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Saks Fifth Avenue Case Study

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Message | : | Key facts of the case Comptronix Corporation provided contract manufacturing services to original equipment manufacturers in the electronics industry. The company was formed in the early 1980s and suffered several years of losses until receiving an infusion of capital from a venture capitalist in 1987. The company went public in 1989. Three of the senior executives at Comptronix fraudulently issued financial statements for 1989, 1990, and 1991, before confessing in 1992 to their shenanigans. The chief executive officer (CEO), the chief operating officer (COO), and the controller/treasurer, who were all founders, colluded to record fictitious assets and profits by overriding existing internal controls. Top company executives began the fraud by understating cost of goods sold and overstating inventory in the interim financial statements filed in Form 10-Qs with the Securities and Exchange Commission (SEC). Due to concerns that the auditors might detect the interim misstatements, the executives reversed those transactions at year-end but then booked fictitious sales and receivables to overstate annual assets and income. To make the fictitious sales and receivables appear legitimate, top management prepared and recorded cash payments for fictitious equipment purchases and then re-deposited those cash payments as cash receipts from the fictitious accounts receivable customers.  Top executives were able to maintain the fraud by overriding established controls and recording transactions without required documentation. The fraud scheme allowed Comptronix to show an annual profit in each of the fraud years, when in actuality Comptronix was incurring net losses. Sales were overstated by as much as 14.9% while stockholders? equity was overstated by as much as 111.3%....

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