Koss
Corporation
Cabanting, Shaira Kaye M.
Deskil, Chariza
Lagare, Haidee Grace R.
Ledama, Winnie Grace
Monteron, Genevieve
Bukidnon State University
Introduction
Background of the study
Koss Corporation is a consumer electronics company that is recognized as the leading U.S
manufacturer of high-fidelity stereo phones. Those stereo phones introduced the concept of
personal listening to the audio industry, forever changing the audio world.
In December of 2009, Koss Corporation discovered that someone within the company was
embezzling money from the company.
The problem is listed below;
1. Sue Sachdeva was able to keep the fraud hidden by instructing other Koss workers to
make multiple false entries in the company books and records.
2. The control environment of Koss Corporation appears to have been unusually permissive
and the company’s corporate boards seldom changed.
3. Koss reportedly distributed key tasks while having little or no educational background
4. Sue Sachdeva- Former executive at Koss Corporation. She was the centerpiece of the
financial scandal that rocked the Koss Corporation.
5. Michael Koss- The son of the founder Michael Koss is the CEO of Koss Corporation.
6. Julie Mulvaney- A co0-worker of Sue’s that helped to hide the scandal.
Fraudulent activities
Writing 500 cashier's checks from Park Bank, where Koss Corp. had an account, totaling
$17.5 million over a 12-year period, Sue committed fraud. Her use of initials on checks as a
means of avoiding further inspection was clear evidence of her intent to commit fraud. In
addition, she and Julie, her aide, committed wire fraud. The two also committed theft by
withdrawing $145,000 from the petty cash account during a five-year period. The two approved
and conducted wire transfers of Koss Corp. monies totaling $16.3 million to Sue's personal
creditors (Anderson, 2017). All of these actions amount to outright financial theft. In order to
reconcile the cash account balance with the bank's cash-on-hand balance, Julie also committed
fraud by making fake entries.
Proposed solution and changes
The organization should improve its hiring process. Hiring the right employees can make
or break your business. Koss Corp must try to use different methodologies to assess the learning
and analytical skills before hiring and onboarding employees. They must keep on improving
their hiring process. It is the first and foremost factor they need to focus on. They must consider
accepting highly experienced personnel, including educational attainment.
Implement an internal auditing program.
Lack of internal control and lack of auditing program is one of the root causes of the
problem in the case. Internal auditing programs are critical for monitoring and assuring that all
of their business assets have been properly secured and safeguarded from threats. It is also
helpful for Koss Corp to verify that its business process and financial statements reflect its
documented policies and procedures.
Every Transaction should be recorded on a daily basis
"Traction is probably the most important part of launching and running a business today. If
you’ve got traction across the right metrics, everything else will take care of itself" (Cremades,
2018). Thus, Koss Corp must record every transaction daily to monitor the progress of its
business and to keep track of its financial position.
Recommendation
The management needs to put in place a safe and right policy that prohibits such
occurrences since fraud is a serious problem that needs to be handled. Internal controls must be
reliable, suitable, and tested in order for us to catch something that isn't necessarily serious. To
prevent a single individual from exercising too much power.
Between acquiring and disbursing funds, there should be a distinction over the
procurement. Purchases should be authorized by a credit department, especially if they exceed
certain limits, and statements should be reconciled and checked for unlawful transactions. The
organization should make sure that all employees are held accountable and subject to stringent
regulations in order to reduce improper authorization and an excessive number of potential
management overrides. Every business is concentrated on getting the desired result. If they once
failed to complete their responsibilities, they won't be able to manage them easily. There should
be more than one individual handling the roles that are being advertised for this circumstance. In
order to guarantee the long-term viability of the organization, it should be provided to a qualified
person with past expertise. Any precautions should be used to protect their money in order to
govern and manage the overall quantity of money.
References
A., C. (2018). How To Get Traction For Your Business. Retrieved from Google Scholar:
https://www.forbes.com/sites/alejandrocremades/2018/11/27/how-to-get-traction-for-your-
business/?sh=460c2055054e
Coates, I. V. (2017). The goals and promises of the Sarbanes-Oxley Act.Journal of economic
perspectives. Retrieved from Google Scholar:
https://www.imanet.org/-/media/635508439d8848b89e544a4ac2888f88.ashx?la=en
M.O, A. (2013). Koss Corporation Corporate, Internal Control, and Ethics. Retrieved from Google
Scholar: http://dx.doi.org/10.4135/9781526426819.
Prezi. (2016, February 22). Koss Fraud Case. Retrieved from Google:
https://prezi.com/2wunpi8zraem/koss-fraud-case/?
fbclid=IwAR1fQcPa1sOSPPpTl11_VOwBh9DjOrlFTxcxeHVR6bOrAKwax6d92SPQ0n0
