Waste Management Scandal
BUS 320 Finance
1/8/16

Waste Management
Waste Management Incorporated is considered the nation's largest waste collector (Feder). Waste Management is a well known brand and dominates regions of the United States and Canada where they provide services. Anyone who sees their trucks tends to think, "Garbage".
During the early 1990's, instead of just picking up the garbage, Waste Management provided garbage to their investors in the form of an accounting scandal. This scandal would eventually cost investors around 6 billion dollars (Bloomberg News). This event was described by the associate director of the SEC's Division of Enforcement, Thomas C. Newkirk, as "possibly one of the most egregious accounting frauds we have ever seen" (SEC). What Thomas Newkirk was describing was a long-standing policy by those at the top of the executive rung at Waste Management to provide their auditors, auditing committee, and the public false and misleading numbers in a variety of ways.
The first step in this scandal involved high level executives setting earnings targets without regard to current or recent results. Those executives would then manipulate the numbers in order to match the previously set targets. By doing this, they were attempting to show tremendous growth. With tremendous growth, they could enrich themselves personally as they kept their jobs regardless of the actual results. Also, they reaped the benefits of higher bonuses and increased income as they sold off their personal shares of the company at market prices. This obviously did not reflect the actual company results. This sort of scandal would be similar to owning a baseball team, setting a goal for wins in a season, and then cheating the opposition to assure that your predictions came true.
One of the areas where the executives committed their fraud was in depreciation. By routinely avoiding depreciating the value of their garbage trucks and inflating the salvage value of the trucks (accountingweb), they lowered their expenses and inflated their profits. Inflating values proved so much prettier on their finances that the executives began assigning salvage value to assets without any previous proven value as well.
The company became addicted to the failure to record expenses as they continued the scheme by not lowering the value of property used for landfills as they were filled with waste. This is a common expense item in such an operation (SEC). For example, if Waste Management began a landfill project and for some reason decided to abandon it, recording the expenses would be common practice in an ethical company, however, Waste Management was not ethical. As anyone can guess based on the previous inclinations of the company, the expenses were obviously not recorded, again inflating profits. Waste Management, unlike every other company in America, simply did not believe in expenses. If they could capitalize a cost instead, that's what occurred. Profits rose and seemingly everyone benefited.
Eventually, a new CEO came on board in 1998 and ordered a complete accounting of the accounting and all such deeds came to the surface. The financial world was startled by what was found, but it took until the year 2000 to finally be revealed in full. It was determined that the company had overstated earnings by $1.7 billion between 1992 and 1997. At the time, this was the largest restatement in corporate history (SEC). The price of the stock fell from a high of over $50 to less than $15 per share. I cannot say this restatement affected the greater financial markets as whole but it did serve as a precursor warning to future scandals such as Enron and WorldCom around the next news cycle bend.
Waste Management survived as an entity for several reasons. For one reason, they were a profitable company versus an operation using accounting fraud simply to survive. The company had made money, in fact a lot of money, but nothing close to the numbers provided by the executive team. Secondly, the new management took their roles very seriously and rather than shuffling their feet and papering over the problem, they acted. The new management came clean with the public, settled with shareholders, and paid $26.8 million of the $30.8 million to settle an SEC lawsuit against their former executives (Bloomberg News). This proved to be a cheaper option than continuing their obligation to pay the legal costs of fighting the suit for the group. Lastly, Waste Management was and still is a leader in the environmental side of waste hauling. They have figured out a way to profit from recycling which is of course a big issue in our nation and the world today. While people may never forget the accounting scandal, today Waste Management is seen as a leader in "green" projects. The goodwill from this and a competent management team have the company in a favorable position less than 15 years after the scandal which must be considered as very strong accomplishment.

Works Cited
Feder, Barnaby J. Waste Management Stuck in Accounting Mire. Ed. New York Times. 30 January 1998.
Bloomberg News. Waste Management settles fraud case tied to ex-officers. 30 August 2005.
SEC. Waste Management Founder, Five Other Former Top Officers Sued for Massive Fraud. 26 March 2002. accountingweb. SEC Sues Former Waste Management Officers for Fraud. 26 March 2002.