F&C

International,
Inc
Andrea Mitchell
• Ohio fastest flavor
growing corporation,
located in Cincinnati.
• Common stock traded on
the NASDAQ stock
exchange.
• Jon Fries president and
CEO of F&C
International, Inc.
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 The Fraud
• Jon Fries and executives exaggerated F&C International Inc.'s periodic
operations by inflating sales revenues by backdating valid sales
transactions, shipping customers products they had not ordered, and
recording bogus sales transactions.
• They overstated period-ending inventories by filling barrels with water and
labeling them as containing flavor products.
• They created a imaginary warehouse Q that helped manipulate that
nonexistent inventory.
• Company executives used F&C's misleading financial statements to sell
equity securities and to obtain significant bank financing. 3
 Division Controller
• CPA Catherine Sprauer became the
controller of F&C’s Flavor Division.
• Sprauer helped prepare the MD&A
sections of F&C’s periodic financial
reports submitted to the SEC.
• She recognized the fraud, the
imaginary inventory, and alarmed
F&C’s chief operating officer (COO).
• Many employees offered proof of
fraud to Sprauer, and she decided to
ignored it. 4
 Chief Operating
Officer
• Fletcher Anderson was the F&C’s chief
operating officer.
• Anderson recognized innumerable
suspicious transactions in F&C’s financial
statements.
• Anderson noticed the errors in sales
shipments that inflated the reported
earnings.
• Anderson realized the imaginary flavor
products that should be stored in
warehouse Q, proving the company's
inventory problems. 5
• Craig Schuster was the F&C’s chief
financial officer.
Chief Financial
• Schuster supervised the financial
Officer
statements and 10-K reports.
• Schuster was aware of problems in
sales shipments, the wrong inventory
classification, the problems in F&C’s
accounting records, and all the
inventory related to warehouse Q. He
realized the sales revenue
prematurely.
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 • The federal agency criticized the controller, COO, and CFO because
they all knew about the fraud, leading to wrongful financial reports,
the wrong handling of overstated inventory, and inflating sales
revenues.
Fraud was • SEC reprimanded them for not creating internal controls to help
discovered prevent the inflating sales revenue and the overstated period-ending
inventories.

• F&C International filed for bankruptcy shortly after the fraud became
public, and all four executives faced fines and jail time. 7
 Questions
1. After examining F&C International, Inc., how important is the professional ethics of all
the executives and controllers for any company? Ethics is vital for all executives and
employees of the company to create, guide, and follow the rules and laws crucial for the
company's success. Executives need to live by example and have a personal ethical life
as well as a professional one. Ethics is vital in their professional actions, so in their work
performance, they avoid carrying out practices that harm their profession and, thus, third
parties since bad practices harm F&C International, Inc. and its employees. After
examining F&C International, Inc. fraud. Can federal agencies force companies to create
internal controls?
2. Federal agencies enforce laws and regulations such as the Exchange Act; this enforces
that every company needs to report their internal control report from management, such
a statement of management's responsibility that the executives must create and maintain
internal control and procedures for financial statements. Also, enforce Section 404,
which requires public audits to test internal control and make sure the company is
following its internal controls.
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