{"id":16483,"date":"2010-01-19T06:00:07","date_gmt":"2010-01-19T12:00:07","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=16483"},"modified":"2015-04-28T18:46:51","modified_gmt":"2015-04-28T23:46:51","slug":"accountants-cite-lessons-learned-in-koss-scandal","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/accountants-cite-lessons-learned-in-koss-scandal\/","title":{"rendered":"Accountants Cite Lessons Learned in Koss Scandal"},"content":{"rendered":"

\"\"Eric Decker – BizTimes.com<\/em><\/p>\n

How could one corporate executive make more than $30 million in unauthorized transactions over four years without anyone else on the company\u2019s leadership team or its third-party accounting firm being aware of the embezzlements?<\/p>\n

That is among the questions law enforcement investigators are asking as they sort through the criminal allegations facing Sujata Sachdeva, former vice president of finance and secretary of Milwaukee-based Koss Corp. Sachdeva\u2019s employment was terminated by the firm in December, and investigators have confiscated more than 22,000 items as evidence, including high-end women\u2019s clothes and bags.<\/p>\n

Investigators are determining how the purchases eluded the company\u2019s corporate leadership team and Grant Thornton LLP, its former independent accountant.<\/p>\n

Several Milwaukee-area certified public accountants and financial examiners interviewed by BizTimes Milwaukee said Koss Corp. did not appear to have the proper check-and-balance system needed to prevent the alleged embezzlements.
\n
\nTracy Coenen, fraud examiner, forensic accountant and founder of Milwaukee-based Sequence Inc.<\/strong>:<\/p>\n

\u201cIt\u2019s clear that she had too much autonomy and that the other members of the executive team were not watching over her and her work,\u201d she said. \u201cShe\u2019s the top financial person in the company. They needed to have the other executives on a peripheral level so that she\u2019s not operating completely on her own.\u201d<\/p>\n

It is easy to blame Grant Thornton LLP for missing the graft, Coenen said. However, the auditing process is limited in scope and can easily miss sophisticated theft schemes, she said.<\/p>\n

\u201cAudits are of limited usefulness \u2013 the scope of work is so small and is done in such a compressed time, usually at the end of the year,\u201d Coenen said. \u201cAnd the work that auditors do is predictable.\u201d<\/p>\n

In Coenen\u2019s opinion, Sachdeva was probably able to conceal much of her fraudulent activity in Koss Corp.\u2019s cost in goods sold accounts \u2013 areas that typically have large numbers of transactions and a high degree of cost fluctuation.<\/p>\n

\u201cIf there are variations in those numbers, you can say they are material costs or other things. It\u2019s something that\u2019s very easy to explain away,\u201d she said. \u201cThe auditors aren\u2019t close enough to the business to question that. That\u2019s just not something auditors will look at in that line item. That\u2019s where management needs to be involved.\u201d<\/p>\n

Anita Ford, chief practice officer at Wauwatosa-based Clifton Gunderson LLP:
\n<\/em><\/p>\n

Sachdeva\u2019s long tenure and high position within Koss Corp.\u2019s management team were what likely allowed her to allegedly spend so much money for such a long period of time, Ford said.<\/p>\n

\u201cI\u2019ve been in this profession for a number of years and have seen frauds both large and small,\u201d Ford said. \u201cTypically, the higher up the perpetrator is in the organization, the bigger in terms of dollars and the longer the period of time it can be concealed because they have such power to control things. One of the areas where it is difficult to uncover fraud is where you have top level management concealing it and lying to auditors.\u201d
\n
\nLiz Kaiser, shareholder and CPA at the Brookfield-based Winter, Kloman, Moter & Repp S.C.<\/em>:<\/p>\n

A lack of proper checks and balances to prevent embezzlement and related financial crimes is relatively common in companies that have less than $100 million in annual revenues, Kaiser said.<\/p>\n

\u201cIf all of the abilities (to write checks and transfer money) is given to one person and no else looks at the transaction, that\u2019s a significant risk for fraud,\u201d Kaiser said. \u201cWe like to see a separation of duties where more people are doing different functions.\u201d<\/p>\n

For example, owners of smaller companies should look at as many checks and financial statements as possible, if they have someone else who writes checks. Business owners also need to be skeptical, even of their closest employees, Kaiser said.<\/p>\n

John Lauber, president of Milwaukee-based Lauber CFOs:<\/em><\/p>\n

A proper checks and balances system should involve managers from multiple departments examining each other\u2019s financial statements, Lauber said.<\/p>\n

\u201cYou should be having somebody responsible for reviewing them who does not have transactional authority,\u201d Lauber said. \u201cIt should be someone who doesn\u2019t have the authority to sign checks and approve and reviewing disbursements. You should also have good financial information and budgets in place that would show expected results and comparing them to actual, and you then follow up on differences. It\u2019s having a little of that auditor\u2019s inquisitiveness.\u201d<\/p>\n

Marc Courey, director of litigation support, fraud and forensic services with Wauwatosa-based Wipfli LLP:<\/em><\/p>\n

Both publicly traded and privately held businesses need to have the proper systems of checks and balances in place to prevent and catch fraud, Courey said.<\/p>\n

\u201cThe reality is that at most businesses, until something like this occurs, they feel like this would never happen at their business,\u201d he said. \u201cThe most important thing is that businesses have to realize they need to be ever vigilant. Every business is susceptible.\u201d<\/p>\n

Employers should closely examine their employees who could be most likely to begin stealing by simply paying attention to some of their personal circumstances, Courey said.<\/p>\n

\u201cFinancial pressures on individuals have gone up, and the ability to rationalize has gone up also,\u201d he said. \u201cIf you have got individuals where their house payment has reset up or they\u2019ve got a spouse who is laid off, their need has gone up. And if you are with an organization where there have been layoffs or pay cuts, the ability or opportunity may be there.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Eric Decker – BizTimes.com How could one corporate executive make more than $30 million in unauthorized transactions over four years without anyone else on the company\u2019s leadership team or its third-party accounting firm being aware of the embezzlements? That is […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[16,1659],"tags":[],"class_list":["post-16483","post","type-post","status-publish","format-standard","hentry","category-auditing-regulations","category-internal-investigations"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-4hR","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/16483","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/comments?post=16483"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/16483\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=16483"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=16483"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=16483"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}