Waste Management Scandal
BUS 320 Finance
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 ...view middle of the document...
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....