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
beth.apollo@enron.com