Fraud Case on Phar-Mor, Inc.

Introduction
Phar-Mor, Inc. was one of the top ten deep discount store that grew rapidly in a short period of time during the 1980s. Phar-Mor pricing strategy was to sell products at an even greater discount than other deep discount stores like Wal-Mart. While the practice of selling at such low cost attract customers, Phar-Mor was experiencing losses. The prices were cut so low that profit would not be generated. And this was how the fraud began. To prevent the truth from damaging Phar-Mor’s appearance, the president and other top management employees decided to cook the books by using creative accounting practices that were against the rules of GAAP and GAAS. Other than that, there was also an embezzlement of cash by the president and CFO of Phar-Mor. When the fraud was finally uncovered, investors have lost over one billion dollars, and the fraud was estimated to be over $500 million. Soon afterwards, Phar-Mor had to file for bankruptcy. By the end of the month, Phar-Mor had to lay off over 10,000 of their employees and close over 100 of their stores all across the state. Several charges were filed against Phar-Mor’s top executives and auditors. By the end of the trial, the financial statement fraud that occurred in Phar-Mor was deemed to be one of the largest corporate scandal recorded in history.

Background
The first Phar-Mor store was opened in Cleveland by Mickey Monus in 1982. According to JRO, Monus was the son of a businessman and World War II veteran Nathan Monus. He grew up in a privileged world. And after seeing the “impact of the loss of blue-collar jobs in the auto, tire, and steel industries in the Youngstown and Cleveland areas,” he had an idea “to open a chain of low-cost discount pharmacies.” And Phar-Mor was the product of his determination.

Phar-Mor was a deep discount store that sold products at a much