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Waste Management Inc
Transcript of Waste Management Inc
Amir4pro. "Accounting Scandal Fact Sheet – Waste Management." Grade 12 Accounting at William Lyon Mackenzie. N.p., 2 Mar. 2012. Web. 16 Dec. 2012. <http://accounting.mscuttle.com/?p=349>.
"Waste Management / USA Waste Merger." Corporations. N.p., 20 Mar. 1998. Web. 16 Dec. 2012. <http://www.corporations.org/wmi/merger.html>.
"Waste Management Founder, Five Other Former Top Officers Sued for Massive Fraud." U.S. Securities and Exchange Commission. N.p., 26 Mar. 2002. Web. 16 Dec. 2012. <http://www.sec.gov/news/headlines/wastemgmt6.htm>.
"WASTE MANAGEMENT, INC. History." International Directory of Company Histories. Vol. 5. N.p.: Cengage Gale, 1992. N. pag. International Directory of Company Histories Ser. WASTE MANAGEMENT, INC. History. Web. 16 Dec. 2012. <http://www.fundinguniverse.com/company-histories/waste-management-inc-history/>.
"Waste Management." N.p., n.d. Web. 16 Dec. 2012. <http://ebooks.narotama.ac.id/files/Auditing%20After%20Sarbanes-Oxley%20(2nd%20Edition)/Case%20A.2%20%20Waste%20Management.pdf>.
Wilson, Mark R. "Waste Management Inc." Encyclopedia of Chicago. The Encyclopedia of Chicago, n.d. Web. 16 Dec. 2012. <http://www.encyclopedia.chicagohistory.org/pages/2898.html>. Overview Bibliography Who were involved? Effects Currently Scandal It was a massive fraud lasting over five years, from 1992 to 1997, involving six top officers.
The company’s revenue was not growing fast enough to meet predetermined earnings target, so the executives falsified and misrepresented the company’s financial results to make the official reports look good and get money out of it. What do they do?
manages and reduces waste
provides collection, transfer, recycling, and disposal services
recovers resources and creates clean and renewable energy
a leading developer in waste-to-energy and landfill gas-to-energy technologies Accounting Scandal shareholders lost more than $6 billion when stock prices dropped by more than 33%
Waste Management was bought and merged with a smaller company, USA Waste Services Inc. in 1998
Waste Management had to pay $457 million in a class action suit to shareholders
Arthur Anderson was fined $7 million
In 2005, the fraud accounting lawsuit against the former executives was settled for $31 million
$27 million would be paid by Waste Management
the remaining $4 million paid by the former executives
The men were banned from serving as officers and directors of a public company is (in North America):
the largest solid-waste provider
the leading provider of integrated environmental solutions
the largest recycler
the largest truck fleet in the industry
20 million customers
Profits are on a steady rise with a revenue of $13.4 billion last year (2011). Violated GAAPs Matching Principle Waste Management Inc. Sisi Ren
December 17, 2012 Facts founded in 1968 by Dean Buntrock, Wayne Huizenga, and Lawrence Beck
is a holding company
buy and own other companies' shares 367 collection operations
355 transfer stations
273 active landfill disposal sites
17 waste-to-energy plants
134 recycling plants
111 beneficial-use landfill gas projects
6 independent power production plants
21 000 collection and transfer vehicles Prior to Scandal founder
chairman of the board of directors
chief executive officer Dean L. Buntrock Phillip B. Rooney president
chief operating officer
CEO James E. Koenig executive vice president
chief financial officer Thomas C. Hau vice president
chief accounting officer Herbert Getz senior vice president
secretary Bruce D. Tobecksen vice president of finance depreciation expenses on garbage trucks were avoided by
inflated salvage values
extended useful lives
salvage values were assigned to assets that had none
expenses were not recorded for
decreases in value of landfills
cost of unsuccessful landfill development projects
a variety of expenses were improperly capitalized
reserves were manipulated Who? What? When? Where? Why? How? Waste Management Inc What did they do? set the earning targets
directed certain accounting changes
the spokesperson who announced the false numbers. ensured that the required write-offs were not recorded
overruled accounting decisions that would have a negative impact responsible for executing the plan
ordered the destruction of evidence
misled the company's audit committee and internal accountants
withheld information from outside auditors the technician for the falsified data
made many “one-off” accounting manipulations to achieve target earnings
made deceptive disclosures Koenig’s right hand man
helped him handle the work expenses must be matched with revenues in the same fiscal period Principle of Conservation Materiality Principle that accounting for a business should be fair and reasonable a transaction must be recorded if it can influence other's decisions other affected GAAPs include:
Principle of Sincerity
Principle of Non-Compensation
Full Disclosure Principle
Principle of Prudence
Objectivity Principle How did they do it? set an annual budget with earning targets
used “top-level adjustments” to reduce expenses and inflate earnings
made false and misleading statements about the company
used accounting manipulations known as "netting" and "geography" to make the results appear better than they were. The executives of Waste Management used netting to eliminate about $490 million expenses and prior accounting misstatements by offsetting them against unrelated gains, like the sale or exchange of assets.
They also moved tens of millions of dollars between items on the income statement to make it look good and harder to check the stated amounts. Auditor - Arthur Anderson LLP aware of the improper practices
issued unqualified audit reports
prepared proposed adjusting journal entries (PAJEs) for misstatements to correct the improper accounting practices
earned additional fees through “special work”
accounting work -- $7.5 million
nonaudit consulting fees -- $17.8 million A new CEO hired in 1997 ordered a review of the company’s accounting practices, which led to the discovery in 1998 of an overstatement of $1.7 billion in earnings between the years 1992 to 1997. It was the largest restatement known at that point in history. How did the scandal become public? "make the financials look the way we want to show them." - Koenig The End Thank you!