Waste Management Audit Failure
Executive Summary
Background
Waste Management, Inc., founded in 1894, offers environmental services to nearly 20 million residential, industrial, commercial, and municipal customers in the US, Canada, and Puerto Rico. With a large customer base, it is difficult to picture such a large company committing fraud. However, between the years of 1992 and 1997, several chief officers in the company engaged in a systematic scheme to falsify and misrepresent Waste Management’s financial results.
Heading the Company was Dean L. Buntrock, Waste Management’s founder, Chairman of the Board of Directors, and Chief Executive Officer for most of the relevant period. He set earnings targets and cultivated an atmosphere of fraudulent accounting to make the earnings. Buntrock, along with Phillip B. Rooney, the President and Chief Operating Officer, Director, and CEO for a portion of the relevant period; James E. Koenig, Executive Vice President and Chief Financial Officer; Thomas C. Hau, Vice President, Corporate Controller, and Chief Accounting Officer; Herbert Getz, Senior Vice President, General Counsel, and Secretary; and Bruce D. Tobecksen, Vice President of Finance misstated pre-tax earnings by approximately $1.7 billion during the timeframe of the fraud. The management team each benefited hundreds of thousands of dollars from the scheme (See Appendix 1).
As the revenues of the company were not growing fast enough, the top officers eliminated and deferred current period expenses to inflate earnings. They assigned incorrect and inflated salvage value on their trucks while extending their useful lives to avoid depreciation expenses. Once landfills were filled with waste, they failed to record expenses for decreases in value. They gave random, unsupported salvage values to assets that previously had no salvage value. Unsuccessful and abandoned landfill development projects were not recorded as expenses or write-offs.
Along with the top officers, the company’s longtime
Background
Waste Management, Inc., founded in 1894, offers environmental services to nearly 20 million residential, industrial, commercial, and municipal customers in the US, Canada, and Puerto Rico. With a large customer base, it is difficult to picture such a large company committing fraud. However, between the years of 1992 and 1997, several chief officers in the company engaged in a systematic scheme to falsify and misrepresent Waste Management’s financial results.
Heading the Company was Dean L. Buntrock, Waste Management’s founder, Chairman of the Board of Directors, and Chief Executive Officer for most of the relevant period. He set earnings targets and cultivated an atmosphere of fraudulent accounting to make the earnings. Buntrock, along with Phillip B. Rooney, the President and Chief Operating Officer, Director, and CEO for a portion of the relevant period; James E. Koenig, Executive Vice President and Chief Financial Officer; Thomas C. Hau, Vice President, Corporate Controller, and Chief Accounting Officer; Herbert Getz, Senior Vice President, General Counsel, and Secretary; and Bruce D. Tobecksen, Vice President of Finance misstated pre-tax earnings by approximately $1.7 billion during the timeframe of the fraud. The management team each benefited hundreds of thousands of dollars from the scheme (See Appendix 1).
As the revenues of the company were not growing fast enough, the top officers eliminated and deferred current period expenses to inflate earnings. They assigned incorrect and inflated salvage value on their trucks while extending their useful lives to avoid depreciation expenses. Once landfills were filled with waste, they failed to record expenses for decreases in value. They gave random, unsupported salvage values to assets that previously had no salvage value. Unsuccessful and abandoned landfill development projects were not recorded as expenses or write-offs.
Along with the top officers, the company’s longtime
Cited: Spiceland, Sepe, and Tomassini. Intermediate Accounting: Fully Revised for SFAS 158. 4th ed. N.p.: McGraw HIll, 2007 WGBH Educational Foundation. "Bigger than Enron-Congress and the Accounting Wars."PBS. PBS-WGBH Educational Foundation, 2002