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 as 400
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 ,
as 400 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 $ 15 mm exists between the reported dpr and the
final accounting p & l as generated on the as 400 . 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 as 400 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 ql 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 ql .
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 ql
covering gross tonnage , spread positions and summarised analyses for brand
and locations . the necessary report functionality should be available within
the as 400 , however contingencies have been initiated to build tactical
vba / excel reports outside of the as 400 but using as 400 data downloads .
user requests for additional as 400 functionality and reports have been
aggressively prioritised and a code freeze will commence prior to the end of
ql following the delivery of three reports determined as minimum requirements
for the support of obsf .
a resubstantiation of the full ql dpr will be completed by the risk control
staff reconciling the full trial balances between ql open and ql close
a full internal balance sheet review will be completed within the ql 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 as 400 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 x 34703
regards
mike
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 as 400
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 ,
as 400 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 $ 15 mm exists between the reported dpr and the
final accounting p & l as generated on the as 400 . 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 as 400 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 ql 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 ql .
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 ql
covering gross tonnage , spread positions and summarised analyses for brand
and locations . the necessary report functionality should be available within
the as 400 , however contingencies have been initiated to build tactical
vba / excel reports outside of the as 400 but using as 400 data downloads .
user requests for additional as 400 functionality and reports have been
aggressively prioritised and a code freeze will commence prior to the end of
ql following the delivery of three reports determined as minimum requirements
for the support of obsf .
a resubstantiation of the full ql dpr will be completed by the risk control
staff reconciling the full trial balances between ql open and ql close
a full internal balance sheet review will be completed within the ql 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 as 400 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 x 34703
regards
mike