ABSTRACT
Arthur Andersen’s home office in Chicago was less than 10 miles from Waste Management’s Oak Brook, Illinois headquarters. And the two firms shared more than a telephone area code. Fourteen former Andersen auditors worked at Waste Management during the 1990s, often in key financial and accounting positions. Every Waste Management chief financial officer and chief accounting officer from 1971 to 1997 was an Andersen alumnus. Andersen partner Robert E. Allgyer took over theWasteManagement audit in
1991. Shortly after Allgyer’s appointment, Waste Management froze Andersen’s audit fees at their 1990 level while allowing Andersen to earn additional revenues for “special work.” During the next six years, Andersen collected $7.5 million in audit fees and $11.8 million for other services. Allgyer, who also served as the marketing director of Andersen’s Chicago office, was compensated, in part, based on his firm’s total billings to Waste Management. Andersen auditors identified hundreds of millions of dollars of misstatements
in Waste Management’s 1993 through 1996 financial statements without insisting that the misstatements be corrected. SEC commissioner Laura Unger inferred that Andersen’s willingness to condone Waste Management’s flawed accounting might have been related to Waste Management’s payment of high nonaudit fees and employment of Andersen alumni. She cited Andersen’s flawed audits of Waste Management as justification for stricter auditor independence requirements.
