i

WASTE MANAGEMENT SCANDAL

DEPARTMENT OF FINANCE
UNIVERSITY OF DHAKA
COURSE CODE: F-301
COURSE NAME: AUDITING

SUBMITTED TO:
MUHAMMAD FARID HOSSAIN PATWARY
LECTURER
DEPARTMENT OF FINANCE
UNIVERSITY OF DHAKA

SUBMITTED BY:
SAMEN YASAR – 26-203

DATE OF SUBMISSION: DECEMBER 18, 2022

ii
Letter of Transmittal

December 18, 2022

Muhammad Farid Hossain Patwary

Lecturer
Department of Finance
University of Dhaka
Nilkhet Road, Dhaka 1000

Subject: Submission of course term paper on “Waste Management Scandal”.

Dear Sir,

With due respect, I, the student of the the BBA program for the course “F-301: Auditing” are
submitting the term paper report on the accounting scandal of the company “Waste
Management Inc.” as per your instructions.

I have discussed and presented our interpretation of how the accounting scandal unfolded for
Waste Management Inc., how it was detected, the role the auditors played, and the aftermath
of it. Working on this paper has provided me with important knowledge regarding auditing and
has given me insight on how accounting loopholes can be used to manipulate financial reports.
The report reflects my unbiased understanding of the Waste Management Inc. accounting
scandal.

I, therefore, request your pardon for any shortcomings in the report and hope it satisfies your
expectations.

Sincerely yours,
Samen Yasar

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Acknowledgement

We would like to thank our Almighty for keeping us safe and sound during our research,
analysis, and presentation of this report.

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Table of Contents

Contents
Table of Contents........................................................................................................................ v

Executive Summary .................................................................................................................. vii

Chapter 1 Introduction................................................................................................................ 1

1.1 Purpose of the Study ........................................................................................................ 1

1.2 Objectives of the Study ..................................................................................................... 1

1.3 Research Methodology ..................................................................................................... 1

1.4 Limitations ........................................................................................................................ 1

Chapter 2 Company Background ............................................................................................... 2

2.1 Primary Background ......................................................................................................... 2

2.2 Background in International Operations ............................................................................ 3

2.3 Background in Lawsuits and Fines ................................................................................... 3

2.4 Waste Management’s Journey as Full-Line Environmentalists ......................................... 4

Chapter 3 The Fraud .................................................................................................................. 5

3.1 Overview .......................................................................................................................... 5

3.1.1 Avoided Depreciation Expenses................................................................................. 5

3.1.2 Failed to Record Landfill Expenses ............................................................................ 5

3.1.3 Established Inflated Environmental Reserves (Liabilities)........................................... 5

3.1.4 Fraudulent Accounting Reserves ............................................................................... 5

3.1.5 The Effect of The Fraud ............................................................................................. 6

Chapter 4 Auditing Scandal........................................................................................................ 8

4.1 The Auditor ....................................................................................................................... 8

4.2 The Misconduct ................................................................................................................ 8

4.3 The Punishment ............................................................................................................... 9

Chapter 5 Detection and The Case ...........................................................................................10

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Chapter 6 Aftermath .................................................................................................................12

6.1 Conclusion.......................................................................................................................13

6.2 The Effect ........................................................................................................................13

6.3 The Recovery of Waste Management ..............................................................................15

Chapter 7 Conclusion................................................................................................................17

Bibliography ..............................................................................................................................18

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Executive Summary

Waste Management Incorporation is a waste company based in United States of America founded
by Larrry Beck. The company was officially founded in 1968 and its headquarter was located in
Chicago. However, the company's origins may be traced back to 1893, when a Dutch immigrant
by the name of Harm Huizenga began collecting trash for $1.25 each wagon. In 1971, Waste
Management built the nation's first private solid-waste reduction center. By 1972, the company
had operations in 32 states and the District of Columbia.

In terms of annual revenue, the business surpassed Browning-Ferris Industries in 1980. Since
1976, when the corporation started paying dividends, there has never been a missed payment
period.

To match analysts' and investors' expectations, the corporation recorded a number of fake
accounting operations to minimize and defer expenses for the current period onto the next. By
reducing income statement expenses, the corporation is able to report a greater profit. In order to
accomplish this, the corporation employed a variety of false accounting practices.

