Koss is a Delaware corporation with a principal place of business in Milwaukee, Wisconsin. Koss designs, manufactures and sells stereo headphones. KOSS went public in 1965. Over the last ten years, its stock price has ranged from $8 in July 2002, to its peak at $15 in July 2006 to its low at $4 in July 2010. The Chief Executive Officer (CEO), Michael J. Koss (MJK), the founder’s son, and his family directly or indirectly own in excess of 70 percent of the company’s 851,000 shares. A $34 million embezzlement of cash from the KOSS occurred over a 12-year period from 1997 through December 2009.
QUESTIONS AND ANSWERS
1. What is the problem in the Koss Corporation case?
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Sachdeva who worked at Koss for 18 years and held the position at Koss Corporation since 1992 in position as former principal accounting officer, secretary and vice-president of finance alleged making this embezzlement which is $34 million from stereo headphone manufacturer Koss Corporation. According to the indictment, Sachdeva authorized numerous massive wire transfers of funds from company bank accounts to pay for her American Express credit card bills and obtained cashier’s checks to pay for personal expenses such as jewellery, household furnishing and others luxuries item.
Julie Mulvaney was the Company’s senior accountant who also responsible for $34 million embezzlement in Koss Corporation. Mulvaney was responsible for making journal entries, reconciling accounts receivable, reconciling the Company's bank statements, ordering cashier's checks, processing wire transfers, and checking the daily bank account balances. Instead together with Sachdeva, Mulvaney used her position and the authority to embezzle tens of millions of dollars from the company.
Another person who is involved and responsible in this embezzlement is Michael J. Koss a Chief Executive Officer (CEO) and also Chief Financial Officer (CFO) of Koss Corporation. He is the founder’s son, which his family own in excess of 70 percent of the company shares. As a CEO, Michael J. Koss regarding in this case responsible in maintaining the internal control and ensure the company to performed well. Besides that, the board of the directors should monitoring on the company finances and together with the CEO maintaining the internal control and other policies that can be used in the company.
Besides that, the audit committee which is composed of independent board members are responsible in assist the board of directors in fulfilling its oversight. Where, all the members of committee shall have a working familiarity with basis finance and accounting practices, and at least one member of committee shall have accounting or related financial management expertise.
Koss Corporation has an outside auditor, Grant Thornton who responsible to detect the fraud in Koss financial statements. Unfortunately, they failed to detect the fraud and also the others unusual transaction that contribute to the embezzlement. The auditor Grant Thornton should review the financial statements and report its findings in documents the company files with the U.S. Securities and Exchange Commission but they has specified that its audit did not extend to the internal controls over financial reporting.
3. Why did the involved person get involved in the problem?
According to wire service reports, the indictment alleges that Sujata Sachdeva authorized a numerous wire transfers of funds from bank accounts of Koss Corporation to pay for her American Express credit card bills. Where in the beginning on in 2004, Sachdeva fraudulently authorized and directed the issuance of more than 500 cashier’s checks which totalling...