Global financial service firm

The waste management, Inc. scandal (1988) is one of the most renowned corporate accounting scandals.  The scandal occurred in a Houston-based publicly traded waste management company. The scandal reported $1.7 billion in fake earnings by the top executives. The Securities and Exchange Commission accused the C.E.O. with the auditors of staging massive fraud over five years. The officials engaged in Profit inflation to reap bonuses and meet earning targets, among other benefits.

Question 2

Waste Management Corporation is an American company founded in 1968 in Houston, Texas. Landfill disposals, recycling plants, landfill gas projects, and power production plants are some of the environmental services offered by waste management. The company leadership consists of the president, who is also the chief executive officer, three executive vice presidents, including the chief operating officer, chief financial officer, and a chief legal officer. Further, waste management’s consists of two senior vice presidents in charge of operations.

Question 3

S.E.C. accuses the founder and five top officers of waste management of penetrating massive financial fraud for more than five years. The five senior officers are Dean, the founder and chairman of the board of directors Rooney, president and chief executive officer, James, executive vice president and chief financial officer, Thomas, vice president general counsel and corporate controller, Herbert, senior vice president, secretary, and the general counsel and Bruce, vice president of finance. Each of the officers played a role in the fraud.

According to the S.E.C. complaints, Waste management revenues were not growing as fast as the officials’ expectations; therefore, these officials manipulated financial results to concur with the predetermined targets. The company undertook several fraudulent accounting practices. The officers did not record the decreasing value of landfills; they failed to record expenses incurred in writing off costs of unsuccessful landfills.moreover, they did not establish enough reserves to cater to fees and income taxes. Besides, officers inappropriately exploited several expenses (U.S. securities and exchange commission). Waste management inc used geography entries to move millions of dollars between various line items on their income statement.

The officials’ scheme included improper elimination and deferment of current period expenses to inflate earnings. In this case, they avoided depreciation expenses through the extension of garbage trucks’ lives. Moreover, they used one-time gains as a cover-up of operating expenses and accumulated accounting misstatements. S.E.C. accuses the company of failure in complying with action steps which would have prevented the officials from fulfilling earning targets and enriching themselves with performance-based bonuses. The officials preserved Preceding Inflated earnings for future manipulations.

According to (U.S. securities and exchange commission), the financial statements revealed a pre-tax earnings overstatement of $1.7billion and a $190 million understatement in income tax expenses. S.E.C., in support of the company’s financial statement, details the roles played by each of the individual Bruce is accused of setting earnings targets and directing specific accounting changes to make the targeted earnings. Bruce encouraged the fraudulent accounting culture; he also the one who announced the fake numbers. Bruce also enriches himself with tax benefits by donating the inflated company stock to his private investments. Moreover, Bruce reaped $16.9 million in fraudulent gains through charitable giving, illegal sale of company stock, and retirement benefits. Rooney, the company president, failed to ensure proper recording of the Required write-offs under his watch. He also overruled accounting decisions that he presumed to have negative impacts on the company’s operations. Through fake retirement benefits, performance-based bonuses, Rooney reaped more than $9.2 million. James played a crucial role in executing the fraudulent schemes. James misleads the company’s internal accountants and audit committees. Besides, James gave orders for the eradication of damaging evidence. This fraudulent act profited James $900,000.Thomas faces accusations for being the mastermind for the fraudulent accounting, Thomas actively engineered accounting manipulations that fit the predetermined earnings. Through his fraudulent activities, Thomas benefited $600,000. Herbert, the company’s general counsel, failed to reprimand the fraudulent activities. Further, Herbert reaped $450,000 from the acts.

Question 4

Waste Management Company is a public company, and as a requirement, annual audit reports are mandatory. Since the officers were aware of their fraudulent activities, they contacted Arthur Andersen, an auditing firm familiar to them. All the senior officers at waste management came from the auditing firm as expected; the auditing firm found errors in the accounting books. The officials required the audit firm to develop adjustments and methods to fix fraudulent activities (Ellrich D). However, the company failed to make the proposed adjustments. Instead, the fraudster’s promised the auditing firm more benefits outside the agreement fees. Bribing prompted the issuance of unqualified opinions by the auditing firm. The firm wrote off the accounting errors for several years to hide the fraud.  The cozy relationship between waste management and Arthur Anderson resulted in conflicts in the auditing process. Therefore, the stakeholders got away with a lot of their fraud.

Works Cited

Ellrich D, Stohlman M, Smith M, James M, Richaldson N. https://ensscpa.com/waste-management-inc-1998-fraud-scandal/. 2017. The Waste Management, Inc. 1998 Fraud Scandal.

U.S. securities and exchange commission. https://www.sec.gov/litigation/complaints/complr17435.htm. 26 march 2002. S.E.C. Complaints.

—. https://www.sec.gov/litigation/litreleases/lr17435.htm. 26 march 2002. Litigation Releases.