In America, all public companies need to register themselves with the U.S. Securities and
Exchange Commission (SEC). The companies whose securities and shares are traded in stock
markets in the US are compelled to get annual audits. The auditor of Waste Management Inc. at
that time was Arthur Andersen LLP, majorly, and Robert Kutsenda, the regional audit director. As
a punitive measure, the auditors were barred from doing any accounting work for public
companies for five years.

Arthur Anderson was asked to pay $220 million as the penalty for their questionable accounting
of Waste Management for years. As evidence, SEC presented the documents showing how
Arthur Andersen and Waste Management Inc. have been close aides. When this same auditing
firm was found to be involved in the Enron scam as well, it was severely reprimanded and its
license to audit public companies were permanently seized.

The fraud was unveiled when a new CEO was appointed who demanded a restatement of
financial accounts and determined that their pretax income was underestimated by almost by $1.7
billion. The SEC was responsible for filing a suit against the perpetrators including the major
executives and auditor involved for violations of antifraud, reporting, and record-keeping sections
of Federal law.

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In 1998, the price of the company's shares fell dramatically after the fraud was publicly disclosed.
The owners suffered a $6 billion loss. A class action lawsuit was successful, and the company
was ordered to pay $457 million to its senior executives. A civil action was brought against the
company and six senior executives for the fraud that rattled the American economy's foundations.
After a significant blot, it is difficult to win back customers' and the market's faith, but Waste
Management Inc. has been fortunate to rebound and is now the largest solid waste provider in
North America, the largest recycler in the state, and the provider of the largest integrated
environmental solutions.

viii
Chapter 1
Introduction

1.1 Purpose of the Study

Auditing is the process through which accounting reports and records are examined and matched
with physical evidence in order to ensure the accuracy of the information provided in documents,
records, and reports. The purpose of this study is to analyze an international accounting scandal
and understand how it took place, how it was detected, what was the aftermath of it etc., all while
fulfilling our course requirements for the course F-301: Auditing.

1.2 Objectives of the Study

• Understanding how auditing works.

• Depicting the accounting scandal that took place.
• Interpreting the role of auditing in detection of the scandal.
• Fulfilling our course requirements.

1.3 Research Methodology

• Reading reports and papers on the accounting scandal.

• Collecting information from publicly available news articles.
• Using learnings obtained through academic classes.
• Matching and verifying information collected from varied sources.

1.4 Limitations

• Lack of experience.
• Lack of diversification of data sources.
• Lack of opportunities to explore the topic further.
• Lack of technological services.
• Time constraints.

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Chapter 2
Company Background

2.1 Primary Background

Waste management Incorporation is a waste company based in United States of America founded
by Larrry Beck. The company provided service throughout North America in waste Management,
comprehensive waste and environmental services. The company was officially founded in 1968
and its headquarter was located in Chicago. The United States congress passed the Social Waste
Disposal Act in 1965. The goal of SWDA was to reduce waste and protect human and
environmental health by decreasing pollution and promoting better municipal waste disposal
technology. The act was a broad attempt to address the problems confronting the nation through
a series of research projects, investigations, experiments, training, demonstrations, surveys, and
studies. The act paved the way for private service for garbage collection and waste management
wherefore many companies ventured in this field, Waste Management being one of those major
corporations. The company being divided into four major geographic location which are the the
Midwest, the Western, the Eastern and the Southern. The primary services provided by the
business are waste management and trash reduction, collection, transfer, recycling, and disposal
services, resource recovery, the production of clean, renewable energy, and the removal of
methane gas from landfills for use in electrical power. However, the company's origins may be
traced back to 1893, when a Dutch immigrant by the name of Harm Huizenga began collecting
trash for $1.25 each wagon. Although there was no formal organization there, the business
expanded as the population increased. The expansion facilitated the establishment of Waste
Management, Inc.by Wayne Huizenga, Dean Buntrock, and Larry Beck. Throughout the United
States, the corporation aggressively acquired numerous small businesses engaged in the
garbage collection industry. The business was portrayed and advertised as Harm Huizenga's
original business. It soon went public in 1971 as it rose to prominence in its industry. In June 1971
Waste Management made its first public offering of common stock, raising about $4 million. That
year it had revenues of just under $17 million and a net income of $1.25 million, serving 14,000
industrial and commercial customers and 40,000 private householders in six states. As one of the
industry leaders, it was spread throughout 19 states in the United States. It also operated 17
sanitary landfills in five states. In southern Florida, where the water table was too close to the
surface to allow disposal of organic wastes in the ground, the company built the nation's first
private solid-waste reduction center, a mill that reduced, after reclaiming metals and paper fibers,

