Jack Greenberg Inc Case Study
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Jack Greenberg, Inc. (JGI) was a family-owned meat and cheese distribution business. It marketed a variety of meat, cheese, and other food products along the eastern seaboard of the United States from its Philadelphia headquarters. When Jack Greenberg passed away, his two sons, Emanual and Fred, became equal partners in the business. Emanual took the role of president and Fred the role of vice president of JGI. Emanuel realized that JGI needed to develop a more formal accounting and control system; consequently they hired Steve Cohn to be the controller.
Cohn immediately made necessary changes to better JGI. He engaged in the challenging assignment of creating a modern accounting and control system. He implemented new policies and procedures that provided for segregation of key responsibilities within JGIs operations. The most important change that Cohn implemented was developing an internal reporting system that produced monthly financial statements the Greenbergs could use to make more timely and informed decisions for their business. Although Cohn made many changes that help improve the operations of JGI he failed to modernize the companys accounting and control procedures for prepaid inventory. He did however attempt to restructure and computerize the accounting and control procedures for prepaid inventory but Fred Greenberg refused to cooperate.
In the case of Jack Greenberg, Fred manipulated the numbers in the prepaid inventory account for many years. He claims that he did it for his fathers sake due to the fact that his father was very ill. He wanted to avoid aggravating his fathers illness subsequently he began his fraudulent activity so that his father would feel better about the business. After his fathers death, Fred had yet another reason to continue scheming and then another reason.
Fred would overstate prepaid inventory by destroying the delivery receipts when they were given to him by the warehouse manager and neglected to update the prepaid inventory log for the given shipment. He would then prepare a new delivery receipt weeks or months later when suitable for Fred. The dates were being manipulated in order to make it appear that the companys operations generated the same financial performance from period to period. He would determine how much inventory needed to be in prepaid inventory in order for the percentages of gross profit and net income to remain consistent.
Grant Thornton was JGIs independent auditor for many years starting from 1986 to 1994. They neglected to detect Freds fraudulent activities throughout the years. Although Grant Thornton requested the prepaid inventory log each year and advised JGI to set up prepaid inventory on a personal computer to reduce the risk of loss should a problem occur they did not enforce additional documentation such as the Form 9540-1 to better support their opinion. Grant Thornton should