Embezzlement in Business

"How an Embezzle Stole Millions from a Small Company." Strategic Finance 92.7 (2011): 13,13-14,61. ABI/INFORM Complete. Web. 10 Oct. 2011.

The scholarly journal “How an Embezzler Stole Millions from a Small Company” focuses on the embezzlement of Koss Corporation by Sujata “Sue” Sachdeva. Sachdeva was the “trusted 15-year veteran VP of finance, secretary, and principal accounting officer” at the company. She pleaded guilty to embezzling $34 million from Koss in a time period of about five years. This was almost half of the company’s pretax earnings. Former Koss senior accountant, Julie Mulvaney, was also charged for helping Sachdeva in the embezzlement. American Express was the first to notice something suspicious happening after receiving numerous payments for Sachdeva’s credit cards from a business account, Koss Corporation.

The idea that this type of activity was going on for a long time with no one questioning it at any company is stunning. Companies have external auditors come in each year and audit the books to make sure all internal controls are correct. Grant Thornton was the auditing firm in charge of the auditing of Koss’ books and they failed to find anything on this. It is very odd how the journal entries that covered up Sachdeva’s fraud were never questioned. There was no supporting documentation for these journals and no one took a second look.

All this nonsense comes down to the separation of duties. It is sometimes harder in smaller companies that do not have many personnel, but it’s not impossible. The biggest rule it that people who have signing authority cannot be the people doing to bank reconciliation. Of course this will not eliminate fraud but it will help minimize it. There will always be instances like the one mentioned about Koss in the journal were two or more people are involved. But most likely, the more people involved the harder it is to commit fraud. Accountants also have a big role in fraud detecting. It is very easy to make journal entries to cover up money that is missing from the company. Mulvaney did just that. She would make journal entries and overstate assets, expenses, and cost of sales and understate liabilities and sales. It was very clever of her to do this, but accountants need to remember that what they practice will stay with them forever.

The journal also talks about how Sachdeva also stole from the petty cash fund in addition to cashier’s checks, traveler’s checks, wires, etc. Companies need to keep very close eye on their petty cash funds and how much they keep in them. One good rule is to keep a minimum balance in the petty cash fund. The more money there is lying around as petty cash, the more tempting it is to employees to take for themselves. Having separation of duties can avoid many problems like this. If one person is responsible for keeping the cash while another person is responsible for the record keeping of the cash, there is a smaller possibility one of them may steal some.