Phar Mor Fraud

ACCT 4327.01 (Group #3)
Anakaren Rios
Abel Martinez
Madelein Torres
Phar-Mor

Originated in Youngstown, Ohio, Phar-Mor was a discount drugstore chain founded on 1982 by Michael Monus. Due to its success, David Shapira jumped on board and became the CEO. The company grew from 15 stores to 310 in less than 10 years, but mostly due to the greed of its chief operating officer, Michaels Monus. The reason they grew so much was because their prices were 20 to 40 percent lower than the market. Inside the company, Monus decided to hire young man who lacked experience but made up for it with loyalty for the boss. For example, Patrick Finn, who was the CFO, initially informed Monus about the alarming losses the company incurred in 1989. Since his power buying technique (buying from

Monus response was to fix the numbers before Finn showed the reports to Phar-Mor’s board of directors, and because this was an internal paper it didn’t make it illegal.
The fraud consisted in misappropriation of assets, falsification of financial statements, and Phar-Mor’s relationship with its suppliers. Monus initially distributed the losses into the hundreds of other Phar-Mor stores as increase in inventory by issuing fake invoices and manipulating the cost of goods sold. Phar-Mor also counted with two sets of books, one with the real losses and another one with the fraudulent information that would be shown to the auditors. These transactions failed to be detected by their auditors, Coopers & Lybrand, whom would notify Phar-Mor in advance about which stores they would visit to observe inventory. Another misappropriation of assets included the investment of $10,000,000 of Phar-Mor’s funds into Monus’s personal projects, like the World Basketball League. Other important aspect of Phar-Mor’s fraud case was the fact that supplier companies were also involved. Tamco, a Phar-Mor’s supplier, began to send incomplete shipments while Phar-Mor wrote them down for the