Phar-Mor Case Study

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The Case of Phar-Mor

Phar-Mor was a discount drug store chain that opened in Ohio and expanded up to

310 stores, with 25,000 employees, in 34 states. They bought products at a low price

and sold them at “25-40% off retail prices” per “The Case of Phar-Mor Inc.” by William

S. Lansing. Michael Monus was the president, Patrick Finn was the CFO, Jeffrey

Walley was the VP of finance, Stanley Cherelstein was the controller and John

Anderson the accounting manager. Patrick, Stanley and Jeffrey all used to be auditors

At Coopers and Lybrand.

They managed to steal $500 million by moving losses into “bucket accounts”**, they

knew Coopers and Lybrand didn’t look at zero accounts so they would adjust the bucket

accounts to zero in time for the audit. Coopers also told them which stores they would

use for audit testing, only audited 4 out of 312 stores and wasn’t even on site during the

inventory process. This made it easy to create fictional inventory levels spread across

many stores to cover losses.

Also, Phar-Mor paid for World Baseball League expenses, Manos owned 60% of

the teams, and those expenses were moved to bucket accounts.

Could the Phar-Mor fraud have been prevented? There is part of SOX where audit

partners are rotated every 5 years now (Title II). If a partner at Coopers was auditing

when the fraud began in 1989, another would be brought in 5 years later. Either the

new auditor would discover the fraud or

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