From: sally.beck@enron.com
To: beth.apollo@enron.com
Date: 2001-04-04 09:53:00+00:00
Subject: Merchanting Metals Update #2

Tight time frame for Mike & co. on metals deliverables.  Raises the question 
around the timing of next week's visit on metal.  Will we divert critical 
resources from these efforts.   --Sally
---------------------- Forwarded by Sally Beck/HOU/ECT on 04/04/2001 09:48 AM 
---------------------------


Mike Jordan
04/04/2001 09:27 AM
To: Richard Causey/Corp/Enron@ENRON, Rick Buy/Enron@EnronXGate, Sally 
Beck/HOU/ECT@ECT, Ted Murphy/LON/ECT@ECT
cc:  
Subject: Merchanting Metals Update #2

Please find attached the most recent update for Merchanting Metals.

In summary the planned systems changes and manual substantiation efforts are 
behind schedule. Additional resources are being allocated and the situation 
is being closely monitored ( both for quarter end signoff and on going 
operations ).

Please contact me if you require any additional information

Mike



---------------------- Forwarded by Mike Jordan/LON/ECT on 04/04/2001 13:59 
---------------------------


Mike Jordan
03/04/2001 16:29
To: John Sherriff/LON/ECT@ECT, Michael R Brown/LON/ECT@ECT, Joe 
Gold/LON/ECT@ECT, Michael Farmer/EU/Enron@ENRON, Michael J 
Hutchinson/EU/Enron@Enron, Paul Freeman/EU/Enron@Enron
cc: Fernley Dyson/LON/ECT@ECT, Andrew Cornfield/LON/ECT@ECT, Howard 
Carter/EU/Enron@Enron, Nigel Grace/EU/Enron@Enron, Mark Pickering/LON/ECT@ECT 

Subject: Merchanting Metals Update #2

The intention of the efforts and actions documented in my earlier update ( 
see attached email ) was to provide  
a robust position signoff process for total metal tonnage, spread and brand 
and location
a timely substantiation of 
stock on balance sheet
forward MTM 
debtors and creditor balances
OBSF transactional values and a reconciliation of the barclays intercompany 
account

Despite the best efforts of IT, continuing problems with the AS400 
application, a better understanding of the inconsistency between stock 
reconciliation reports, and concerns over the useability of the outright 
stock screen enquiry are such that I am currently not confident of delivering 
sufficient accurate information to AA to satisfy their audit requirements - 
which at a macro level is the transparent audit trail between stock and 
forward positions to full accounting values.

Consequently I need to inform you of, and/or require your approval for, the 
following :

I will discuss with AA the following
that OBSF values within the extended trial balance may be misstated due to 
data issues ( above and beyond existing conversations with AA on model 
simplifications)
that there are reconciling differences between trader position analyses, 
AS400 on screen enquiries and the formal global position report ( these 
differences are at present not understood but would need to be provided to AA 
within the audit timetable)
an outline of the internal balance sheet review process described in my 
earlier note which must now be reprioritised and rescoped ( see MO work )
The creation of an incentive payment pool ( possibly via personal best awards 
) for key Metals staff who continue to work exceptionally unsociable hours to 
meet the above stated objectives
The signoff for additional permanent 'Enron' headcount who will 'duplicate' 
certain key position control processes ultimately replacing some existing 
Traffic staff
A reconciling difference of $15mm exists between the reported DPR and the 
final accounting p&l as generated on the AS400. We will continue to 
investigate potential misstatements in the system p&l, as a result of data or 
system valuation problems, within the month end reporting timeframe. However, 
this difference may need to be adjusted for following a final review and 
signoff of system p&l values with traders.
The recall of all OBSF stock in early April and retention on balance sheet ( 
reduced where economically viable ) until positions are fully reconciled and 
repeatable daily signoff process can be instigated.

