Litigation

Koss fraud coverup deemed ?complex? by the government

By Tracy Coenen

Yesterday the government’s sentencing memorandum in the criminal case against Sujata Sachdeva (the woman who stole more than $34 million from her employer, Koss Corp.) was released.  It had a number of items of interest. Prior to sentencing, the prosecution and the defense each get to make their case for a higher or lower sentence.

The defense’s arguments were absurd. They argued that Sue Sachdeva should get a lighter sentence because:

a. she’s been a law-abiding citizen until now

b. the fraud was “simple”

c. and poor, poor Sue has a “compulsive shopping disorder”

The government (wisely) argued that:

a. Sue has NOT been a law abiding citizen, she just didn’t get caught for a long time (12 years, according to the memo)

b. the fraud was actually complex and required lots of effort to carry on for so long (and for such a large amount)

c. the duration of the scheme, and the frequency with which the acts occurred indicates that this was a very serious crime

d. no one cares if Sue is addicted to shopping

e. the fraud put the existence of the company in jeopardy

What is interesting for me as a forensic accountant is the complexity of the scheme. How Sue stole was relatively simple: She wrote checks, transferred funds, and used cashiers checks to steal.

It’s the cover-up that got so complex. There were so many instances of theft, and the dollar amount grew so large over time, that there were many, many accounting entries made to Koss’s books and records to conceal the fraud.

Some of the entries can be simple. It’s pretty easy to steal money, and record the theft as a payment to a supplier for raw materials. It’s not so easy if you decide to start fiddling with customer accounts to conceal the fraud. All told, Sue used a bunch of different methods to conceal the fraud, and in doing so, weaved a very tangled web.

The web was so tangled, that of the $34 million stolen, the forensic accountants hired by Koss still can’t figure out how $6.5 million of this was hidden.

Yesterday, Milwaukee’s ABC affiliate, WISN, interviewed me about the latest developments.

Full post as published by The FRAUDfiles Blog on November 16, 2010 (boomark / email).