Udecide

1. Define the problem(s) - (problems cause symptoms - e.g., stress causes the symptom of high blood pressure - often, the symptoms are directly described in the case, whereas the problem(s) usually are not - if necessary, indicate how the problems are related to one another) - make this section brief and succinct – do not ‘rehash the details” or have a long “history/background” section.

Since the government deregulated the natural gas sector, whereas the increase in competition has caused the price of natural gas to fluctuate greatly. Over those years, Enron has incurred massive amount of debt and lost its exclusive rights to the pipelines, this is when the major issues began to arise. Since the deregulation, there hardly been any monitoring practices to take place in detecting any red flag activities. Some major problems with Enron at that time was their shortage in cash, as many natural gas producers have lot of cash on hand to fund the gas bank, but Enron certainly wasn’t very competitive in that area; this has led to many problems for Enron later on. Second, Enron created several special-purpose entities (SPEs) which caused more problems because they have only complicated financial matters for Enron and its investors, money invested in these SPEs were off the books, and were hidden from investors.

1. What important internal controls were ignored when LJM1 was created?

The internal controls that were ignored when LJM1 was created include the following:

* The LJM1 has failed to ensure that those SPEs created have a certain percentage of equity that are owned by external investors.

* The Accounting firm should not have allowed LJM’s book to be separated from Enron’s.

* Enron’s decision of allowing CFO Andrew Fastow to sit on the Board of Directors of LJM1 is certainly in violation of their Code of Conduct.

B. How might Enron’s harsh Performance Review Committee (PRC) have aided company executives in committing the fraud?

Enron's...