Middle Office work being prioritised is as follows
the stock circularisation initiated for close of business 23 rd - with full 
reconciliation of returns to current system data by traffic/co-ordination
an audit of the stock and forward valuation report for the 30 th ( replacing 
planned 23 rd review due to system issues ), requiring
full download of contract detail for later reference
reconciliation of stock movements between 23 rd and 30 th
sample tests of vanilla forward transactions
detailed position analysis of all OBSF contracts that must be reconciled to 
Barclays documentation
spreadsheet recalculation of OBSF option premium utilising the above manually 
created position analysis
the circularisation of Barclays intercompany account and comparison to our 
cut off and substantiation analysis
the debtors/creditors partial circularisation initiated for close of business 
23 rd

I will be in touch directly re the items needing approval

Regards

Mike
---------------------- Forwarded by Mike Jordan/LON/ECT on 29/03/2001 20:51 
---------------------------


Mike Jordan
21/03/2001 18:20
To: John Sherriff/LON/ECT@ECT, Michael R Brown/LON/ECT@ECT, Rick 
Buy/Enron@EnronXGate, Richard Causey/Corp/Enron@ENRON, Ted 
Murphy/LON/ECT@ECT, Sally Beck/HOU/ECT@ECT
cc: Fernley Dyson/LON/ECT@ECT, Joe Gold/LON/ECT@ECT, Michael 
Farmer/EU/Enron@ENRON, Michael J Hutchinson/EU/Enron@Enron 

Subject: Merchanting Metals update

Several related issues have resulted in an increase in the level of operating 
risk for the Merchanting Metals business.

Complexities surrounding the operation of the Off Balance Sheet Facility 
("OBSF") which commenced two weeks before the year end.
The uncertainty generated by the revocation of AA's signoff for the facility 
late in the year end audit.
The discovery of a number of 'bugs' within the AS400 Merchanting code, 
arising from the release of OBSF designed functionality, which compounded the 
operational burden of supporting the OBSF.
The requirement to amend the operational process and OBSF IT code as a result 
of the current renegotiation of the OBSF with Barclays ( and AA ).
The senior IT developer for Merchanting has resigned and been sent on 
gardening leave.
The Corporate requirement to lower working capital usage for the Merchanting 
business irrespective of the above parochial business issues.

Various mitigating actions have been and will be taken to provide focus, gain 
comfort over control levels and to provide assurance to senior management as 
to the accuracy of the Q1 DPR and business balance sheet.

The implementation for SAP for the Merchanting business has been delayed and 
effectively decoupled from the higher risk ( higher benefit ) Brokerage 
implementation - benefit is to provide sole focus on OBSF for IT Merchanting 
developers.
The AR/AP SAP data quality reviews for both businesses are continuing so as 
to provide a detailed analysis as at end Q1.
Middle Office have instigated a new daily working capital report process 
tracking cash settlement/ funding data to working capital components for all 
Metals businesses.
An enhanced position signoff process will be implemented prior to end Q1 
covering gross tonnage, spread positions and summarised analyses for brand 
and locations. The necessary report functionality should be available within 
the AS400, however contingencies have been initiated to build tactical 
VBA/excel reports outside of the AS400 but using AS400 data downloads.
User requests for additional AS400 functionality and reports have been 
aggressively prioritised and a code freeze will commence prior to the end of 
Q1 following the delivery of three reports determined as minimum requirements 
for the support of OBSF.
A resubstantiation of the full Q1 DPR will be completed by the Risk control 
staff reconciling the full trial balances between Q1 open and Q1 close
A full internal balance sheet review will be completed within the Q1 audit 
timetable which incorporates 
A full circularisation of inventory balances, and matching to source 
documentation within Enron
Inspection of certain of the above inventory balances, by third party 
inspectors, where there is an expectation that circularisation replies will 
not be received on a timely basis
Substantive checks back to source contract documentation for the forward 
priced and unpriced positions report ( spot checking the key position report 
signed off by the traders )
Full reconciliation and recalculation of OBSF option premium values
Full reconciliation of contracts within the OBSF to Barclays documentation ( 
thereby substantiating existence of stock that we have option to purchase ) 
and to AS400 Barclays account
A risk based debtors review - matching to source documentation, where 
applicable, and any subsequent post quarter end cash movements
A full substantiation of creditors to internal ( contract commitments ) or 
external documentation ( invoices/request for payment )
A full reconciliation of intercompany accounts
A full substantive reconciliation of cash and funding accounts

I intend to provide weekly updates on the status of the above actions during 
April 

If you have any questions please call me on x34703

Regards

Mike