1 Just For Feet Chuck Boguslaski Martin Cullen Dean Moore.

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Presentation transcript:

1 Just For Feet Chuck Boguslaski Martin Cullen Dean Moore

2 Just For Feet Overview Single store founded in Birmingham, AL in Went public in Second largest footwear retailer in USA by 1999 with annual sales of $775m. Combined 1997 and 1998 profits of $35m of which 25% believed fraudulent. Distressed sale to Footstar Inc for $72m. $708m of public shareholder value destroyed (insiders sold $50m of stock in that time).

3 Fraudulent A/R and Net Income % Pre-Tax Income 9% 18% 5%

4 “Rogers Rebate” Pays Rogers for $1M in ads Rogers places ads with media outlets for $850K and earns the difference Pays Rogers for $1M in ads JFF retains the remainder ($1M- fixed fee) Rogers agrees to fixed fee Fixed fee < $1M – media fee Media Outlets Rogers Advertising Just For Feet Typical ArrangementRogers Rebate $1M Media fee $1M Media fee Rebate

5 Timeline 1) “Rogers Rebate” fraud scheme begins with $730k 2) Backdate another $3mm for ) How about another $5.3mm? 4) Just overbook us so that we can pay ourselves back the $5.3mm 5) But just to make things look better, let’s book a false $2.27mm receivable from Adidas. 6) Uh oh,..no cash. Let’s just file for bankruptcy

6 Six Executives Plead Guilty Just For Feet -Adam J. Gilburne, President Superstore Division -Steven Davis, Advertising Director Fila USA –Jon Epstein, CEO Adidas-Salomon AG –Timothy McCool, former U.S. Sales Director Converse –Steven Dodge, former VP of U.S. Sales Logo Athletic –Thomas Shine, former President

7 Controls Look for spikes in A/R at year/quarter end –Also, unexplained decrease in A/R turnover Investigate large A/R transactions –Or, increases in A/R as a percent of sales Check for back-dated transactions Perform audit confirmation letters –But don’t assume your dealing with angels Understand the business! –Examine advertising expenses and the associated A/R from advertisers –Why would Just For Feet record an A/R from their advertising firm???