Waste Management Case Study Solution

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Recommended: Good intoduction of risk management process for a company

Anna Golden
BA 406-01

Waste Management, Inc.
A. Intro Summary.
In 1990, Waste Management, Inc. (WMI) became the largest United States (U.S.) waste management company. Although its reported growth was a result of “aggressive accounting policies” such as failing to report expenses for depreciation, landfill devaluations and write-offs, inflating improper salvage values, capitalizing improper expenses, establishing inflated environmental reserves and failing to establish income tax and other expenses reserves. After Arthur Andersen (AA) failed to report WMI’s misstatements in their audit, this eventually led to an announcement of restatements of WMI’s earnings for 1992-1996. The U.S. Securities and Exchange Commission (SEC) charged WMI’s defendants with securities fraud, filing false reports, falsification of books and records, and lying to auditors.
B. Statement of the Problem.
1) Why didn’t AA stand up to WMI management?
2) What aspects of their risk management model did the AA partners incorrectly consider?
3) To whom should AA have complained if WMI management was acting improperly?
4) Did the WMI board and audit committee do their jobs?
5) Were the fines levied high enough?
6) Should you use the same “dog” to discover the “bones” in an accounting scandal?

C. Alternative Courses of Action.
1) AA lacked independence and has a conflict of interest.
2) The aspects of the risk management model that the AA partners incorrectly considered are risk identification, qualitative risk analysis, risk response planning, and risk monitoring and control.
3) AA should report WMI’s improper actions to WMI’s audit committee If no action, is taken then AA should report to the SEC.
4) No, the WMI board and audit committee did not do their jobs.
5...

... middle of paper ...

... help uncover them will not only be more efficient and effective but will ensure that they are all found. I’m pretty sure AA will not want to have another image of not uncovering misstatements the second time around after they have already been publicly criticized for aiding in the manipulation.
E. Recommendations.
My recommendation is that AA should have properly used their risk management model to identify any significant risks concerning the audit. And if any arise, these concerns should be reported and corrections made by the management. If no action occurs, AA must then report to those in charge of governance or the SEC to avoid litigation, incurring huge fines, and failing to act in the public’s best interest. If AA is charged with improper acts, they must do everything they can to redeem themselves even if it means uncovering all their past improper acts.

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