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All garbage and trash into small particles suitable for spreading upon the surface without the
necessity of cover. Waste Management lost no time expanding its business further. It added 133
additional businesses to its fold in the first nine months of 1972. These were neighborhood
businesses whose proprietors were permitted to remain in charge. By the end of the year, the
corporation was providing service to 600,000 households, 60,000 industrial and commercial
accounts, and 19 states, including the Canadian province of Ontario. For the year, sales totaled
$82 million, while net income was $5.7 million. A second significant stock offering during the year
brought in an additional $25 million, which, like the previous influx of cash, was used to pay off
debt and fund the purchase of machinery and disposal facilities. With very few exceptions, stock
rather than cash was used to pay for acquisitions by Waste Management. Waste Management
has operations in 32 states and the District of Columbia by the end of 1974. In 16 states and
Ontario, it owned 32 sanitary landfills and leased another 21. $158 million in revenues and $9.3
million in net profits were generated in that year. About 80% of income came from waste collection
and storage services, with the remaining 20% coming from transfer and disposal services. Waste
Management's earnings kept rising quickly as it grew into foreign and liquid waste businesses.
Waste Management expanded at a compound annual average rate of 48% between 1971 and
1980. Since 1976, when the corporation started paying dividends, there has never been a missed
payment period. In terms of annual revenue, the business surpassed Browning-Ferris Industries
Inc. in 1980.

2.2 Background in International Operations

When Garbage Management was awarded a five-year, $242 million contract to remove solid
waste in Riyadh, the capital of oil-rich Saudi Arabia, it entered the global market. Similar contracts
were won by the business in 1981 for Buenos Aires, Argentina, and Jeddah, the principal port of
Saudi Arabia. Its list of international municipal clients grew over the following few years to include
Brisbane, Australia, Cordoba, Argentina, and Caracas, Venezuela. By 1989, the business had
ten large landfills in Europe and, through a subsidiary called Ocean Combustion Service, was
incinerating hazardous trash on incinerator ships cruising the North Sea. Waste Management
International was active in 23 nations by 1990.

2.3 Background in Lawsuits and Fines

Waste Management's first crisis after 15 years of spectacular success was reported in an article
in New York Times which reported that the company committed violations at toxic waste site at
least in seven states. Employees charged the company of illegal dumping hazardous waste at

3
four separate sites. Many of these accusations turned out to be true. At its Vickery, Ohio, location,
where investigators discovered millions of gallons of toxic waste had seeped into the sandstone
around five of the deep wells on the property, Waste Management admitted to storing illegal levels
of PCBs. The business agreed to spend an additional $10 million to bring the site into line with
rules after paying fines totaling $12.5 million. It was fined $600,000 in 1985 for impermissibly
storing PCBs at Emelle. Later, Waste Management paid $9.25 million in fines for violations at its
Chicago hazardous waste incinerator, which was shut down following an explosion in 1991 and
completely written off in 1993.

2.4 Waste Management’s Journey as Full-Line Environmentalists

After overcoming these issues, Waste Management grew steadily during the 1980s, earning $562
million in 1989 on $4.5 billion in sales. The corporation quickly increased its recycling of paper,
glass, plastics, and metals as a means of improving its reputation and as well as investigating
another potential avenue for profit. By 1990, its Recycle America division, established in 1986,
was the largest recycler in the US, supplying 1.2 million households through curbside pickup
services. By the middle of 1989, Waste Management was managing 123 landfills, 60 of which
were being expanded, and it had 80 additional landfills planned. Given that almost one-third of
the country's 6,000 operational landfills were at or near capacity and that there was growing
opposition to the construction of new ones. The abundance of real estate available to Waste
Management provided the corporation what it believed to be strong negotiating position. At the
same time, Garbage Management recognized that future development will come from addressing
waste at its source due to growing public opposition to landfills. Early in the 1990s, Buntrock
visited major firms and made the offer to handle all of their waste management issues internally.
Alcoa, Boeing, General Electric, General Motors, Du Pont, Hoechst Celanese, and Navistar
International were among the companies with which he inked contracts.

