How could one corporate executive make more than $30 million in unauthorized transactions over four years without anyone else on the company’s leadership team or its third-party accounting firm being aware of the embezzlements?
That is among the questions law enforcement investigators are asking as they sort through the criminal allegations facing Sujata Sachdeva, former vice president of finance and secretary of Milwaukee-based Koss Corp. Sachdeva’s employment was terminated by the firm in December, and investigators have confiscated more than 22,000 items as evidence, including high-end women’s clothes and bags.
Investigators are determining how the purchases eluded the company’s corporate leadership team and Grant Thornton LLP, its former independent accountant.
Several Milwaukee-area certified public accountants and financial examiners interviewed by BizTimes Milwaukee said Koss Corp. did not appear to have the proper check-and-balance system needed to prevent the alleged embezzlements.
Tracy Coenen, fraud examiner, forensic accountant and founder of Milwaukee-based Sequence Inc.
“It’s clear that she had too much autonomy and that the other members of the executive team were not watching over her and her work,” she said. “She’s the top financial person in the company. They needed to have the other executives on a peripheral level so that she’s not operating completely on her own.”
It is easy to blame Grant Thornton LLP for missing the graft, Coenen said. However, the auditing process is limited in scope and can easily miss sophisticated theft schemes, she said.
“Audits are of limited usefulness – the scope of work is so small and is done in such a compressed time, usually at the end of the year,” Coenen said. “And the work that auditors do is predictable.”
In Coenen’s opinion, Sachdeva was probably able to conceal much of her fraudulent activity in Koss Corp.’s cost in goods sold accounts – areas that typically have large numbers of transactions and a high degree of cost fluctuation.
“If there are variations in those numbers, you can say they are material costs or other things. It’s something that’s very easy to explain away,” she said. “The auditors aren’t close enough to the business to question that. That’s just not something auditors will look at in that line item. That’s where management needs to be involved.”
Anita Ford, chief practice officer at Wauwatosa-based Clifton Gunderson LLP
Sachdeva’s long tenure and high position within Koss Corp.’s management team were what likely allowed her to allegedly spend so much money for such a long period of time, Ford said.
“I’ve been in this profession for a number of years and have seen frauds both large and small,” Ford said. “Typically, the higher up the perpetrator is in the organization, the bigger in terms of dollars and the longer the period of time it can be concealed because they have such power to control things. One of the areas where it is difficult to uncover fraud is where you have top level management concealing it and lying to auditors.”
Liz Kaiser, shareholder and CPA at the Brookfield-based Winter, Kloman, Moter & Repp S.C.
A lack of proper checks and balances to prevent embezzlement and related financial crimes is relatively common in companies that have less than $100 million in annual revenues, Kaiser said.
“If all of the abilities (to write checks and transfer money) is given to one person and no else looks at the transaction, that’s a significant risk for fraud,” Kaiser said. “We like to see a separation of duties where more people are doing different functions.”
For example, owners of smaller companies should look at as many checks and financial statements as possible, if they have someone else who writes checks. Business owners also need to be skeptical, even of their closest employees, Kaiser said.
John Lauber, president of Milwaukee-based Lauber CFOs
A proper checks and balances system should involve managers from multiple departments examining each other’s financial statements, Lauber said.
“You should be having somebody responsible for reviewing them who does not have transactional authority,” Lauber said. “It should be someone who doesn’t have the authority to sign checks and approve and reviewing disbursements. You should also have good financial information and budgets in place that would show expected results and comparing them to actual, and you then follow up on differences. It’s having a little of that auditor’s inquisitiveness.”
Marc Courey, director of litigation support, fraud and forensic services with Wauwatosa-based Wipfli LLP.
Both publicly traded and privately held businesses need to have the proper systems of checks and balances in place to prevent and catch fraud, Courey said.
“The reality is that at most businesses, until something like this occurs, they feel like this would never happen at their business,” he said. “The most important thing is that businesses have to realize they need to be ever vigilant. Every business is susceptible.”
Employers should closely examine their employees who could be most likely to begin stealing by simply paying attention to some of their personal circumstances, Courey said.
“Financial pressures on individuals have gone up, and the ability to rationalize has gone up also,” he said. “If you have got individuals where their house payment has reset up or they’ve got a spouse who is laid off, their need has gone up. And if you are with an organization where there have been layoffs or pay cuts, the ability or opportunity may be there.”
