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Now Where Did That $35 Million Go?

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January 26, 2011
Core Group US
Tax News

Now Where Did That $34 Million Go?

It was right here, I swear! That was what one company was left asking after their VP of Finance embezzled from her employer. Details regarding the employee’s theft from her employer, Koss Corporation, are now becoming available. The individual, with only one other collaborator, stole $34 million dollars, representing HALF of the company’s earnings, over a span of five years.

How She Did It

How people steal is always interesting to us old auditor types, but there was no Enron accounting here, just plain old financial fraud. The employee was caught when American Express noticed her personal credit card balance being paid by large wire transfers originating from a company bank account. The theft was also accomplished with fraudulent cashier’s checks and unauthorized payments from petty cash. In other words, she simply took the cash.

She covered her tracks, with management and the external auditor, Grant Thornton, by making top level journal entries to cash to compensate for the missing money. She did this at the end of the reporting period, in collusion with a subordinate. Evidently, she had a plan to cover up the theft long term by not recording sales to certain customers, although those amounts were small compared to the direct transfers of cash. In under two years, the employee transferred via wire transfer $16 million to American Express alone. She also wrote checks directly for her personal expenses, including checks to Nieman Marcus and Saks Fifth Avenue, using acronyms.

What It Means To You

Scary thing was, Koss was doing things “right”. They had established internal controls for cash, and policies and procedures in place to prevent this type of activity. Koss also had an external auditor that audited the financial statements on an annual basis. (As an aside, Koss is suing their auditor for negligence stating that they should have caught the fraud.)

So what about you and your company. Do you have internal controls for cash, and policies and procedures to prevent fraud? Most small and medium-sized businesses don’t have an external auditor, but that doesn’t mean you can’t hire one to do some testing of your controls to see if they are working?

In the end, theft involves people and their emotions. You can’t control those things completely. In this case, the employee had bipolar disorder disease of compulsive shopping disorder and was an alcoholic. As in ALL cases, your employee’s problems become company problems at some time. It may not result in theft or fraud, but if you have an employee that is suffering personally, believe me, that will affect their job performance at some time. Most often overlooked factor in these cases is the employees.

How well do you know what it going on with your key employees or the ones charged with financial activities? Are they struggling with alcohol, divorce, gambling? You need to address rather than ignore these “personal” problems before they become your problems.

We Are Here To Help

Let our experts help you with any of you bookkeeping, payroll or tax needs. Contact our offices in Oklahoma City: 405-288-1209 or Tulsa: 918-209-3441 to get the help you need.

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