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Sunday, 7 July, 2002, 13:51 GMT 14:51 UK
Enron board 'ignored financial warnings'
Enron's headquarters in Houston
Enron filed for bankruptcy last December
The board of Enron ignored evidence of financial problems at the company, a US Senate subcommittee has found.

"Much that was wrong with Enron was known to the board," the Senate Permanent Subcommittee on Investigations said in a report into the scandal.

The report said the board - which included the UK Conservative peer Lord Wakeham - failed to protect shareholders, and contributed to Enron's collapse last year.

Lawyers representing Enron and the company's former directors have disputed the findings.

'Red flags' missed

Enron collapsed last December, becoming the biggest company bankruptcy in US corporate history.

The firm's collapse was blamed on complex financial arrangements and questionable accounting practices.

The Senate subcommittee said that claims by former directors that they were not told about dubious practices were not true.

The report said directors failed to heed "more than dozen red flags that should have caused the Enron board to ask hard questions, examine Enron policies and consider changing course."

But attorney Robert Bennett, who is representing Enron, said the report was "grossly unfair" and that it leapt to "unfounded conclusions".

And an attorney representing Enron's former directors, W Neil Eggleston, said the board was "misled by Enron management and outside auditors about now-suspect transactions."

High-risk accounting

The report said that former Enron auditor David Duncan had warned directors on the audit committee about some of the company's accounting practices.

It said Mr Duncan told them that told directors on the audit committee some of the actions were "pushing the limits" and were "at the edge" of normal accountancy procedures.

Mr Duncan pleaded guilty to obstruction in the investigation into Enron's collapse, and last month was the chief prosecution witness in the trial of accountants Arthur Andersen

The firm was found guilty of obstruction of justice after it shredded documents relating to Enron.

Action needed

The report also said that the board failed to question the cash being generated by outside partnerships operated by Enron's Chief Financial Officer Andrew Fastow.

And it said the board gave the opportunity for company executives to improve Enron's accounts by waiving conflict-of-interest rules for Mr Fastow.

It also criticises the board for approving "lavish" pay packages for senior staff, and for failing to monitor a credit line used by Enron's former chief executive Kenneth Lay.

The report adds that the independence of some of the directors was compromised by consultancy payments they received from Enron.

The chairman of the subcommittee, Senator Carl Levin, said the findings showed the need for legislation tightening controls over accountants and corporate conduct.

On Monday an accounting reform bill is set to reach the floor of the US Senate.

The bill would establish an independent body to oversee accountants, and attempt to close regulatory loopholes.

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 ON THIS STORY
The BBC's Steve Kingstone
"This week we can expect a fair degree of party political posturing"

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