Essay about Phar Mor Inc Case Study

1184 Words5 Pages
Sean Russi

The Case of Phar-Mor Inc


October 31, 2012

Case Summary

The case of Phar-Mor Inc was one of the biggest pre-Enron frauds that have been uncovered. Phar-Mor Inc established in 1982 Phar-Mor was a small little known discount drugstore. Phar-Mor became well known for offering medications at a 25-40% discount rate compared to your normal pharmacy store prices. Phar-Mor’s first six years of existence seemingly were fraud free and saw the company grow at a decent pace for their field. By 1987 Phar-Mor almost had 100 stores and was expanding even more rapidly at this point.

The first hint of fraud came up and was discovered being a billing type scheme
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At the time of discovery Phar-Mor was overstated by over a $150 million dollars and had no other choice but to file bankruptcy.

Could SOX have prevented the Phar-Mor fraud? How? Which specific sections of SOX?

During the time period that the Phar-Mor fraud took place it was one of the most elaborate frauds of the 1980’s so could SOX prevented the fraud? The answer is debatable because of the extent that Phar-Mor went to cover up the fraud it may have taken several years still to uncover it however, in the long run I do believe SOX would have prevented the fraud from lasting almost a full decade without being detected, and would not have been uncovered had it not been for a whistle blower. I think the most important sections of SOX that would have helped uncover the fraud at Phar-Mor are as follows

- Section 203 – Which deals with the auditors and any possible conflict of interest if they had worked with Phar-Mor in the last calendar year they would have not been able to be the same auditors doing final audits of the company.

- Section 206- Which states that any auditor who had previously worked for the firm and now works for Phar-Mor would cause the firm to not be able to have Phar-Mor as a client. Phar-Mor had 3 former employees of the audit firm who worked for them which allowed them the knowledge to know that the

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