The Phar-Mor case again involves a retail enterprise, inventory overstatements, and both fraudulent financial reporting and misappropriation of assets. The auditors completely failed to discover the fraud, missing the many warning signs and ignoring the high-risk elements of the engagement. Yet again, the scrupulous, yet dedicated, fraudsters showed that they were capable of fooling everyone for an extended period of time. Until recent years, remained one of the largest US corporate frauds of all time.
The low prices led to huge losses, which in turn spurred the accounting shenanigans. Under the guise of a growing, profitable retail venture, investors, such as Sears Roebuck & Co. and the Corporate Partners Investment Fund, willingly contributed capital to further the growth. However, 1987 was the last year the company would actually earn a
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The collective effort of the senior executives resulted in financial statements that were misstated by over $500 million. “Phar-Mor’s executives had cooked the books and the magnitude of the collusive management fraud was almost inconceivable. The fraud was carefully carried out over several years by persons at many organizational layers, including the president and COO, CFO, vice president of marketing, director of accounting, controller, and a host of others” (Beasley Auditing 27).
Overstating inventory was at the heart of the Phar-Mor fraud. To hide the losses and make the books balance, inventory was grossly overstated. Accompanying the chain’s rapid expansion, inventory grew from a paltry $11 million in 1989 to $36 million in 1990 to $153 million in 1991. Despite the considerable growth and reflective of the company’s limited use of MIS, Phar-Mor did not utilize a perpetual inventory system. The company relied on the retail method to value
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
The fraud had started since 1999 to November 2006, somewhere around 78 retail owners and 131 retail employees had won lottery prizes which were worth around tens of millions of dollars (Marin, 2007). During the seven year period 200 out of 5,713 prizes were retailer wins. The OLG in 2004 found, that retailers would scratch the surface of the instant win tickets to see if they would win. The OLG found 67 scratched tickets from Oakville at one location (Richmond, 2007). Corporation was already familiar of the fact that customers with winning tickets could be cheated by retailers; they were in fact more disturbed about the media and they were setting a bad impression. According to the article “Report Rips OLG in Fraud”, to restore public trust
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 “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.
Hanson, J. R. (n.d.). Fraud or confusion? RDH Magazine, 19(4). Retrieved 3 15, 2014, from http://www.rdhmag.com/articles/print/volume-19/issue-4/feature/fraud-or-confusion.html
fraud – three in the Rigas family, two other executives held, accused of mass looting. The
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA
Embezzlement has become more common in the last few years. No one knows for sure whether the problem has increased due to the bad economy, less ethical behavior among employees or other attitudes toward the government or businesses in general. Charleston, South Carolina is no exception to the rising number of fraud cases. Every year more cases are being discovered and exposed to the public. One such case is the embezzlement of cash from a county owned garage. The embezzlement case of Martina Moultrie Richardson will be discussed as well as types of evidence desired in this case, methods/procedures for gathering the evidence and procedures for cataloging and maintaining the evidence.
Giroux, G. (Winter 2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social Research, 75, 4. p.1205 (34). Retrieved June 16, 2011, from Academic OneFile via Gale:
Due to such lack of monitoring, management continued to be unaware of such transactions that continued to impact the company negatively. This provided the Rigas family many opportunities to override controls since the lack of corporate governance enabled the decisions to be made by Rigas family without oversight. For example, the article “Adelphia Officials are Arrested, Charged with ‘Massive’ Fraud” discuses how Timothy Rigas had to limit himself to $1 million a month of compensation that was withdrawn from the company for personal use. All decisions were continuously made by such members of the family, in which case for Adelphia, was the team of management. With the lack of controls creating opportunity, they were free to do what they wished- which is something they took incredible advantage
Prior to 2000, Enron was an American energy, commodities and service international company. Enron claimed that revenue is more than 102 millions (Healy & Palepu 2003, p.6). Fortune named Enron “American most innovative company” for six consecutive years (Ehrenberg 2011, paragraph 3). That is the reason why Enron became an admired company before 2000. Unfortunately, most of the net income for the years 1997-2000 is overstated because of unethical accounting errors (Benston & Hartgraves 2002, p. 105). In the next paragraph, three main accounting issues will identify for what led to the fall of Enron.
The Hollate Manufacturing case provided by Anti-Fraud Collaboration has well illustrated how several common issues in an organization contributed to the fraud’s occurrence. These issues can be categorized into two major groups: ethical culture (internal aspect) and internal control system (external aspect). By taking effective actions to enhance these two aspects, an organization can protect itself against the largest frauds, which result in financial and reputational damage.
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
They were committing fraud by creative accounting, acting illegally when using insider trading and shredding their documents relevant to the investigation. Next, consider the stakeholders. Anyone who owns stock in the company would suffer, along with every employee. Under the values bullet we can assume that they have none. Greed and power got the better of every one of them.
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.