Case 3

Topics: Auditing, Financial audit, Audit Pages: 6 (1189 words) Published: April 28, 2014


Case 3-51
Pages 115 -117

1. Why might Koss management have placed so much trust in Sachdeva, along with minimal supervision and monitoring? Koss management might have placed so much trust in Sachdeva because she was is such a high position. She worked in the company as Vice President, when you are that high on the totem pole, you are given trust that you know what you are doing and that you want what is best for the company. Companies don’t hand out positions to people that have no clue as to what they are doing as well as someone that they believe will ruin the company. The same thing goes along with having minimal supervision and monitoring. She was a Vice President, someone that was supposed to be trusted, someone who was a leader, someone who was supposed to set an example. It just goes to show you that it is not always the person on the bottom of chain that needs to be watched. It is easier for higher up management and owners to sneak money away than the one who have minimal access to records and bank statements. 2. What was Grant Thornton’s obligation to uncover the fraud? Grant Thornton was Koss’s internal auditor. An internal auditor is defined as “An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.” (p. 23-24) As the auditor for this business, Grant was supposed to make sure that every piece of financial information was in its right place as well as wrote and calculated right. Clearly Thornton did not do his job the right way. By looking at the numbers provided, any auditor could see that something is not right in the company. After seeing it, the auditor would address the issue and deal with it the proper way. I have a feeling he knew all along what was going on but was too afraid to open his mouth. 3. Why should Sachdeva’s lavish lifestyle have raised suspicions? Why might it have been ignored or explained away by her professional colleagues? Sachdeva’s lavish lifestyle should have raised red flags soon after it started to happen. It should because most people that work in a company roughly know how much each person makes. After seeing her spend the money she was someone should have investigated a little more. I mean it is possible for a Vice President of a company to be rich, but for a life style to go to the extreme as spending $1.4 million on a shopping spree is questionable. One of the number one ways to detect fraud is by a change in lifestyles. Her new lifestyle could have been ignored because of her job title. No one wants to question their boss, let alone someone higher up in management. By doing that, all you are asking for is to get fired. In the book it says that people assumed she used family money or her husbands, but not one person questioned her about it. (p. 116) No one wanted to be the one that was questioning the boss. It is much easier to turn and look the other way than stand up in what you believe. 4. How could management, the audit committee, and the auditors have been more professionally skeptical in this situation? The audit committee and the auditors could have checked financial more often than what they did. When they noticed that the income was dropping quite a bit each year, they should have started looking at documents more closely as well as more often. The audit committee is supposed to speak with management on their findings. Well instead of talking to the President and Vice President, they should have only talked to the President. There was really no communication in this business when it came down to financials. It was basically whatever Sachdeva said was right. No one stepped up to double check her work and no one questioned it. Being a bigger company, more than one...


References: Rittenburg, Larry. Johnstone, Karla. Gramling, Audrey. (2012) Auditing: A Business Risk Approach 8e. Mason: South-Western, Cengage Learning.
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