Introduction to Sociology

Topics: Arthur Andersen, Enron, Enron scandal Pages: 9 (2982 words) Published: June 27, 2014
Introduction to Waste Management
In this essay I will discuss Waste Management Inc. Scandal. I will identify what type of company Waste Management is, when they became a company, how and why the scandal took place, who was involved, how they were caught, the shareholders losses, the overall outcome and the status of Waste Management Inc. today. Waste Management is a waste collection and recycling company that was founded in 1894 in Houston, Texas. Garbage generally was collected by municipalities or small private haulers such as Ace Scavenger, WMI's immediate forerunner, a Chicago-area company with 12 trucks and 1956 revenue of about $750,000. In that year, Ace Scavenger's founder died, and management of the company was turned over to his 24-year-old son-in-law, Dean L. Buntrock. Buntrock already had experience running a family farm-implement business in his native South Dakota, and his in-laws felt that although young he was the best family member to take over their refuse company. Ace was a prosperous, well-established firm, and Buntrock was able to take command with little difficulty. It was an exceedingly good time to join the waste-treatment industry. Not only was the national economy at the peak of its postwar prosperity, the U.S. consumer was just then beginning to be inundated with a wave of new packaging and convenience items designed to be used once and thrown away. The nation's production of garbage was growing much faster even than its population, and companies such as Ace Scavenger found themselves in great demand. Throughout its early stages the company started to aggressively purchase smaller companies which were in the same industry around the country to expand. The business was going well revenues were increasing going into the 1990’s. In 1971, Waste Management went public, and by 1972, the company had made 133 acquisitions with $82M in revenue. It had 60,000 commercial and industrial accounts and 600,000 residential customers in 19 states and the provinces of Ontario and Quebec. In the 1980s, Waste Management acquired Service Corporation of America (SCA) to become the largest waste hauler in the country. Waste Management brought thousands of garbage companies and increased their sales year after year but eventually they reached a plateau. They were no longer able to grow as fast because there weren’t many garbage companies left to acquire. This was the turning point where Waste Management turned to accounting tricks to make Wall Street think that the company was still growing. This accounting fraud was perpetrated through a multitude of methods. Starting in 1992, the company's revenues and profits weren't increasing fast enough to meet predetermined target goals, which would mean less money in the pockets of the executives. As a result of the failure to reach the targets, the management decided to inflate earnings by falsely eliminating and deferring current period expenses on a quarter-by-quarter basis. This was done utilizing a variety of improper accounting methods. The methods used included the following. They avoided depreciation expenses on their garbage trucks by inflating salvage values and extending their viable lives, as well as assigning undocumented values to these figures (Markham, 2006). In addition, they also assigned arbitrary salvage values to different assets that had no prior history of salvage value. They did not acknowledge expenses in terms of the depreciation of the value of landfills that were filled with waste. And last, the company failed to establish sufficient reserves in terms of liabilities in order to pay for income taxes and various other expenses. The company used netting in order to hide around $490 million in current period operating expenses, as well as prior period accounting misrepresentations by making sure that they were offset against one-time gains on the sale of various assets. Geographic entries...

References: Clikeman, P. M. (2009). Called to Account: Fourteen Financial Frauds that Shaped the American Accounting Profession. New York: Routledge.
Markham, J. W. (2006). A Financial History of Modern U.S. Corporate Scandals: From Enron to reform. Armonk, N.Y.: M.E. Sharpe.
Rapoport, N. B., Niel, J. D., & Dharan, B. G. (2009). Enron and other Corporate Fiascos: The Corporate Scandal Reader (2nd ed.). New York: Thomson Reuters/Foundation Press.
Auditor Job Description, Career as an Auditor, Salary, Employment - Definition and Nature of the Work, Education and Training Requirements, Getting the Job -
“10 Scandals That Rocked the Accounting World.” HubPages. N.p., n.d. Web. 28 Feb. 2012. .
“Arthur Andersen LLP: Administrative Proceedings.” U.S. Securities and Exchange Commission. N.p., 19 June 2001. Web. 25 Feb. 2012. .
Creswell, Julie. “Scandal Hits–Now What? Before Enron there was Waste Management. Here’s how it came back from the brink. .” CNNMoney. N.p., 3 July 2003. Web. 21 Feb. 2012.
Demir, Kazim, Anthony Ikhimopka, and Dung Nguyen. “Waste Management, Inc. Strategic Analysis.”University of Houston-Victoria. N.p., n.d. Web. 28 Feb. 2012.
“Stock: Waste Management (WM).”Wikinvest. N.p., n.d. Web. 29 Feb. 2012.
“Waste Management Founder, Five Others Sued for Massive Fraud.” U.S. Securities and Exchange Commission. N.p., 26 Mar. 2002. Web. 23 Feb. 2012.
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