Waste management accounting scandal wikipedia

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Question 1: The Case of Phar-Mor Inc. Summary of the Case The Phar-Mor Inc. scandal

presented one of the largest accounting fraud cases. Many people were involved in the

scandal which makes it unclear whether it could really have been averted. An

investigation of the company indicated that it had fictitious inventory.

In addition to this, there were fund diversions as well as fraud cover-ups conducted by

the executive of the company. This cost the investors millions of dollars. The initial sign

that the company was running into financial hurdles was seen in 1988 when the

investigations showed that the company was receiving lower-than-expected profit

margins. This was as a result of the company being billed of for the stock/inventory that

it had not received from Tamco (Its sister company and primary supplier).

Phar-Mor Inc. was not keeping accurate records regarding the purchases of stock from

Tamco. Therefore, the business entity's profit margins were negatively affected due to

the missing inventory (Williams, 2011). SOX Ability to Prevent the Phar-Mor Fraud Case

SOX could have effectively averted the fraud.

To start with, section 203 of the Sarbanes-Oxley (Title II, Audit Partner Rotation) could

have ensured that the auditor is rotated. Therefore, there is a possibility that the new

auditor would have participated in the fraud. In addition to this, the rules provided in

section 206 of the SOX (Title II, Conflicts of Interest), could also have assisted in

preventing the fraud.

The section prevents the rehiring the of the previous company employees by the

management. Therefore, it could have eliminated the rehiring of the former employees

who assisted the management in carrying out the fraudulent activities (Williams, 2011).

Question 2: The Waste Management Scandal Summary of the Scandal The Waste

Management Inc.

fraud scandal which took place in the late 90s also form part of the major accounting

fraud or corporate scandals ever recorded in history. The scandal involved the inflation

of the organization's profits. Furthermore, the organization concealed more than $1.7

billion. Most of the members of the organization took part in the fraudulent activity and

gained millions from them. Waste Management Inc.

also misrepresented its expenses, causing an appreciation of the value stated in their

books instead of a depreciation. Most of the entity's expenses were concealed or

wrongly represented in the financial statements. The fraud was perpetrated by the

company executives including the CEO, who gave instructions on the earnings to be

represented, and the CFO, who concealed the evidence of the fraud.

The corporation controller manipulated the accounts to meet the set profit targets,

while the general counsel approved of the fraudulent representations (Sift Media, 2002).

The Ability of Sarbanes-Oxley to Prevent the Scandal The Sarbanes-Oxley was faced with

the same issues as that of Phar Mor. For this reason, the SOX had the capacity to deal

with this fraudulent acts. SOX could have attempted to stop these acts among the

company leaders.

However, considering the high involvement of these managers in the fraud, they may

have continued to act inappropriately. With the help of the SOX, nonetheless, the fraud

may have been exposed sooner, preventing further effects of these crimes on the

organization's stakeholders (Sift Media, 2002).

Question 3: The Enron Scandal Summary of the Case The Enron Energy Company

scandal is one of the largest accounting fraud cases to be recorded in the 21st century.

The corporate scandal came to light in 2001 after the company was declared bankrupt

followed by the launching of criminal investigations by the Justice Department. The fall

of the business enterprise began in 2000.

The Chief Executive Officer of the entity, Jeffrey Skilling together with the CFO, Andrew

Fastow, had devised a means for hiding the losses incurred by the enterprise. The

company's Chairman, Kenneth Lay, also participated in this fraudulent activity. The fraud

was committed using the mark-to-market accounting technique. With this approach, the

company measured the value of its assets using the market value rather than the book

value.

The management will acquire new assets and immediately claim the forecasted profits

on its financial statements. In case the asset earned fewer profits compared to the

forecasted amount, the management would transfer it to an off-the-books business

entity (Special Purpose Entity or SPE). This enabled the enterprise to write off those

business operations which were hurting its profit margins (Li, 2010).

The Ability of SOX to Avert the Scandal If Sarbanes-Oxley could have been in effect by

the time the Enron Energy Company scandal was happening, the rules and standards

that it provides could have assisted in preventing the accounting fraud. This is so

because it could have deterred the fraudulent activities conducted by the top executive

of the company.

If the auditor of the company had been rotated, the fraud would have been prevented.

The reason is that it would have interrupted the plan devised by the management to

hide the losses. However, the drawback is that it relies on chance or the probability that

the new auditor is ready to report the fraudulent activities. References Li, Y. (2010).

The Case Analysis of the Scandal of Enron . International Journal of Business and

Management , 37-41. Sift Media. (2002, May 27). SEC sues former Waste Management

officers for fraud. Retrieved from Accounting Web:

https://www.accountingweb.com/aa/auditing/sec-sues-former-waste-management-offic

ers-for-fraud Williams, S. L. (2011). The Case of Phar-Mor Inc.: Could SOX Have

Prevented the Fraud? The CPA Journal , 58-63.

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