In 1993 Waste Management reorganized itself into a publicly traded holding company named
WMX Technologies, with an annual revenue crossing $10 billion. In the year 1998, WMX was
acquired by USA Waste Services Inc., Texas for approximately $19 billion and renamed the
company as Waste Management Inc. and its headquarters were then moved to Houston, Texas.

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Chapter 3
The Fraud

3.1 Overview

To match analysts' and investors' expectations, the corporation recorded a number of fake
accounting operations to minimize and defer expenses for the current period onto the next. By
reducing income statement expenses, the corporation is able to report a greater profit. In order to
accomplish this, the corporation employed a variety of false accounting practices.

3.1.1 Avoided Depreciation Expenses

Waste Management operated with a number of garbage vehicles. The company's management
had to assign a salvage value and usable life to each truck in order to depreciate them. Every
organization assigns values to them, but the values (estimates) must be fair. In the case of Waste
Management, salvage value estimates were overstated and useful lives were lengthened. This
reduces the depreciation expense incurred each period for these assets, hence increasing net
income. In order to reduce the depreciation expense for any assets that lacked a salvage value,
an arbitrary value was allocated.

3.1.2 Failed to Record Landfill Expenses

As Waste Management added waste to their landfills, they were required to record the associated
expenses. This was not done to prevent expenses from appearing on the income statement. In
addition, they failed to account for the expenses necessary to deduct the costs of failed and
abandoned landfill development projects.

3.1.3 Established Inflated Environmental Reserves (Liabilities)

Waste Management was able to successfully avoid recognizing unrelated operating expenses by
inflating the reserves associated with acquisitions on the balance sheet. This strategy is
comparable to recording an allowance for doubtful accounts and adjusting the estimates each
period to reduce the overall reserve rather than expense it out, hence excluding the expenses
from the income statement.

3.1.4 Fraudulent Accounting Reserves

A number of expenses were incorrectly capitalized by the corporation. This permitted the
corporation to avoid fully expensing the amounts in the period they were used and to defer

5
recording the amounts as assets on its balance sheet. For instance, if a corporation purchased
little equipment for an insignificant sum, such equipment should be expensed. By capitalizing the
equipment, they can generate an asset on the balance sheet that can be expensed in tiny sums
over time as opposed to all at once. The corporation apparently failed to set aside sufficient funds
to cover income taxes and other expenses.

Buntrock and others, along with the company's headquarters, were responsible for the accounting
discrepancies. They would create a budget for the company's income and expenditures and then
compare it to the actual numbers. When actual numbers fell short of budgeted projections,
accounting adjustments were made to bring real amounts in line with planned budgets. This was
a dilemma as the previous year's inflated numbers were used as a baseline for the budget for the
following year. Since fraudulent earnings from one period had to be replaced in the subsequent
period, the company could not continue in this manner.

The corporation allegedly employed "netting" to minimize operating expenses and accumulated
accounting misstatements from past periods by offsetting them against unrelated gains in asset
sales and exchanges. The "geography" entries transferred substantial amounts of money
between various line categories on the income statement in order to present the financials as the
firm desired.

3.1.5 The Effect of The Fraud

Waste Management's fraud was aimed to increase stock prices. The share stock increased from
$17.11 at the start of 1992 to nearly $55 in August 1998. The stock then fluctuated for over a year
before crashing in July of 1999. From 1992 to 1999, Table 1 demonstrates the quick growth and
fall of the stock price.

6
While these executives gained from the increase in the stock price, investors lost $6 billion. The
quick increase in the stock price provided considerable wealth for corporate leaders who owned
significant amounts of stock and stock options. The SEC determined that Buntrock was the fraud's
mastermind and collected the most illicit profits. He was aided by a number of Waste Management
personnel who benefited from the fraud to a lesser extent than Buntrock. The estimated earnings
earned by each fraud offender are presented in descending order of magnitude in Table 2.

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Chapter 4
Auditing Scandal

4.1 The Auditor

In the United States, all publicly traded corporations must register with the U.S. Securities and
Exchange Commission (hereafter "SEC") and submit an annual financial report. Companies
whose securities and shares are traded on U.S. stock exchanges are required to undergo yearly
audits by a company approved for this purpose. The primary auditor of Waste Management Inc.
at the time was Arthur Andersen LLP, and the regional audit director was Robert Kutsenda. Arthur
Andersen was one of the largest accounting companies of its day and has a well-known brand.

