Sujata “Sue” Sachdeva, the former vice president of finance and secretary at Koss Corporation, was arrested on December 21, 2009, for allegedly using interstate wire communications to defraud the company. The largest employee theft of 2009 was not detected by the auditors, but in fact resulted when American Express contacted Koss Corp. CEO, Michael J. Koss, and told him that Sachdeva, was paying down her personal American Express balances with large wire transfers from a Koss bank account.

Questions:

1.  According to the Business Journal of Milwaukee, Sachdeva embezzled the following amounts:

2005    $2,195,477
2006    $2,227,669
2007    $3,160,310
2008    $5,040,968
2009    $8,485,937
2010    $10,243,310 (first two quarters)

Now access the SEC’s Edgar System for Koss financial statements (at http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000056701&owner=exclude&count=40).  What percentage of total revenues were the embezzled funds for each of these years?

2. Sachdeva apparently told the FBI that she doctored the company’s bank balance on the books to cover the alleged theft.  Explain a couple of ways that this could have been done through journal entries?

3.  Perform some select financial ratios on the 10-Qs and 10-Ks for the period, based on the journal entry methods you speculated in (2) above.  Does anything look out of line?

Sources:

Anonymous. (2010). “Koss: Unauthorized Transactions Increased Over Years,” The Business Journal of Milwaukee (Retrievable online at http://milwaukee.bizjournals.com/milwaukee/stories/2010/01/11/daily4.html)

Kirchen, Rich (2010). “Koss Embezzlement Highest of ’09,” The Business Journal of Miwaukee (Retrievable online at http://milwaukee.bizjournals.com/milwaukee/stories/2010/01/04/story1.html)

Rommell, Rick. (2009). “American Express Alerted Koss About Executive’s Spending,” The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at http://www.jsonline.com/business/79905827.html)

Rommell, Rick. (2009). “Koss Executive Accused of Embezzling More Than $4.5 Million,” The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at http://www.jsonline.com/business/79827392.html)