Waste Management

Topics: Fraud, Arthur Andersen, Depreciation Pages: 4 (1356 words) Published: February 28, 2011
Waste Management is a publically traded Houston, Texas based waste and environmental services company. Founded in 1894, Waste Management is the largest disposal company in North America, handling over half of the garbage pickup in the United States. In 1998, Waste Management was involved in the largest accounting scandal involving an American company to date.

Under the company’s founder and chairman Dean Buntrock, Waste Management implemented unsavory accounting practices which directly inflated the company’s net income by $1.7 billion in 1998. Though the accounting fraud was multifaceted, the firm’s method of depreciating property, plant, and equipment was perhaps the most deceptive. The company used the straight line method of depreciation, but unjustifiably extended the length of the useful life of these assets. By augmenting the assets’ useful life, Waste Management decreased depreciation expense in each given year by spreading it out over many more accounting periods. Thus, the depreciation expense was understated, while net earnings, which are total income less total expense, were conversely overstated. Additionally, Waste Management failed to record a variety of other expense; most notably, the company did not record depletion expense on their landfills as they were filled. Again by not recording this Depletion Expense, Waste Management understated its expense and overstated its net revenue.

As a result of these questionable accounting practices, Waste Management’s stock price dropped significantly in November 1998. Soon after, the company faced a shareholder class- action lawsuit which they settled for $457 million. The Securities and Exchange Commission began an investigation which resulted in a lawsuit against six of Waste Management’s most senior executives including Dean Buntrock in U.S. District Court in Chicago. Burtrock and other senior leaders were found guilty of intentionally and knowingly using fraudulent accounting practices to mislead...
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