Koss Corporation Case Study

Koss Corporation Case Study

Fraudulent activities

Just as many other businesses, Koss Corporation had an internal control system meant to protect the organization's assets. The fraudulent activities, which occurred, include misuse of petty cash, large payments by wire transfer or check, unprepared account reconciliation, outdated computerized accounting system, and minimal management review of official statements (Anderson, 2013).

Problems in the corporate governance and/or organizational structure

However, the computerized accounting system of Koss Corporation was nearly thirty years old and did not have sufficient controls. Its accounting systems could not lock out changes made after every end month since the audit trails were not available. Julie and Sue made undetected post closing adjustments to the accounting records without Michael's knowledge. Julie covered up the embezzlement done by Sue who forged entries to match the firm's cash account balance with the cash balance in the bank and held back receivable to match the amount of money shortfall (Anderson, 2013). Moreover, Julie failed to record internet sales or retail sales to cover up the cash shortfall.

How the corporate management and the accounting function would be better organized

The account reconciliations of Koss Corporation were not maintained or prepared as part of the company's records. From the level that the reconciliations were done, Mulvaney and Sachdeva carried out the transactions poorly. This enabled these people to manipulate the reconciliations to cover their fraudulent entries. Michael Koss did not verify that the company's accounting systems were adequately monitored or secure. The company's computer system lacked an audit trail usage since records of individuals who made entries in the accounting system lacked (Anderson, 2013). Michael Koss could have regularly changed the password for accessing the accounting and computer terminals that were locked when unattended. The company did not have IT controls and security policies to log and monitor application and network security violations to the management. The company's financial information would be retrieved and used by unauthorized persons, be changed, lost, and programs destroyed or interfered from the lack of access controls.

What Julie Mulvaney should have done

Julie should not have Sue authorize and initiate wire transfers of the company's funds to personal creditors of Sue. She should have sought for approval or authorization of Michael. Sue should have cautioned Michael to review financial reports and statements in detail.

Responsibilities of:

a. American Express

American Express noticed an unusual, ongoing practice and notified Michael Koss about a fraud. This involved Sue, who had paid her personal credit card balances through numerous wire transfers from Koss Corporation's bank account.

b. Park Bank

For an embezzlement period of twelve years, Sue wrote more than five hundred checks, totaling over $18 million from Park Bank (Anderson, 2013). At Park Bank, Julie was not authorized to sign checks. However, the often processed and ordered the checks for Sue without informing Michael. While seeking to divert the attention from the checks, the payments were made in initials like "S.F.A." For Saks Fifth Avenue and "N-M," for Neiman Marcus.

c. Sue Sachdeva

Sue Sachdeva had the authority to sign checks, and with the assistance of Julie, approve and submit wire transfers, review and approve bank reconciliations and maintain the general ledger.

d. Michael Koss