Wednesday, July 21, 2010

Audits Aren't All That

My online pal, the fantastic Michael Hasenstab, sends me the following updates on the Koss Corporation embezzlement scandal.

First, how on earth did this get by the company's financial officers, let alone the Grant Thorton LLC, the company's auditors?
The $31 million embezzlement at Koss Corp. included several spurts of rapid-fire spending, according to a recent court filing - including one three-day span in 2006 during which nearly $500,000 flew out of the Milwaukee company's accounts and into the hands of three high-end retailers and a credit card company.

The lists of checks and wire transfers shed new light on the scheme for which Sujata "Sue" Sachdeva, former vice president of finance for Koss, is facing six federal felony charges. She was arrested by the FBI in December and has pleaded not guilty.

The list, which takes up the equivalent of about 10 single-spaced pages, is contained in a lawsuit that Koss filed last month against Sachdeva and its former auditor, Grant Thornton LLP.

(Emphasis mine.)

But justice will be done:
Sujata "Sue" Sachdeva will plead guilty to all six felony fraud counts leveled against her and agree to pay an estimated $34 million restitution to Koss Corp. under a plea deal reached Friday that calls for at least five years in prison, although prosecutors may recommend a much longer sentence.

Prosecutors, Sachdeva and her attorney agree that the recommended prison sentence will be at least five to six years. The U.S. attorney's office can argue for several aggravating circumstances - such as her role as the organizer of the criminal activity - that could boost the  recommended sentence up to the 15- to 20-year range. Sachdeva and her lawyer, Michael F. Hart, can object to the aggravating circumstances.

Did I say justice? I imagine the penalty would've been a little steeper if Sachdeva had used a handgun to rob a 7-11 of a hundred bucks or so.

My point remains the same: audits aren't the financial safeguard you might think they are. Auditors can't catch everything. And, in some cases, they can't even catch what seems to be obvious.

When it comes to finances, proceed with caution. And a heavy dose of skepticism.

1 comment:

  1. Audits aren't safeguard 'especially' when the target knows that the month of June is the one which is checked regarding bank statements - to call what GT was apparently doing all these years an audit is ludicrous - or, maybe, like new math and new age, the definition of audit has changed.