1. Control Failure Presentation
Daniel Min
MIS5121 REAL WORLD CONTROL FAILURE PROJECT

2. COMPANY BACKGROUND
Waste Management, Inc. is an American waste management, comprehensive waste, and environmental services company in North America
Services include waste collection, recycling and resource recovery and disposal service
Founded in 1968 by Dean Buntrock & Wayne Huizenga, the company headquartered in the First City Tower in Houston, Texas
Waste Management became public in 1971
Their sales doubled in a period of five years reaching $2 billion in 1985
In the early 1990s Waste Management Inc. became the leading company in its industry

3. CONTROL FAILURES
Due to increased regulation of the waste management industry and failed international operations, Buntrock and a team of auditors from Arthur Anderson started finding ways of creatively adjusting the accounting records
The scheme was accomplished through false and misleading disclosures and various violations of generally accepted accounting principles designed to defer current-period expenses
Inflating income by 1.7 billion:
Failing to report depreciation expense for the company`s garbage trucks
Capitalizing their expenses
Failing to establish proper reserves to pay for income tax

4. KEY PLAYERS Dean Buntrock, Founder & CEO Phillip Rooney, COO
Set the earning targets
Directed certain accounting changes
The Spokesperson who announced the false numbers
Phillip Rooney, COO
Ensured that the required write-offs were not recorded
Overruled accounting decisions that would have a negative impact
James Koenig, CFO
Responsible for executing the plan
Ordered the destruction of evidence
Misled the company`s committee and internal accountants
Withheld information from outside auditor

5. TIMELINE OF EVENTS ( )
Solid Waste Disposal Act
1971 WM goes public
Fraudulent accounting practices taking place within the company
$1.7 Billion overstatement of earnings revealed in due to fraudulent accounting
Arthur Andersen brought in as auditors
Buntrock steps down as CEO
Conclusion of audit findings

6. DISCLOSURE OF EVENTS
The new CEO hired in 1997 ordered a review of the company`s accounting practices, which led to the discovery in 1998 of an overstatement of $1.7 billion in earnings between the years 1992 to It was one of the largest restatement known at that point of history
Year Ending
Original reported
(in thousands)
As restated
% Overstated
12/31/92
$850,036
$739,686
14.9%
12/31/93
$452,776
$288,707
56.8%
12/31/94
$784,381
$627,508
25.0%
12/31/95
$603,899
$340,097
77.6%
12/31/96
$192,085
$(39,307)
100+%

7. RESULTS
Shareholders lost more than $6 billion when stock prices dropped by more than 33%
Waste Management was bought and merged with a smaller company, USA Waste Service Inc. in 1998
Waste Management had to pay $457 million in a class action suit to shareholders
US SEC, Security Exchange Commission, fined Arthur Anderson $7 million
Ethical standards became one of the most important element in the success of the business and in fact, in 2008 Waste Management was considered one of the most ethical companies

8. WHAT COULD/SHOULD THOSE AUTHORITY HAVE DONE DIFFERENT?
Monitoring accounting and financial reports monthly to reassure that they are being done correctly
Segregation of duties placed so that, for example, COO could not be able to overrule the accounting decisions
Ethical training across the board of the company
Hiring firmly regulated external auditing firms to keep track of financial statements

9. REFERENCES
Oxley%20(2nd%20Edition)/Case%20A.2%20%20Waste%20Management.pdf