Arthur Andersen has served as Waste Management's auditors for a number of years. The two
companies' partnership dates back to the early 1970s.

4.2 The Misconduct

The SEC asserted that the auditors engaged in professional misconduct during the period in
question. The company was offered the option of settling without going to court. Arthur Anderson
was asked to pay a penalty of $220 million for their faulty accounting of Waste Management for
years. As proof, SEC produced records demonstrating the strong relationship between Arthur
Andersen and Waste Management Inc., which undermines the need that the auditor be
independent and without conflicts of interest with the corporation.

In the early 1990s, Waste Management reduced the audit fees it would pay to Andersen, signaling
that it would award Andersen consultancy contracts to compensate for the yearly audit's profit
loss.

The SEC examined Andersen's involvement in the scam and decided that Andersen helped
Waste Management conceal the crime from investors. Arthur Andersen was aware of the
inaccurate financial statements.

The acceptable options for Andersen would be to either require the client to rectify the financial
reports before their release or disclose the issues to investors if a qualified or unfavorable opinion
had been rendered on the financial statements.

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Instead, Andersen and Waste Management engaged into a formal agreement titled "Summary of
Action Steps." This agreement stipulated that the entire sum of prior fraud be adjusted during the
next decade. Each year, the audit team at Andersen would advise changing entries to amortize
one-tenth of the fraud. This was essentially a legal agreement between the two companies to
commit fraud in the future to cover up crimes in the past. Andersen did recommend the entries
for following years, but Waste Management's management declined to implement them since
doing so would hinder their ability to achieve analyst and investor profits expectations. Despite
Waste Management's reluctance, Andersen continued to provide an unqualified opinion each
year on the company's financial accounts for 6 years.

Waste Management Inc.'s annual financial report reveals that it paid Arthur Andersen extra costs
for "special work" that were divided into two categories: $7.5 million for accounting services and
$17.8 million for non-audit consulting expenses. It was reported that Arthur Andersen discovered
Waste Management's misconduct and even urged the company to make amends. However, it did
approve Waste Management Inc.'s financial statements, so participating in the fraud. In this case,
the auditor was also called into question and assigned culpability.

4.3 The Punishment

Generally, if a fraud is ruled out in a corporation, the auditing firm has no culpability. However,
this instance represented an exception and also established a precedent. The SEC's chief of
enforcement, Richard Walker, emphasized the significance of auditors as gatekeepers of the
capital market. As a result, auditors must be held accountable when a corporation successfully
defrauds the market. As a form of punishment, the auditors were prohibited from doing any
accounting work for public firms for a period of five years. When it was subsequently discovered
that the same auditing company was also engaged in the Enron fraud, it was harshly chastised
and its license to audit public corporations was permanently revoked.

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Chapter 5
Detection and The Case

In 1997, after Waste Management appointed a new CEO, that person began reviewing the
company's financial records and eventually demanded a restatement of the previous five years'
financial accounts, which is when the fraud case began to unravel. In its corrected financial
accounts submitted in February 1998, the business admitted that it had underestimated its pretax
earnings by almost $1.7 billion. The restatement at the time was the largest in corporate history.

The Securities and Exchange Commission is in charge of the probe into the suspected fraud. The
SEC has filed a lawsuit against the company's top six executives for their roles in and
contributions to fraudulent financial manipulations at Waste Management Inc. Dean L. Buntrock,
the company's founder, chairman of the board of directors, and CEO; Phillip B. Rooney, president,
director, and chief operating officer; James E. Koeing, 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, were all named in the complaint.

The case was filed in Chicago's District Court alleging that the defendants committed fraud
between 1992 and 1997 by making materially false and misleading statements in Waste
Management Inc.'s financial statements. The SEC claimed that the defendants had cheated the
accounts, profited from their manipulation, and secured their positions in the corporation at the
expense of the innocent shareholders. The SEC has petitioned the court, claiming violations of
antifraud, reporting, and record-keeping sections of Federal law. The court should also issue an
injunction to stop any subsequent violations. A penalty and disgorgement of the authorities' ill-
gotten gains is warranted. The SEC also requested that they be permanently disqualified from
holding executive positions in any public or private organization. The defendants were accused
of obstructing justice because they had taken measures to cover up their crime, according to the
complaint.

