Waste Management Inc. Fraud
Waste Management Inc is a company in North America that provides waste and environmental services.
This company was founded by Larry Beck in 1894. The company’s operations also involved managing air and gas, environmental and groundwater protection as well as environmental engineering. By 1971, the company became more public after the 133 acquisitions and the $82M in revenue that were made and soon became the largest waste hauler in the country.This Company offered environmental services to almost 20 million customers in America, Canada as well as Puerto Rico. Waste Management soon took the position of becoming “North America’s largest residential recycler. ” It was able to handle and manage more than 8.
5 million tons of materials. These “materials” included plastic, metal, glass, electronics and paper at 128 different facilities Those involved in the fraud had absolute power and control over all of Waste Management Inc. ’s operations including the founder, chief executive officer ;amp; chairman of the board Dean L.Buntrock, Phillip B.
Rooney, president, director, chief operating officer ;amp; chief executive officer for a brief period, James E. Koenig, executive vice president and chief executive officer, Thomas C. Hau, vice president, corporate controller ;amp; chief financial officer, Herbert Getz, senior vice president general council, ;amp; secretary, and Bruce D. Tobecksen, vice president of finance (sec.
gov, 2002). Together and with the help of Waste Management Inc. ’s auditing partner, Arthur Andersen there was no means to stop or detect the fraud.The 6 men had all took part and played a role in creating this financial fraud which lasted for more than 5 years. “For years, these defendants cooked the books, enriched themselves, preserved their jobs, and duped unsuspecting shareholders”, said Thomas C.
Newkirk who was the associate director of the SEC’s Division of Enforcement. According to the complaint, the defendants had violated federal security laws by creating financial misstatements to achieve their goal in meeting “predetermined earnings targets. “The company’s revenues were not increasing fast enough, so the defendants had decided to avoid depreciation expenses on their garbage trucks, assign approximate salvage values to other assets that previously had no salvage value, refrain from recording expenses for any decreases in the value of landfills, refuse to record necessary expenses to write off the costs of unsuccessful and discarded landfill development projects, improperly capitalize a variety of expenses, and increase environmental reserves to avoid irrelevant operating expenses.As a result of the issues, the defendants’ improper accounting practices were brought to corporate headquarters. They were charged with “making false and misleading statements about the company’s accounting practices, financial condition, and future prospects in filings with the Commission, reports to shareholders, and press releases. ” They were also charged for making “accounting manipulations known as “netting” and “geography” to make reported results appear better than they actually were and avoid public scrutiny.
Knowing how this had been going on for over 5 years, when the new CEO had ordered for a review of the company’s accounting practices, the review had initially led to the company’s financial statements during 1992 through the third quarter of 1997. After restating the financial statements, it came to the company’s attention that the financial statements had misstated its pre-tax earnings by approximately $1. 7 billion. This was the largest restatement in corporate history and because of this fraud; the company had lost over $6 billion in the market value of their investments.This also led to a major drop in stock price.
So in the end, the defendants go charged and the company was left with the largest restatement of $6 billion. This company also went through having one of the most intolerable, preposterous, outrageous accounting frauds ever to be seen and this was only just the beginning. II. STATEMENT OF THE PROBLEM The complaint alleges that defendants fraudulently manipulated the company’s financial results to meet predetermined earnings targets.
The company’s revenues were not growing fast enough to meet these targets, so defendants instead resorted to improperly eliminating and deferring current period expenses to inflate earnings. They employed a multitude of improper accounting practices to achieve this objective. Among other things, the complaint charges that defendants: * avoided depreciation expenses on their garbage trucks by both assigning unsupported and inflated salvage values and extending their useful lives, assigned arbitrary salvage values to other assets that previously had no salvage value, * failed to record expenses for decreases in the value of landfills as they were filled with waste * refused to record expenses necessary to write off the costs of unsuccessful and abandoned landfill development projects * established inflated environmental reserves (liabilities) in connection with acquisitions so that the excess reserves could be used to avoid recording unrelated operating expenses * improperly capitalized a variety of expenses failed to establish sufficient reserves (liabilities) to pay for income taxes and other expenses. III. SOLUTION Given the following fraudulent acts done by management the researchers came up with the following solutions: * IV. CONCLUSION Waste Management Inc.
is a Houston Texas based company providing waste management and other services in North America. Yahoo financial summarizes the company as follows: Waste Management Inc. offers collections, transfer, recycling, disposal, and waste-to-energy services.Waste Management Inc. fraud is one of the top ten accounting scandals in the world. The massive financial fraud lasted for more than five years.
The new CEO, Lawrence O’Donnell, III took a review of the company’s records and discovered that there has been a fraudulent acts done the founder and five other former top officers of Waste Management Inc. Defendants’ fraudulent conduct was driven by greed and a desire to retain their corporate positions and status in the business and social communities.To achieve their set earnings targets they resorted to do various improper accounting practices such as avoiding depreciation expenses, assigning arbitrary salvage values to other assets, failure to record expenses, established inflated environmental reserves (liabilities), and failure to establish sufficient reserves (liabilities). The Securities and Exchange Commission filed suit against the founder and five other former top officers.
the founder, chief executive officer ;amp; chairman of the board Dean L.Buntrock paid the following penalties totaling $19,447,670: $10,708,032 in disgorgement, $6,439,638 of prejudgment of interest, and $2,300,000 civil penalty. Phillip B. Rooney, president, director, chief operating officer ;amp; chief executive officer for a brief period , paid the following penalties totaling $8,692,738: $4,593,764 in disgorgement, $2,998,974 of prejudgment of interest, and $1,100,000 civil penalty.
Thomas C. Hau, vice president, corporate controller ;amp; chief financial officer paid the following penalties totaling $1,578,890: $641,866 in disgorgement, $507,024 of prejudgment of interest, and $430,000 civil penalty.Herbert Getz, senior vice president general council, ;amp; secretary paid the following penalties totaling $1,149,756: $472,500 in disgorgement, $477,256 of prejudgment of interest, and a $200,000 civil penalty. Getz was also suspended from acting as an attorney for five years (ehso.
com, 2005). James E. Koenig was triad separately and found guilty of all of the counts as his colluders. Koenig was permanently barred from acting as an officer or director of a public company and issued the same category of fines as follows totaling $4,156,034: $831,500 in disgorgement, $1,246,517 of prejudgment interest, and $2,078,017 civil penalty.
V. RECOMMENDATION The researchers recommended that: The preparers of financial statements should comply with the general accepted accounting principles (GAAP) to avoid misstatements of financial reports. There should be frequent checking of the accounting and financial statements keep track of financial statements VI. BIBLIOGRAPHY Sec.
gov, (2002, March). Litigation release no. 17435. Retrieved 12/15/10 from: http://www. sec. gov/litigation/litreleases/1r17435.