In 1956 Dean Buntrock took control of Ace Scavenger, a garbage collector that was owned by his then father-in-law who had recently died. After merging Ace with several waste companies, Buntrock founded Waste Management in 1968.3 Under Buntrock’s reign as its CEO, the company went public in 1971 and expanded during the 1970s and 1980s through several acquisitions of local waste hauling companies and landfill operators. At one point the company was performing close to 200 acquisitions a year.4 From 1971 to 1991 Waste Management enjoyed 36 percent average annual revenue growth and 36 percent average annual net income growth. By 1991 it had become the largest waste removal business in the world, with revenue of more than \($7.5\) billion.5 Despite a recession, Buntrock and other executives at Waste Management continued to set aggressive goals for growth. For example, in 1992 the company forecast that revenue and net income would increase by 26.1 percent and 16.5 percent, respectively, over 1991’s figures.6 Waste Management’s Core Operations Waste Management’s core solid waste management operations in North America consisted of the following major processes: collection, transfer, and disposal.
Collection Solid waste collection from commercial and industrial customers was generally performed under one- to three-year service agreements. Most of its residential solid waste collection services were performed under contracts with—or franchises granted by—municipalities giving it exclusive rights to service all or a portion of the homes in their respective jurisdictions. These contracts or franchises usually lasted from one to five years. Factors that contributed to the determination of fees collected from industrial and commercial customers were market conditions, collection frequency, type of equipment furnished, length of service agreement, type and volume or weight of the waste collected, distance to the disposal facility, and cost of disposal. Similar factors determined the fees collected in the residential market.7 Transfer As of 1995, Waste Management operated 151 solid waste transfer stations—facilities where solid waste was received from collection vehicles and was then transferred to trailers for transportation to disposal facilities. In most instances, several collection companies used the services of these facilities, which were provided to municipalities or counties. Market factors, the type and volume or weight of the waste transferred, the extent of processing of recyclable materials, the transport distance involved, and the cost of disposal were the major factors that determined the fees collected.........

Case Questions

1. Based on your understanding of inherent risk assessment and the case information, identify three specific factors about Waste Management that might cause you to elevate inherent risk. When identifying each factor, indicate the financial statement account that is likely to be most affected (and briefly discuss why it is most affected).
2. Identify the types of revenue earned (a brief description will do) by Waste Management. Do you believe that any of the different types of revenue earned by Waste Management might be subject to significantly differing levels of inherent risk? Why or why not?
3. Comment on how your understanding of the different types of revenue earned (in Question 2) would influence the nature, timing, and extent of your audit work at Waste Management.
4. For one of Waste Management’s revenue sources (please choose one), brainstorm about how a fraud might occur. Next identify an internal control procedure that would prevent, detect, or deter such a fraudulent scheme.