Synopsis

Dean Buntrock grew Waste Management into the largest waste disposal organization in the world by acquiring 1,500 garbage companies between 1956 and 1993. While auditing Waste Management’s 1993 financial statements, auditors from Arthur Andersen identified $128 million of errors that overstated Waste Management’s reported income by 12 percent. The auditors issued a clean audit opinion based on Buntrock’s promise to correct the misstatements in the future. Four years later, Waste Management recalled its 1992 through 1996 financial statements and recorded a cumulative adjustment of $3.5 billion.

Discussion Questions

1. What events of the 1970s and 1980s suggest that Waste Management might have had inadequate internal controls and/or a corrupt corporate culture?
2. What motive did Waste Management have to overstate estimated liabilities for environmental cleanup costs when acquiring other companies?
3. What methods did Waste Management use to delay recognition of current operating expenses until future periods?
4. Why did Arthur Andersen classify Waste Management as a “high risk” client?
5. What actions did Arthur Andersen partner Robert E. Allgyer take after discovering $128 million of misstatements in Waste Management’s 1993 financial statements? According to the SEC, how did Allgyer’s actions place Arthur Andersen in an “untenable position”?
6. Why did the SEC charge the entire Arthur Andersen accounting firm with fraud?

Additional Resources

Waste Management. Selected scenes from the PBS television series “Frontline” discussing the Waste Management accounting fraud (5:33 minutes).