," says Hosea, "because a lot of the people that were there that had audited the plans before, that had worked with the bank accounts before, that had run the trusts before would be gone, and we'd be bringing in a whole new set."
Hosea and her husband, who also had dealings with Enron, meet behind closed doors with congressional investigators on Tuesday. Hosea told them that at the same time Enron hired Ernst & Young, it also moved the pension plan account to a different bank, converted to an inferior computer system that doesn't flag improper payments and began work to replace the company in charge of the 401K plan.
Hosea, an experienced benefits accountant who's worked for other global corporations, got suspicious after she was hired to track and balance the benefits accounts in late 2000, but no one would let her see any actual bank statements.
Soon she began to unravel $15 million in improper payouts from employee benefits and other shady Enron practices that she says dated back years, but never showed up in Enron's financial disclosures.
"It tells me that forms were not properly filed," says Hosea. "Misinformation was given out." That, she says, is against the law.
It's not clear what Ernst & Young knew, but the auditor signed off on financial statements showing everything in perfect order.
Ernst & Young tells CBS News that Enron hired the firm only to do "limited scope audits" as allowed under federal law and in some cases "did not perform any auditing procedures" during its audits.
And that's perfectly legal. The government exempts many benefit plans, including most of Enron's, from meaningful audits. Ernst & Young says it doesn't believe there was any fraud in the plans it audited, but added that audits aren't meant to uncover fraud.
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