Will Enron's Auditor Sing?

By Cathy Booth Thomas

For much of 2001, the partners at Arthur Andersen battled behind closed doors over Enron, a demanding, rule-bending client that paid Andersen more than $50 million a year. At Enron's behest, an Andersen partner considered "too rule oriented" was taken off the account. But the head of the Andersen audit team based inside the Enron building, David Duncan, endured. He was privy to board meetings, conference calls and paper trails as Enron's web of deceit began to unravel--dragging Andersen down too. He's now the government's key witness in its obstruction-of-justice case against his former employer. And he's sure to have fresh insights into the behavior of his onetime client.

When Duncan, 43, takes the stand this week in federal court in Houston, he is expected to reveal that he began to worry about Enron much earlier than has been reported. James Benjamin, head of the accounting department at Texas A&M University, told TIME that Duncan, his former student, confided in the summer of 2000 that "he was feeling frustrated with the complexity of the situation and concerned about what Andersen was doing and what was right." Duncan's pastor, Jim Jackson, says the accountant told him he had suggested to colleagues that Andersen should consider dropping Enron as a client.

Instead, last fall Andersen's audit team worked frantically (to no avail) to find legal accounting tricks so that Enron wouldn't have to restate its earnings downward by $591 million and post a $1 billion loss. Prosecutors allege that around the same time, Andersen shredded trunkloads of documents it knew might help the Securities and Exchange Commission investigate Enron's demise.

Duncan is awaiting sentencing after pleading guilty to obstruction of justice. Now he must endure cross-examination by Andersen's lawyers, who will argue that his account is tainted by his desire to win a light sentence.

With no job, Duncan is spending more time with his wife Peggy, a former accountant, and their three young daughters. They live in a $753,000 ranch-style home in a shady Houston enclave quite unlike the middle-class neighborhood where Duncan grew up in Beaumont, Texas. Duncan belongs to the pricey Houston Racquet Club and is an avid golfer and tennis player. These days, though, he's often found working out in the club gym--a solitary figure trying to get through what friends say is the worst period of his life.

--By Cathy Booth Thomas. With reporting by Deborah Fowler/Houston

With reporting by DEBORAH FOWLER/HOUSTON