Academic journal article Journal of the International Academy for Case Studies

Waste Management, Inc

Academic journal article Journal of the International Academy for Case Studies

Waste Management, Inc

Article excerpt

CASE DESCRIPTION:

This case describes a financial statement fraud perpetuated by top management of Waste Management Inc., with the knowledge of their external auditors. It describes the business opportunities and circumstances leading to the growth, the fraud and eventual downfall of the top management and its implication for the shareholders. The primary objective of this case is to explore the requisite external audit planning and resulting audit performance of a high risk audit client. Another important aspect of this case covers the role of the Audit Committee, who should serve on the Audit Committee, the importance of Audit Committee Member independence, and auditor interaction with the client's Audit Committee. Lastly, students examine how the Sarbanes-Oxley Act may have protected stockholders through preventive or punitive actions under the law which may serve to dissuade top executives from committing fraud. This case study is based on library research involving Accounting Series Litigation Release No. 17435 and Administrative Proceeding File No. 3-10513. It is designed for an Undergraduate Auditing course with a difficulty rating of 3, Graduate Auditing course with a difficulty rating of 3 or a Graduate MBA course with a difficulty rating of 4. Classroom presentation and discussion time of 1 hour. Outside preparation time of 4 hours. The case may be presented individually or in a small group.

CASE SYNOPSIS:

After a humble childhood in South Dakota, Dean Buntrock worked his way up the corporate ladder to become an industry leader and founder and CEO of Waste Management Inc. Whenever an opportunity presented itself, Buntrock made the most of it; it seemed like he had the "Midas Touch " in the garage business! He was also known for his charitable contributions and even has a building named after him at his alma mater. Unfortunately this real life story has a sad ending. Although he began Waste Management as an honest businessman making it big in America, Buntrock turned into a dishonest businessman when his company began using accounting methods to recover from bad decision-making during times of intense regulation in the industry. The auditors, Arthur Anderson, knew about the accounting irregularities the entire time. In 1998, 30 years later after going public, Waste Management Inc. acknowledged that it had misstated its pre-tax earnings by approximately $1.7 billion over a 5-year period and had to restate earnings; at the time, this was the largest restatement in corporate history. This case study examines how the Sarbanes-Oxley Act may have protected the stockholders.

INTRODUCTION:

Working for his family farm in South Dakota provided Dean Buntrock with the business savvy needed to manage and grow a company. The 1950s knew a different method of garbage disposal than we do today; to take care of disposal needs, small companies, like Ace Scavenger a small Chicago garbage disposal company, existed in towns and cities all around the country. In the 1950s Ace Scavenger came under the control of 24-year-old Dean Buntrock. As time progressed, and waste increased, growing concerns for a healthy environment led to the Solid Waste Disposal Act of 1965. This act imposed costly health and safety standards prompting Ace Scavenger and another small disposal company in Florida to merge into Waste Management Inc., in 1968.

The company went public in 1971 with the sale of 320,000 shares and, subsequently, purchased 75 disposal companies throughout the nation. Over the next 20 years, Waste Management experienced 36% average annual growth in revenue and 36% annual growth in income. Although solid waste was the company's core specialty, it also branched out into other reas of the waste industry. In 1976 when concerns about the hazardous effect of toxic waste began to surface, Waste Management grabbed hold of the toxic waste industry by acquiring numerous hazardous waste landfills. …

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