To conceal a fraud of this magnitude for half a decade, as in the present case, would require
collusion between the company's auditor and the company's management. The auditing firm,
Arthur Anderson LLP, has produced a report on Waste Management Inc. every year for the past
many years, and they have never been able to find any evidence of wrongdoing.

10
According to the SEC's claims, Arthur Anderson agreed to help clear the documents despite
knowing about the fraud. The PAJEs were used to correct the company's annual statements,
which had previously inflated profits and understated losses. In 1997, once the company's new
CEO discovered the plan and ordered an audit of the books, it was finally shut down. In light of
the restatement, Waste Management admitted that it had made misstatements in its financial
statements between 1992 and 1997, at a total cost of up to $1.7 billion. When word of the
deception spread, the stock price of the corporation plummeted by almost a third, costing the
stockholders a total of around $6 billion in losses.

Final judgement in this lawsuit was handed down on August 29, 2005 by the U.S. District Court
for the Northern District of Illinois. The court also ordered the six defendants to pay a total of
$30,869.054 in penalties, including $16.4 million in disgorgement, $10.4 million in prejudgment
interest, and $4 million in civil penalty. The court further ordered them to refrain from breaking or
conspiring to break any federal law, namely the Securities Exchange Act of 1934.

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Chapter 6
Aftermath
The most crucial aspects of a previous event that we address are its relevance, the current
situation, and how the context relates to the current situation. It is essential to talk about the impact
of this colossal scam. The price of the company's shares fell dramatically in 1998 after the fraud
was publicly disclosed and word of the restatement spread.

The firm made an overstatement of $1.7 billion, the epitome of fraud in history up to that point.
The owners suffered a $6 billion loss as a result of the 33% decline in share value of the shares
they owned at the time. USA Waste Services Inc. immediately bought Waste Management in
1998. A class action lawsuit brought by the company's shareholders against its senior executives
was successful. The business was ordered to pay them a total of $457 million. For their
collaboration or egregious carelessness, the auditing company Arthur Anderson was fined $7
million. The company paid the penalties but never admitted the accusations. Neither of them was
disputed. As a result, Arthur Andersen's accurate involvement is still unknown.

In addition to the company, a second lawsuit was brought against the company's six senior
executives who were active in all of the fraud and oversaw the manipulations throughout. In 2005,
a civil action was initiated against them. They were sentenced to a $31 million fine and were also
forbidden from holding an officer or director position with any public firm. These were the main
effects of the huge fraud that rattled the American economy's foundations.

After being found guilty, the company received a stern reprimand and the fraud-related executives
were suspended, but they were nevertheless permitted to continue working for the company. After
such a significant blot, it is difficult to win back customers' and the market's faith, but Garbage
Management has been fortunate to rebound as it keeps up its waste collection, disposal, and
recycling operations.

The severe financial sanctions imposed by the court and the declining value of the company's
stock made it difficult for the company to reestablish itself, but it has done so and is once again
the largest solid waste provider in North America, the largest recycler in the state, and the provider
of the largest integrated environmental solutions in the nation. It now has a client base of more
than 20 million, more employees than ever before, and more assets than ever before. This
demonstrates how, like in the instance of Waste Management Inc., one's previous failures cannot

12
hinder one's future provided one has the fervor to accomplish one's goals. It did not allow itself to
submerge because of the wrongdoings of certain officials; rather, it stood up from ashes and
made a destiny for itself.

6.1 Conclusion

A corporate hoax of this magnitude, especially in a nation like America with such strict regulations,
is a disgrace to our values and evidence of unrelenting thirst for money. We won't be able to stop
these instances even with all the rules that will soon be passed in this area since the legal system
lacks activism, there are always loopholes, and money has too much influence. Nevertheless, this
instance shows that no matter how impenetrable it seemed, the wrong would ultimately lose. The
bankruptcy of the unfortunate corporation had a profound impact on thousands of its workers as
well as the whole Wall Street. The consequences were grave and, might we say, horrific for the
few who lost their hard-earned money in this deception.

