Administrative Proceeding File No. THAT proceedings pursuant to Section 21C of the Exchange Act be, and they hereby are, instituted. During the second quarter of fiscal year 1992, Perry's customary cycle inventory counts at small groups of stores disclosed apparent above-normal shrinkage in certain merchandise categories.
Shrinkage represents the difference between the physical inventory and the estimated inventory.
Under Stone's direction, Perry immediately began an internal investigation and subsequently consulted with retail accounting and risk management experts to determine the cause and whether such shrinkage did, in fact, exist. As the investigation progressed, Perry eliminated system failure, fraud and theft as reasons for the problem. However, it was unable to determine any reason for the apparent substantial shrink. Perry's financial statements filed with its 1992 Form 10-K did not accurately reflect the value of Perry's inventory at that time because it included, as an asset, the unverified inventory. Stone, as Perry's CFO, signed the Form 10-K filed with the Commission.