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An accounting consultant being paid by former Enron CEO Jeff Skilling testified yesterday that Skilling — and Enron — did nothing wrong in the accounting practices prosecution witnesses called shady and dishonest. Accountant Walter Rush was testifying in the trial of Skilling and former Enron Chairman Ken Lay, which is in its last days.
Rush said accounting in a company as large and complex as Enron is highly complicated, and company officials often had to make judgments and estimates, just as they do in any company. "Accounting principles require you to make an estimate and the accounting principles also know you're not going to get everything right," Rush said. He answered specific allegations of shady accounting with reasons why Enron did things the way it did — for example, in response to the allegation that Enron was hiding $700 million in losses in 2001 by transferring them from its retail division to its wholesale division, Rush said that was no big deal.
"I will agree that these numbers moved from retail to wholesale," Rush said. He added that after scrutinizing the balance sheets carefully, however, they told him a different story."When you go behind those numbers, you find the company made a profit" of about $250 million, he said, because reported losses came primarily from intercompany sales.
He said the way Enron recorded the move was within accounting rules.
"It's like having $2 in my right pocket and $2 in my left pocket and moving $1 from one pocket to the other," Rush explained. "I've still got $4."
Prosecutor Sean Berkowitz countered by pointing out that the company said it moved the funds in early 2001, at which time it got accounting benefits, but the move didn't actually occur until months later. Rush said that didn't matter as long as the move was reported. "A decision was made," Rush said. "That's it?" Berkowitz asked. "That is enough," Rush replied.
Berkowitz later asked Rush whether he understood the intent of what Enron was doing with its accounting. "Intent is not part of the rule," Rush said. But Judge Sim Lake reminded jurors several times Wednesday that Rush was there to talk about his interpretation of accounting, not about laws.
In other questioning, Berkowitz accused Rush of conducting cursory reviews of Enron's accounting, saying he wasn't present at meetings where accounting decisions were made and that he didn't interview Enron's former accountants and auditors, but instead only reviewed documents. "You have no personal knowledge," Berkowitz said. "What you've done is pieced together what might have happened."
Rush was the second accounting expert to testify this week. The first, University of Southern California professor Jerry Arnold, spoke on Lay's behalf, saying the former chairman followed business rules and didn't mislead investors about Enron's health. Arnold told prosecutors Tuesday that Lay was paying him $1 million for his services; yesterday, defense lawyers asked Rush about his fee and he said Skilling was paying him $600 an hour — a total of about $570,000 for the 950 hours he's worked since last summer. But Berkowitz reminded Rush that he could bill his hours of testimony, too: "It's up to about 954 [hours] now," he said.
The defense seems to be in its final witnesses and could rest its case by Tuesday. Afterward, there will be a couple days of prosecution rebuttal, with closing statements set to begin May 15.
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