Rite Aid Scandal Summary

Rite Aid had a major accounting scandal in the late 1990s that led to the departure (and subsequent jail time) of several top ranking executives, including the former CEO Martin Grass, former CFO Frank Bergonzi and former Vice Chairman Franklin Brown had conducted a wide-ranging accounting fraud scheme. Former CEO Martin Grass had plaid guilty and was sentenced to eight years in prison, fined $500,000, and given three years' probation for his role in a billion-dollar accounting fraud. (Grace) Former vice chairman Franklin C. Brown was the only defendant to go to trial; he was sentenced to serve 10-years in a medium-security facility and fined $21,000 with two years of probation. After serving six years in prison, Franklin C. Brown was released on January 18, 2010. (Deseret News) Former chief financial officer Franklyn M. Bergonzi was sentenced to 28 months in prison, former vice president Eric S. Sorkin received five months in jail and five months house arrest, and former vice president Philip Markovitz serve one month in jail, with five months house arrest.

How did former CEO Martin Grass, former CFO Frank Bergonzi and former Vice Chairman Franklin Brown conducted a wide-range accounting fraud?

By deliberately falsification of their financial statements, by Martin Grass, Brown and Bergonzi. Among other things like:
“Applied more than $40 million in "fictional credits" to Rite Aid expense accounts. Made $268 million in "arbitrary" changes to quarterly financial reports. Claimed $75 million in "arbitrarily inflated" or "bogus" merchandise credits from Rite Aid suppliers, such as Revlon and Johnson & Johnson. Improperly recorded $76 million in drug rebates from drugmakers such as Zeneca and Bristol-Myers Squibb. Failed to record $55 million in employee stock grant expenses.” (DiStefano)
Failing to apply internal

controls
Some major internal controls had not, or could not take place was because all of the individuals that were committing the fraud where the ones that were higher up. The ones that were supposed see to that all operation ran efficiency, to ensure accurate reliable accounting records. Do to the fact the all of the executives had worked together with the fraud and helped cover it up is how this was allowed to go on for a longer period of time.

The only way that this illegal/unethical act was detected, was because External Audit had been done and auditors had found many errors in their recording. The only way that this illegal/unethical act can be detect sooner is due to the fact that the SOX act has been developed. Provisions, like company having external Auditors make sure that the internal auditors are following the proper procedures and ethics the PCAOB