Waste Management

Fraud Triangle

Like Dustin had said earlier, the executives of Waste Management faced a looming problem. Revenues and profits were just simply not growing fast enough to meet targets. Originally, Waste Management was able to grow quickly due to their many acquisitions. However, as there became fewer companies to buy, Waste Management’s growth slowed down accordingly. The executives were under quite a bit of pressure to perform and succeed. Every fraud perpetrator faces some kind of perceived pressure. The SEC’s report on Waste Management explains this pressure pretty well. “The defendants’ fraudulent conduct was driven by greed and a desire to retain their corporate positions and status in the business and social communities,” said Newkirk, associate director of the SEC’s Division of Enforcement. So essentially, top management committed fraud due to the need to appear successful. To you or me that might not seem like a real pressure, but what matters is the perception of the perpetrator at the time of the fraud. So when Waste Management stopped growing, Buntrock would simply inflate earnings by deferring expenses and not reporting depreciation expenses. Buntrock was a very popular guy. He made many charitable contributions with money taken from the company, and presented himself as a pillar of the community. He even funded a building at his old college. To an outsider, it would appear that Buntrock was a very successful individual. So how did Buntrock conceal his crime for so long? Well, this is due to the opportunity provided by Waste Management’s relationship with their auditor, Arthur Andersen.

It took 5 years for the Waste Management scandal to surface. There were several improper accounting practices that Waste Management used. They avoided depreciation expenses by both assigning unsupported and inflated salvage values. They assigned arbitrary salvage values to other assets that previously had no salvage value. They failed to record expenses for...