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Waste Management Financial Case Study

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Waste Management
From Bottom to Top of the Heap
Ryan Schlunz
George Fox University

Waste Management
Between the years of 1992 and 1997, the executive leadership at Waste Management, Inc. started a wide array of fraudulent accounting practices to make the company’s financial position and financial statements look more appealing to shareholders.   Driven by greed, and a desire to keep their high-profile jobs, at least six of the top executives, including the CEO and CFO, were in on the fraud and profited from it.
The SEC filed suit against the six executives at Waste Management in March of 2002, alleging that the fraud started as the executives “fraudulently manipulated the company’s financial results to meet predetermined earnings targets.   The company's revenues were not growing fast enough to meet these targets, so defendants instead resorted to improperly eliminating and deferring current period expenses to inflate earnings.” (Newkirk, 2002).   The fraud came in several forms.   They avoided depreciation expenses on assets by assigning unsupported, and inflated values, and by extending the useful life of assets like their garbage trucks beyond what is generally accepted.   The executives also failed to record expenses at all, like those related to the decrease in value of landfills as they were used to fill with waste.   Expenses needed to write off the costs of unsuccessful or abandoned projects were also not recorded, and they improperly capitalized many different operating expenses.
One of the biggest pieces of fraud conducted by Waste Management was their use of a practice referred to as “netting.”   Waste Management exchanged its interest in a privately held subsidiary company for an interest in the public, parent company, resulting in a $160 million gain to Waste Management.   They then used that gain to offset $160 million in unrelated operating expenses and earlier misstatements - failing to disclose the netting in the notes of their financial...

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