Waste Management Scandal

Topics: Depreciation, Arthur Andersen, Waste management Pages: 3 (896 words) Published: February 22, 2013
Waste Management Scandal

Dean Buntrock established Waste Management, Inc. in 1968. Its main purpose is to pick recycling and garbage up from residential housing and businesses. WM also disposes of the garbage in landfills. It has grown to be the largest garbage disposal company in the U.S. today. This company has managed to survive “one of the most egregious accounting frauds we have seen” said Thomas C. Newkirk of the SEC. This accounting scandal lasted from 1992 to 1997 and was the result of numerous improper expense adjustments to inflate Waste Management’s earnings. They also incorrectly recorded liabilities, depreciation, salvage value of assets and the useful life of those assets to meet projected earnings. Buntrock was the driving force of the scandal. He set the projected earnings and encouraged the numbers to be manipulated to reach those earnings. Inaccurately lengthening the useful life of the garbage trucks and overstating the salvage value of them, in turn reduced the annual depreciation expenses, inflating earnings, accomplished this. In other cases items in previous periods that have no salvage value attached to them suddenly were given salvage values. Additionally, landfills were not depreciated as they were filled with garbage. GAAP requires landfills to be depreciated in the same manner as equipment. In Waste Management’s financial statements, nearly all landfills were carried at cost and were not depreciated as they became filled with garbage. They also inflated the environmental reserves (liability) to create a reserve of cash to hide unrelated operating expenses. This allowed for net income to be inflated as well. Waste Management also committed other improper recordings while trying to hide the previous year’s fraud. Since the scandal continued for years the inflated earnings reported at the end of one year would become the basis for the following years equally inflated projected earnings. The majority of this...
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