Phar-Mar Inc. Accounting Scandal
Summary
Phar-Mor, Inc. was a deep-discount store that had substantial growth in a short period of time. It started with 15 stores and grew to over 310 stores in thirty two states between 1985 and 1992. At first Phar-Mor was seen as a major prospect in the retail market. With sales of over $3 billion and growing, Phar-Mor's success even worried some of the biggest retail giant, including Wal-mart. The president, founder, and COO of Phar-Mor was Mickey Monus, who became quite extravagant with his money as Phar-Mor grew. The key to the company's success was "power buying" a phrase coined by Mr. Monus, it was a practice of stocking up on products when suppliers where offering rock-bottom prices. After using this "power buying" strategy Phar-Mor then sold the products at deep discounts, beating any competitor's prices. This practice was indeed a key practice that attracted many price conscious consumers and led to the company's rapid success. However, the deep discount prices where so low that eventually Phar-Mor was no longer able to turn up a profit. In fact, it is believed that there were no profits generated after 1987. This is how the problem began, because Monus and other executives did not want the truth about there losses to damage the success and favorable reputation of Phar-Mor, they began to use imaginative accounting practices to hide their losses on the financial statements. Phar-Mor's cover up and fraud was very extensive and went on for many years without being uncovered. In fact, Phar-Mor was deemed a hot commodity and attracted many large investors. These investors were eager to invest and willingly forked over more then $1.14 billion for further growth. These investors included some big names such as Westinghouse, Sears Roebuck & Co., Edward J. De Bartolo, and Lazard Freres & Co. The fraud was extensive and involved inventory overstatements, misappropriation of assets, and fraudulent financial reporting. The interesting thing was that
Phar-Mor, Inc. was a deep-discount store that had substantial growth in a short period of time. It started with 15 stores and grew to over 310 stores in thirty two states between 1985 and 1992. At first Phar-Mor was seen as a major prospect in the retail market. With sales of over $3 billion and growing, Phar-Mor's success even worried some of the biggest retail giant, including Wal-mart. The president, founder, and COO of Phar-Mor was Mickey Monus, who became quite extravagant with his money as Phar-Mor grew. The key to the company's success was "power buying" a phrase coined by Mr. Monus, it was a practice of stocking up on products when suppliers where offering rock-bottom prices. After using this "power buying" strategy Phar-Mor then sold the products at deep discounts, beating any competitor's prices. This practice was indeed a key practice that attracted many price conscious consumers and led to the company's rapid success. However, the deep discount prices where so low that eventually Phar-Mor was no longer able to turn up a profit. In fact, it is believed that there were no profits generated after 1987. This is how the problem began, because Monus and other executives did not want the truth about there losses to damage the success and favorable reputation of Phar-Mor, they began to use imaginative accounting practices to hide their losses on the financial statements. Phar-Mor's cover up and fraud was very extensive and went on for many years without being uncovered. In fact, Phar-Mor was deemed a hot commodity and attracted many large investors. These investors were eager to invest and willingly forked over more then $1.14 billion for further growth. These investors included some big names such as Westinghouse, Sears Roebuck & Co., Edward J. De Bartolo, and Lazard Freres & Co. The fraud was extensive and involved inventory overstatements, misappropriation of assets, and fraudulent financial reporting. The interesting thing was that