Waste Management Accounting Fraud

Review the SEC’s case against Waste Management in order to answer the following questions: What were the incentives for committing the fraud?
What was the relationship between management and the auditors? Why didn’t the auditors prevent the fraud? What (specifically) accounting methods were used to fraudulently inflate Waste Management’s profits? What accounting methods did they use to try to conceal part of the fraud? What were the financial and social costs of the fraud and who did they affect? What did this fraud share in common with that committed by GEC and what were the principal differences?

The company wanted to meet pre determining earnings targets to portray it was growing annually so as to deceive present investors and potential investors.Also the company executives wanted to retain their executive positions in order to reap substantial perfrormance based bonuses linked to the company’s annual growth and retirement benefits. The auditors were cordial and seemed to be in an advisory role to the company.Former employees of the auditing company held key roles in the management of the waste company.The auditors didn’t prevent the fraud because their Audi fees were capped and they were enticed to special fees from a special consulting project which would generate revenue for the auditing firm. C Non accrual methods were used in which current period expenses were improperly deferred or eliminated to inflate earnings. Also there were repeated changes to depreciation estimates.The company capitalized cost and used irrational useful life for its assets.

Use of Non GAAP methods by the company. D Geographical entries were used in which expenses were moved from current income statements to incorrect income statement. Also netting which offset one time gains with current period expenses and prior period mis statements in order to make them disappear. E Financial cost: There was a loss of 6 billion market value of investment. The potential income of the employees that loss their jobs Social cost:employees that lost their jobs would increase unemployment rate of the country.

Unemployment leads to increase in crime rate and increase in government spending. It would increases dis trust between employees and employers as they were not involved or aware of the fraud.It would reduce the credibility of investment as people may find alternative ways of growing their savings. F Similarities between the waste management and General Electric Fraud In the two cases,inappropriate accounting non GAAP were used.High level executives were aware and approved the financial statements in both cases of the the uncompliant of the financial statement with the Accounting principles.Earnings were both inflated to avoid reporting negative financial consensus and meet targets Differences

The GEC avoided pre tax charge to earnings in order to inflate earnings. Also,GEC recognised revenue before product had been delivered to boost sales of the company but Waste Management Inc. manipulated financial statement principally by manipulating how expenses.Personal gains of the executives was an incentive for manipulation in Waste Management Inc. GEC case was mainly about misappropriation of financial accounting standards and not manipulation of figures which occurred in Waste Management Inc.