Case Study 2 Essay

Submitted By lou1043
Words: 832
Pages: 4

Jack Greenburg Inc. is a whole sale meat company that marketed a variety of meat, cheese, and other food products along the eastern seaboard of the United States. In the early 1980’s due to his health Jack Greenburg decide to place his two sons in charge of the company Emanuel and Fred Greenburg. During the mid-1980’s and early 1990’s the companies prepaid inventory account increased dramatically which set off alarms to the company’s independent audit firm Grant Thornton. After a more thorough investigation Grant Thornton uncovered the company was misstating its prepaid inventory accounts.

Jack Greenburg Inc. is a wholesale meat company founded by Jack Greenburg and based out of Philadelphia, Pennsylvania. Jack Greenburg Inc. was family owned and operated which marketed a variety of meat, cheese, and other food products along the eastern seaboard of the United States. In the early 1980’s Jack Greenburg’s failing health prompted him to place two sons to run day to day operations and eventually after Greenburg’s death, the sons became equal partners of the Jack Greenburg Inc. Emanuel and Fred. Assuming the title as president of the company was Emanuel and Fred was named vice president. Greenburg’s mother was also involved in the company and was part of the board of directors. Like most family owned and operated businesses Jack Greenburg Inc. did not place a great emphasis on internal controls and to run the business relied on their own intuition and the competence and integrity of their key subordinates to manage and control their company’s operations. In the mid 1980’s Jack Greenburg Inc. recorded annual sales measured in the tens of millions of dollars, because the growth of the Jack Greenburg Inc. Emanuel realized the need to implement a more formal accounting and control system and was in search of a new controller. In 1987 Jack Greenburg Inc. hired Steve Cohn a CPA and former Auditor to be their new company controller. After implementing new policies, providing segregation of responsibilities, and an integrated computer processing throughout most of Jack Greenburg Inc.’s operations Cohn failed to modernize the company’s two inventory accounts the prepaid Inventory which prepayments of inventory were debited to, and merchandise inventory account which was where all the inventory that was received for resale debited to. Cohn realized that inventory could be misstated by this processes and developed a new way to organize these accounts and gave this proposal to Fred Greenburg who oversees the prepaid inventory account but Fred refused to cooperate. In the early 1990’s Jack Greenburg Inc. was being audited by Grant Thornton firm and Grant Thornton realized an dramatic increase in the company’s prepaid inventory account and looked further into this they failed at first to realize that the prepaid inventory was being double counted and not until the next years audit they found out about Fred misstating the inventory and he confessed to his brother Emanuel. He confessed that overstating the prepaid inventory would understate cost of goods sold and overstate gross profit and net income. He did this help compete with larger wholesalers.