Show MoreWaste Management Scandal
BUS 320 Finance
Waste Management Incorporated is considered the nation's largest waste collector (Feder). Waste Management is a well known brand and dominates regions of the United States and Canada where they provide services. Anyone who sees their trucks tends to think, "Garbage".
During the early 1990's, instead of just picking up the garbage, Waste Management provided garbage to their investors in the form of an accounting scandal. This scandal would eventually cost investors around 6 billion dollars (Bloomberg News). This event was described by the associate director of the SEC's Division of Enforcement, Thomas C. Newkirk, as "possibly one of the most egregious accounting frauds…show more content…
Inflating values proved so much prettier on their finances that the executives began assigning salvage value to assets without any previous proven value as well.
The company became addicted to the failure to record expenses as they continued the scheme by not lowering the value of property used for landfills as they were filled with waste. This is a common expense item in such an operation (SEC). For example, if Waste Management began a landfill project and for some reason decided to abandon it, recording the expenses would be common practice in an ethical company, however, Waste Management was not ethical. As anyone can guess based on the previous inclinations of the company, the expenses were obviously not recorded, again inflating profits. Waste Management, unlike every other company in America, simply did not believe in expenses. If they could capitalize a cost instead, that's what occurred. Profits rose and seemingly everyone benefited.
Eventually, a new CEO came on board in 1998 and ordered a complete accounting of the accounting and all such deeds came to the surface. The financial world was startled by what was found, but it took until the year 2000 to finally be revealed in full. It was determined that the company had overstated earnings by $1.7 billion between 1992 and 1997. At the time, this was the largest restatement in corporate history (SEC). The price of the stock fell from a high
Red Flags at the Garbage Zone, Case 6, Waste Management The fraud convicted by Waste Management is ranked as one of the top 10 worst corporateaccounting scandals of all time. This fraud was described as “one of the most egregious accounting frauds that the SEC has ever seen, for years Waste Management cooked the books, enriched themselves, preserved their jobs, and duped unsuspecting shareholders” (4). During a five year span (1992-1997), Waste Management with the help of upper management and auditorscommitted fraud with relating to financial statements in the value of $1.7 billion fake earnings (3).Waste Management was founded in 1969 by Dean Buntrock and over the years the company expanded into a waste disposal empire by acquiring and consolidating local waste hauling companies and landfill operators (1). Like most good things, it doesn’t always last whichis the case for Waste Management. The company went from being a leader to falling under pressure from competitors which resulted in a loss of net income and a damaged reputation. When it came to the fraud, Buntrock and his team falsely increased the depreciation time length for their property, plant, and equipment on their balance sheets. Management manipulated the company’s financial results to meet predetermined earning targets. When the targets were notmet they decided to use improper accounting practices in order to meet the targets (4). Even though the auditors constantly told Waste Management about their improper accounting technique and even mentioned Proposed Adjusting Journal Entries to correct the statements, management refused to make the adjustments. The long term relationship with their auditors (Arthur Anderson) caused the auditors to repeatedly issue unqualified audit reports on the company’s materially false and misleading annual financial reports (4). Waste Management and the auditors involved in this case were both indicated by the SEC due to the severalty of this crime. In the end, the fraud unraveled when the board brought in a new CEO in 1997 who ordered a review of the accounting books. After reviewing the books, the CEO quickly resigned after four months due to the red flags and the accounting being “spooky” (1). With the new CEO,there was a restatement of the company’s financial statements for years 1992 through 3rdquarter 1997 which proved to have misstated pre-tax earnings by $1.7 billion which at the time was the largest in corporate history (4).