Curt Verschoor on Ethics

CHAPTER 7SMALL ORGANIZATION FRAUD STUDIES

Small Company Suffers Massive Embezzlements

Koss Corporation is a relatively small, reasonably profitable, and mostly family-owned company with about a quarter of its shares listed on NASDAQ (ticker symbol: KOSS). The almost unbelievable story that continues to unfold around this Milwaukee-based company is that an employee used a large number of unauthorized transactions to embezzle mindboggling amounts of money from her employer. The fraud exceeded the reported earnings in some years at a cost to the company of $31.5 million over five years. This case provides ethical lessons of value to all organizations.

Sujata “Sue” Sachdeva, Koss’s trusted, long-serving vice president of Finance, corporate secretary, and principal accounting officer, faces a six-count indictment accusing her of wire fraud for embezzling money for a lavish lifestyle and extravagant shopping sprees.

The sequence of events was rapid. American Express blew the whistle on the scheme because of the huge transfers from Koss’s bank to pay Sachdeva’s credit card bills. Within days, on December 21, 2009, trading in KOSS on NASDAQ was halted as the company reported the unauthorized transactions. Sachdeva was terminated on December 23, 2009. On December 24, 2009, the Koss audit committee published word that the financial statements for 2006, 2007, 2008, 2009, and first quarter of 2010 “should no longer be relied upon.” Baker Tilly Virchow Krause was appointed as the new independent ...