Phar-Mor Case Study - 1439 Words

Phar-Mor was known as one of the major discount chain retailers in the late 1980’s - early 1990’s. It was founded by Mickey Monus, a gambler in nature, who with the help of senior management was â€Å"cooking the books† for years to cover up his loses. The reason why senior management agreed to do this fraud is the belief in unique ability of their leader to fix everything later on. This case is known as one of the biggest accounting frauds in the corporate history of the U.S. This paper will analyze who was affected by this fraud, the motives behind it and what systems of control failed to prevent it. The major groups that were directly affected are investors, employees, and suppliers. Here we should make the distinction between different†¦show more content†¦As in the case with Enron, auditors didn’t do their jobs. In this case, the auditing company was CoopersLybrant. In order to realize the fraud, Mickey Monus and other had to put all their losses into expense accounts and come up with the way of boosting their asset accounts. They came up with an idea of inflating inventory. This wouldn’t be possible to do if CoopersLybrant wouldn’t do their job negligently. As video states, they were the lowest bid on Phar-Mor’s case, so they didn’t want to spend too much money on their audit. As a result, they checks only 4 stores out of 129. Moreover, they told Phar-Mor’s management in advance which stores will be checked. So, using diagrams, this is what happened: I. Inflation of Inventory: What happened: Millions of dollars in losses were split among the 129 stores and put as an expense on each stores balance sheet -. In order to balance the expenses, management had to boost its assets by inflating inventory - The auditor CoopersLybrant checked only 4 stores out of 129 in order to safe their money. In addition, they told senior management which stores they will check - Phar-Mor prepared the inventory in accordance with its balance sheet - The auditing firm was unable to uncover the fraud. The proper way: CoopersLybrant should have checked more stores and not tell the management in advance which one they would check. - According to Inventory countingShow MoreRelatedCase Study : Phar Mor s Assets787 Words   |  4 PagesExecutives misappropriated Phar-Mor’s assets, directing over $10 million to Monus’s now defunct World Basketball League (WBL). With the league failing and fan attendance dwindling, Monus was forced t o use Phar-Mor funds to cover numerous WBL expenses. When a Phar-Mor check was sent directly to a WBL vendor, the fraud began to unravel. CEO David Shapira announced the fraud in August 1992. Phar-Mor maintained 91 related parties, as identified after the fraud. 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