The fact that this administrative failure has wider-reaching ethical ramifications than we realize is
remarkable. It is quite simple to fool unsuspecting investors in a setup similar to a corporation
who are unaware of the cunning techniques the specialists may employ to control the situation.
Every business deception represents a rejection of moral principles against money and a desire
to acquire it. Although it may not be the correct thing to do, the executives of the organization
would likely have been justified in their conduct had this been a one-time occurrence. However,
knowing about it and continuing to take part in it plainly demonstrates everyone's lack of ethics.
The reverse of utilitarianism is what takes place in corporate fraud.

The legal and moral liability falls on the auditing agency as well.

It must be categorically stated that there was a failure on the part of the auditing company in doing
its job efficiently even though it was determined in an investigation that it had not been involved
in the scam and that a company was exceptionally cunning in planning the fraud that the auditor
could not find it for years. As we have repeatedly seen with all the frauds that come up, the public
bears the consequences of their negligence.

6.2 The Effect

The fraud at Waste Management was intended to cause rising stock prices. The stock rose from
$17.11 at the beginning of 1992 to a peak of over $55 in August, 1998. The stock then waivered

13
for about a year before collapsing in July, 1999. Table 1 depicts the rapid rise and collapse of the
stock from 1992 through 1999.

Table 1 – Waste Management Stock Prices From 1992 to 1999

Investors lost $6 billion while these executives benefited from the rise in stock price. The business
leaders, who owned significant quantities of stock and stock options, benefited greatly from the
stock price's swift rise. The SEC found that Buntrock was the fraud's mastermind and took home
the most illegally obtained money. Several Waste Management officials helped him out, and while
they too gained financially from the deception, they did so to a smaller extent than Buntrock. Table
2 lists the estimated proceeds from the scam that each of the criminals claimed in descending
order of size..[4]

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Table 2 – Fraudulent Executive Profits

Executive Estimated Gains from the Fraud

Dean L. Buntrock Over $16.9 million

Phillip B. Rooney Over $9.2 million

James E. Koenig Over $900,000

Thomas C. Hau Over $600,000

Herbert Getz Over $450,000

Bruce D. Tobecksen Over $400,000

6.3 The Recovery of Waste Management

Waste Management suffered for years after the scam was made public as it dealt with the fallout
from the scheme's legal repercussions. Despite the fact that the scam inflated earnings, the
business was successful and able to endure. The business put a lot of work into repairing its
reputation. The corporation made efforts to reposition itself as a "green" business that cares about

15
the environment, sponsor an exhibit at Disney's Epcot Center, and be the subject of the debut
episode of the CBS series "Undercover Boss."

Waste Management Exhibit at “Innoventions” in Disney’s Epcot Center

16
Chapter 7
Conclusion

Larrry Beck started Waste Management Incorporation in the US. The Chicago-based corporation
was started in 1968. However, the enterprise was founded in 1893 by Dutch immigrant Harm
Huizenga, who collected rubbish for $1.25 each cart. Waste Management created the first private
solid-waste reduction facility in 1971. By 1972, the corporation operated in 32 states and DC.

In 1980, it outsold Browning-Ferris Industries. Since 1976, the firm has paid dividends without fail.

The company faked accounting activities to reduce and delay current costs to meet analysts' and
investors' expectations. The company makes more profit by cutting income statement costs. The
company used many fraudulent accounting methods to achieve this.

US public firms must register with the SEC (SEC). US-listed corporations must undergo yearly
audits. Arthur Andersen LLP and Robert Kutsenda, the regional audit director, audited Waste
Management Inc. Auditors were banned from public company accounting for five years as
punishment.

Arthur Anderson was fined $220 million for years of Waste Management accounting fraud. SEC
submitted papers proving Arthur Andersen and Waste Management Inc. were close associates.
When this same auditing company was implicated in the Enron deception, its license to audit
public firms was permanently revoked.

A new CEO sought a restatement of financial statements and found that pretax income was
understated by roughly $1.7 billion, revealing the fraud. The SEC sued the management and
auditor for violating federal antifraud, reporting, and record-keeping laws.

After the scam was revealed, business shares plummeted in 1998. Owners lost $6 billion. Senior
executives received $457 million from a class action lawsuit. The corporation and six executives
were sued for the fraud that shook the American economy. Waste Management Inc. has
rebounded to become North America's leading solid waste supplier, recycler, and provider of
integrated environmental solutions.

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