The tech bubble of the 1990s left behind a wake of major accounting frauds in corporate America. While the infamous Enron scandal grabbed the most headlines and media attention, there were numerous other accounting frauds that had major impacts on the U.S. economy. Waste Management Inc. was one of the few companies who survived a major accounting scandal although the financial impact on their earnings and shareholders was devastating. 

As consumer habits rapidly evolved in the 20th century, the demand for trash and waste management services skyrocketed. Waste Management, Inc. was formed in 1968 and began an aggressive acquisition strategy to consolidate collection services around the country. Just three years after its formation, the company went public in 1971 and made over 133 acquisitions by 1972, growing to nearly $100M in revenue. 

Like many other corporations in the tech bubble era, Waste Management felt immense pressure from Wall Street to grow profits at unsustainable rates. When the company was faced with a major landfill scandal and the economy started to sour, top executives turned toward deceptive accounting tactics in an attempt to meet earning expectations and sustain their stock price. 

The Company focused on a few key areas to manipulate their financial reporting: 

Depreciation Expense: Waste Management executives saw an opportunity to reduce their annual depreciation expense by manipulating the useful lives for their garbage trucks and other equipment. This tactic spread out the recognition of depreciation expense further into the future and increased earnings in their reporting periods. Without any justification, they also started increasing their salvage values on property, plant, and equipment which further reduced depreciation expense and drove up earnings. 

Capitalizing Maintenance: Waste Management operates hundreds of landfills throughout the United States. A significant portion of the landfill operations are maintenance activities. Under the U.S. GAAP guidance, maintenance activities would typically be expensed as incurred. Waste Management executives started capitalizing their landfill maintenance costs, which deferred the expense recognition and substantially increased profitability in the short-term reporting. 

Environmental Reserve Balances: Waste Management maintained significant environmental reserve balances which were established for future expected cleanup and remediation activities. Executives would purposely inflate their reserve balances during strong quarters and then unwind large portions of the reserve into earnings in weaker quarters. Manipulating the activity in the reserve balances enabled them to meet their earnings expectations when they knew they would otherwise come up short. 

When an internal investigation discovered these irregularities, the Company was forced to restate nearly $2 billion in earnings covering 1992 through Q3 1997. The SEC launched their own investigation and concluded that Waste Management defrauded investors out of $6 billion due to the scandal. The fraud also had a major impact on their auditor, Arthur Anderson, who was levied with a $7M fine from the SEC. 

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