Waste Management Inc. is an american waste management and environmental company based in Houston Texas. First founded in 1968 when the likes of Larry Beck, Wayne Huizenga, and Dean Buntrock began purchasing smaller garbage collection services to dominate the industry. Waste Management went public in 1971. Currently Waste Management provides collection, transfer, landfill, waste-to-energy and, recycling services to over 20 million residential households and an additional 2 million corporate customers in the lower 48 states, Canada, and Puerto Rico (Waste Management). As of 2015 they employed roughly 43 000 people in these regions. This past year Waste Management has recorded $12.6 billion in annual revenue, a number which has just slightly dropped over the past 5 years. Last year Waste Management posted a net income $753 million which has also been somewhat consistent over the same time period (although just $98 million in 2013). As of November 1st 2016, Waste Management was trading at $63.95 per share, up 19.82% since the year began (MarketWatch). About the Scandal On March 26th, 2002 the Securities and Exchange Commission (SEC) filed a lawsuit against six former executives of Waste Management Inc. This lawsuit alleged that these executives inflated the company's earnings to meet predetermined targets between the years 1992 - 1997. Those named in the suit included former CEO’s Dean Buntrock and Philip Rooney, CFO and executive vice president James E. Koenig, VP/CAO Thomas C. Hau, VP of finance Bruce Tobecksen, and duty counsel Herbert Getz. As outlined in the report laid by the SEC, between the years 1992 - 1997 Buntrock, Rooney, and others prepared an annual budget in which they set targets for the upcoming years net income. Then during the following year those named would monitor Waste Management’s progress compared to the quarterly targets previously set. To reduce expenses and thus inflate earnings, Rooney and others used top side journal entries to meet the company's predetermined earnings targets. A top side journal entry occurs when a corporation makes financial entries from the top levels to the journals of its subsidiaries, top side entries do not need to be recorded in the general ledger. Most of these entries were made in the fourth quarter and then improperly applied to the whole year to date. Using these top side entries Waste Management was able to falsely change the values of certain accounts to make their books appear better than they were in reality. The company avoided much depreciation expense by inflating salvage values and extending the useful lives of their garbage trucks as well as giving certain assets salvage values which previously did not have salvage values. Each of these decrease the annual depreciation expense when using the straight line method of depreciation, ultimately understating expenses and overstating the net book value of many assets. They also refused to record certain expenses related to landfill costs. These included not recording expenses for the decrease in their landfills value from being filled with waste and not recording expenses necessary to write off the costs of unsuccessful and abandoned landfill development projects (Newkirk, 2002). Waste Management's fraudulent practices were covered up in a variety of ways.
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Those involved were charged with making false and misleading statements about their accounting practices and financial condition in reports to shareholders and press releases, destroying certain pieces of evidence and using illegal accounting manipulations. After each year of fraudulent accounting, the following years manipulations were based on inflated numbers in years previous. As a result earnings fraudulently achieved in one period had to be reported in the next in order for the scheme to continue. Doing this allowed the scheme to continue for a prolonged period of time and acted as an attempt to cover up fraud committed in previous years. One of the practices used to cover up the scheme is known as netting. Those charged used netting to eliminate approximately $490 million in current year expenses and accounting misstatements made during previous years of fraudulent accounting. This was done by offsetting the expenses against gains on the sale of unrelated assets (Newkirk, 2002). By performing the acts stated above, Waste Management erred by violated many Generally Accepted Accounting Principles (GAAP’s). Firstly the company violated the matching principle. The matching principle
Those involved were charged with making false and misleading statements about their accounting practices and financial condition in reports to shareholders and press releases, destroying certain pieces of evidence and using illegal accounting manipulations. After each year of fraudulent accounting, the following years manipulations were based on inflated numbers in years previous. As a result earnings fraudulently achieved in one period had to be reported in the next in order for the scheme to continue. Doing this allowed the scheme to continue for a prolonged period of time and acted as an attempt to cover up fraud committed in previous years. One of the practices used to cover up the scheme is known as netting. Those charged used netting to eliminate approximately $490 million in current year expenses and accounting misstatements made during previous years of fraudulent accounting. This was done by offsetting the expenses against gains on the sale of unrelated assets (Newkirk, 2002). By performing the acts stated above, Waste Management erred by violated many Generally Accepted Accounting Principles (GAAP’s). Firstly the company violated the matching principle. The matching principle