Boy, someone needs to go after the CPA firm used by Koss Corp. (maker of expensive headphones and speakers) because they clearly didn't determine that controls over large wire transfers were adequate.
It seems the CFO of Koss went on huge shopping sprees using her personal AMEX card, but then was able to make wire transfers from the company checking account to pay the AMEX bill without any reviews by another independent party. So, someone was not reconciling the payments to internal accounting, and maybe that is why Koss put two accounting staff members on leave while investigating this. This is a good indicator how even a simple, single lack of a control can allow someone with open access to wire transfer authorizations to siphon money away.
I can't help but think that Koss didn't want investors to know about this accounting control blunder, so they waited until CHRISTMAS DAY to announce the fraud when hardly anyone would be reading the business papers.
Here is a similar example: Many years ago, someone at the County of Los Angeles took a blank check from the bottom of a box of blank computer payment checks lying out in the open, and cashed it for $7-million because the County didn't have good security over the checks and did not have good reconciliation controls. The County didn't find out about the payment until later when printing checks and found one missing. The crooks were never caught.
* Koss: Sachdeva may have taken more than $20 mln
* Court papers: Sachdeva spent $1.4 mln in one store
* Koss warns on certain financial statements
* Two Sachdeva reports on administrative leave
By Paritosh Bansal
NEW YORK, Dec 25 (Reuters) - Koss Corp (KOSS.O) fired its
vice president of finance after she allegedly embezzled more
than $20 million from the headphones maker for a multi-year
shopping spree of expensive clothes, jewelry and other personal
items.
The executive, Sujata "Sue" Sachdeva, who is in her
mid-40s, held the position at Koss since 1992.
Koss, which reported first-quarter sales of $10.8 million,
also said on Thursday financial statements at least since the
end of its 2006 fiscal year should no longer be relied upon.
The Milwaukee, Wisconsin company also said it placed two
members of the accounting staff, who served under Sachdeva, on
unpaid administrative leave.
Sachdeva allegedly used company funds to pay down her
personal credit card bills, which totaled more than $4.5
million between Jan. 1, 2008 and Dec. 19, 2009, according to a
criminal complaint filed by the U.S. Attorney's Office in a
Wisconsin federal court.
Preliminary estimates indicate that the amount of
unauthorized transactions since fiscal year 2006 may exceed $20
million, Koss said. Sachdeva's total compensation for fiscal
year 2009 was $173,734, according to a regulatory filing.
Sachdeva racked up bills that often ran into hundreds of
thousands of dollars, including spending nearly $1.4 million at
Valentina Boutique, a high-end shop in Mequon, Wisconin, the
complaint showed.
A reviewer on Yelp, a local search and review provider,
says the store's selection of clothes, jewelry and accessories
are "like exquisite works of art, but not in that weird,
unwearable way -- more in that 'I've been dreaming about this
dress, necklace, whatever and didn't know it existed!' way."
"Oh lord if I had five million dollars I would high tail it
over to Valentina and go NUTS," the reviewer, identified as
Katie W. of Chicago, wrote in a Dec. 5, 2007 entry.
Sachdeva spent liberally elsewhere as well. Among her other
bills were: a $670,000 tab at women's clothing store Au Courant
in Milwaukee; $649,000 from Zita Bridal Salon in Whitefish Bay,
Wisconsin; and $255,000 in purchases from Karat 22 Jewelers in
Houston, Texas.
The alleged fraud was discovered when American Express
noticed that a customer's personal card account balances were
being paid via several large wire transfers, originating from a
Koss bank account.
Amex told the company's chief executive, Michael Koss, who
found credit card statements in Sachdeva's name and "several
large piles of women's clothing, with the price tags still
attached," in her office.
Sachdeva acknowledged to the FBI that she had been using
her position at Koss to authorize wire transfers to pay her
personal credit card bills, and that she falsified the balance
in Koss's bank account to hide the fact, according to the
complaint.
Sachdeva's next court hearing is set for Jan. 11, her
lawyer, Michael Hart, said on Friday.
Hart declined to comment further, saying it would be
"inappropriate for me to comment at this juncture."
Koss' internal investigation, supervised by an independent
committee of the board, is continuing, as are efforts to
recover merchandise related to the unauthorized transactions,
it said.
(Reporting by Paritosh Bansal, editing by Leslie Gevirtz)
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