If there’s any doubt that Army Secretary Thomas White abused an accounting mechanism when he was vice chairman of Enron’s retail division in order to make his division appear profitable when it wasn’t, read the new rule adopted last week by a panel of the Financial Accounting Standards Board that suggests otherwise.
For the first time since Enron’s demise one year ago, the Financial Accounting Standards Board said that Enron and other energy companies abused a four year-old accounting rule known as mark-to-market accounting, whereby profits from long-term energy contracts are booked immediately rather than when the money is actually received. This accounting trick allowed companies like Enron to create an illusion of a profitable business unit despite the fact that the unit, at least in Enron’s case, was really a house of cards.
No company pushed the envelope further in its abuse of mark-to-market accounting than Enron Energy Services, the retail division White co-chaired prior to his appointment as Secretary of the Army last year. Under White’s tenure at Enron Energy Services, his division booked tens of billions of dollars in profits that were based on bogus predictions of future energy prices and hid massive losses by inflating the value of the deals. The only ones who benefited from Enron’s use of mark-to-market accounting are White and a handful of Enron executives who received millions of dollars in bonuses and stock options once the energy contracts were signed.
During his testimony before a U.S. senate committee in July, White said he stood behind the use of mark-to-market accounting even though many lawmakers told White that these contracts created a false picture of prosperity.
“The deals that we put together within the accounting structure that was accepted and was the standard in the industry — I stand behind that — were signed and the right deals to do and were properly accounted for at the point that we signed those up.”
Now that the Financial Accounting Standards Board task force recognizes that there was a pattern of abuse in the way White’s division booked profits, it has suggested that the mark-to-market accounting rule be scrapped. After Dec. 15, energy companies will only be able to report profits from contracts as they are received. But it’s unlikely that White will ever be held accountable for the dubious accounting methods he engaged in that made Enron Energy Services appear as if it were a legitimate operation. Former employees of Enron Energy Services, who have been reluctant to speak out for fear of being forced to testify before one of the committees investigating Enron’s collapse, say they are now considering blowing the whistle on White and others who worked at the unit to set the record straight.
It’s only a matter of time before more evidence surfaces that will show the public just how deeply involved our elected officials were in the corporate scandals that wrecked the companies they once presided over.
So as the issue moves from corporate malfeasance to a possible attack on Iraq the question is can we trust what White and members of the Bush administration say about the threat Iraq poses based on their track record of misleading the public? No. That is just one of the reasons why we must resist this war.
JASON LEOPOLD can be reached at: firstname.lastname@example.org