What a tangled web we weave. Sue Sachdeva first embezzles millions (I mean a bunch) of dollars to support her (now claimed) medical condition (which make here innocent of her actions?). Koss executives must have had their (Koss) headphones on while playing Guitar Hero to have missed such a massive fraud. Grant Thornton, the CPA firm, says they aren’t liable for the loss cause they weren’t hired to evaluate internal controls (really?). And, there is no doubt that any insurance company involved will say that they don’t have to pay a claim since other folks didn’t do what they were supposed to do.
With all that said… Koss would be out more money and Sue would be buying her spring wardrobe if it weren’t for the diligence of American Express who caught this in the first place.
Ah, but the story goes like this (no good dead goes unpunished) –
Koss Sues AMEX over Embezzlement Case
By Jay Sorgi
MILWAUKEE – The local headphone company Koss is suing American Express, claiming the credit card company failed to set up an anti-money laundering program.
Koss is blaming American Express for a lack of oversight in allowing former finance V-P Sue Sachdeva to embezzle tens of millions of dollars in company cash.
The suit seeks damages and compensation for the loss.
WHAT’S THE BASIS FOR THE AMEX SUIT?
The suit, filed Thursday in Maricopa County, Ariz., says American Express failed to live up to the requirements of the Bank Secrecy Act when it discovered that Sachdeva was embezzling money from Koss to pay her bills, but made a decision not to tell Koss immediately.
The Bank Secrecy Act requires financial institutions to have programs to detect and report suspicious activity that might be indicative of financial crimes.
American Express continued to process the payments for Sachdeva’s bills from Koss accounts, at the rate of $1 million per month, because Sachdeva was one of AmEx’s best customers and AmEx was profiting from her business, the suit claims.
As a result, Koss lost $20 million, the suit says. Koss is seeking unspecified punitive damages and compensation for the loss.
LOCAL RISK ASSESSMENT SPECIALIST INTERVIEW:
Deborah Bidwell is an identity theft risk management and fraud prevention specialist who lives in the greater Milwaukee area and a go to person for me in situations like this. I had the opportunity to talk with her this a.m. and here are some of her comments:
What impact is this story having on the business community up in Milwaukee?
It has really rocked them to their core, and many are really scrambling to figure out what to do to avoid this happening to them. They have lots of questions and the biggest is “how did this happen”?
So who does get the blame?
Ultimately the CEO who is trying to shift the blame to anyone besides him.
What about Sue Sachdeva?
She is guilty I am sure, BUT if the company is working to actively avoid this from happening in the first place she would never have been in the position of doing this to the company, her family and herself.
One thing we can’t do is change the KOSS situation. That appears to be up to attorneys. But, the question for other firms is how can they prevent this from happening to them?
At the risk of sounding self serving, firms would be well advised to have someone familiar with risk management assess where they are and what area(s) might be vulnerable to fraud. This should be done by someone other than your CPA, cause just like KOSS the CPA was too involved to catch it.
But shouldn’t the CPA catch something like this?
The CPA for Koss was only doing the audits for the SEC under the SOX Act. They didnt take care of the day to day bill paying, or watching monthly bills or for that matter evaulate KOSS’s internal controls.
So just curious, how often do you get called on to do risk assessments and do companies really do that before they find there is a fraud?
Well…let’s say business has definitely seen a dramatic increase since so much fraud has come to light. I consult with businesses in the US as well as a few in Europe helping them avoid fraud before it happens. And frankly that is the key. For many medium to smaller concerns, this really has not been a big issue till, well, all the fraudsters hit the news. Now I’m getting calls for folks who want preventive medicine rather than a hospital visit after a massive fraud. I suppose you know what I mean by that…?
Last Question – Since you are in the Milwaukee area, how can people get in touch with you if they want to discuss risk assessment?
They can reach me through my website: www.dlbandassociates.com, or simply give me a call at 262-945-7844.
As a business ethics and fraud prevention expert, I agree with Deborah about the need for preventive medicine. Kinda cute how she put that. From a practical perspective the cost to prevent a crime, like the one that KOSS Corp. has experienced and the (what I know will be massive) legal fees that follow, is well worth the investment. For now, the only winners in this mess are the attorneys.
AS ALWAYS YOUR COMMENTS ARE WELCOME!