Kmart Fraud

The case describes that, "...the accounting system could not be locked at the end of the month and there was no audit trail. Sachdeva and Mulvaney were thus able to make undetected post-closing changes to the books and bypass an internal control requiring Michael J. Koss to authorize those changes". These post-closing changes may be false entries done to hide theft during the accounting period. Further, because the reconciliations were done by the same people who initiated or recorded the transactions, the fraud could be covered up. For example, had one of them made an unauthorized purchase at a retail store where the expense were obviously not business related, they could have assigned the expense or expense description to a vendor where the transaction amount would have been normal. If the accounting system was not locked, they could have also just posted the transaction date back to a prior period that isn't likely to be reviewed.

Phar-Mor, Inc was a thriving discount grocery store in the late 1980’s. Phar-Mor was moving product quickly but profit margins were not significant enough to pay the bills. By the early 1990’s, Phar-Mor declared bankruptcy due to fraudulent financial reporting and misappropriation of assets, making it one of the largest frauds in U.S. history. Below, we will use auditing standard AU 316.85 Appendix A in conjunction with the video “How to Steal $500 million” to analyze how incentives/pressures, opportunities, and attitudes/rationalizations allowed for fraud to start and continue at Phar-Mor.

$8 mill needed to be deducted from net income on the income statement. They should have followed (Following) with disclosure notes to describe why this error occurred and how it impacted the statement and accounts that it touched. For instance, the notes would describe the presence of the correction on the current period of beginning inventory, and retainED earnings.

Receivables system: Five transactions were selected at random from the first three quarters of fiscal 2007 and we found that TCC’s authorization controls over bad debts and recoveries were effective. However, based on information provided by prior year 2006 audit file of the bad debt owed by Kmart and the inability to pay there should be a further investigation into the recovery of the bad debt owed by Kmart in 2007.

This court report is respectfully submitted to update the court on the CRA matter regarding Kevonah Renaud-Harris. On 5/25/2017, Ms. Adrienne Harris, mother of Kevonah filed a CRA. On 5/26/2017, this case was assigned to me to complete a Comprehensive Assessment which is due to be completed on or before 8/21/2017.

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

2. Considering your answer to item 1, the first three exhibits, and related introductory discussion, is it likely that the accounting system may distort product profit significantly? Why? (Ignore general, selling, and admin expense.)

In the case of Phar-Mor fraud, the company was involved in cover up and some accounts were created to hide the fraudulent activities. Bad inventory counts in the stores were made to help with the cover up and deceit about activities that cost hundreds of millions of dollars. (Williams, S.L., 2011)

To adjust unearned revenue for the end f the year for all the stamps that was not redeemed.

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 Coopers&Lybrant 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.

After analyzing Wal-Mart’s annual report for 2010, attention has been brought to several items that require closer examination. A common “red flag” to questionable accounting has been found within Wal-Mart’s statement of cash flows and income statement. There is an increasing gap between the company’s reported income and the cash flow from operating activities. In the year 2008 reported income and cash flow from operating activities differed by $484 million. However the difference increased a considerable $2,249 and $4,183 billion in the years 2009 and 2010 respectively. This increasing gap is a significant warning sign that the company may be changing accrual estimates.

Effective retailing technology allows companies to manage inventory by efficiently storing, shipping, and stocking items that its customers want. Inventory management is the key to a company’s success or failure, and Kmart seems to be the poster child of poor supply chain management. Since as far back as Joseph Antonini’s leadership, Kmart has had logistics issues (Young, 2002). Another recent CEO, Chuck Conaway, went so far as to admit that supply chain management was “the Achilles Heel” of Kmart (Carr & Cone, 2001). This paper will examine how investing in redundancy, having an increase velocity in sensing and responding, and by building an adaptive supply chain community could have reduced the risk that is damaging to a supply chain.

As stated in Exhibit 3, Earnings management is the managerial use of discretion to influence reported earnings. Within the accrual accounting system, managers have significant discretion with their firms’ accounting choices. Management has the ability to make choices that can opportunistically lead to higher or lower reported earnings. Richard 's and Ira Zar’s (CFO) actions would not change if these results were the result of GAAP flexibility because he violated the rules of accounting, the conceptual framework principle of neutrality in numerous ways to report the financial results that CA did under false pretenses. It would be one thing if CA garnered these results through legitimate business decisions versus using accounting tactics like changes in accounting estimates or outright fraud as in the use of the 35 day Month. The purpose of which was solely to allow CA to meet or exceed analysts’ estimates.

Kmart started off as a discount retailer successfully pioneering the same concept as that of F. W. Woolworth. As stores began to grow and diversify, Kmart stepped in and took the lead role in offering a one-stop shopping center that fulfilled everyone's needs. As new niches began to emerge offering larger, more specialized stores, Kmart hit a major hurdle. The successful management strategies it had developed early on were now outdated and in major need of being renovated to coincide with changing market place and customer values. As Kmart attempted to revolutionize its image and infrastructure, stores such as Target and Wal-Mart took over as the leaders in the discount retailer arena. As Kmart's image began to sink

Over the past two years, corporate America has endured a plethora of fraudulent acts committed by those of high status within their respective corporations, most of which involve internal fraud. Internal fraud has two main aspects, misappropriation of assets and fraudulent financial reporting, with the focus of this discussion lying within the former. Misappropriation of assets is defined as fraud for personal gain. It is the most common type of fraud found among employees and frequently includes theft of cash and inventory.