Koss released restated earnings for 2008 and 2009 after the headphone manufacturers vice president of finance was found to have embezzled about $31.5 million.
The Milwaukee-based audio company fired VP of finance and chief accounting officer Sujata Sachdeva last Christmas Eve after federal prosecutors charged her with embezzlement (see Headphone Maker Hears the Sound of Accounting Fraud).
Sachdeva allegedly spent $4.5 million of Kosss money on shopping sprees around Milwaukee buying up jewelry, fur coats, and fashions. Koss only learned of the embezzlement after American Express informed the company of several expensive wire transfers that Sachdeva made from the companys bank account to her personal Amex account. When it checked her office, it found some of the items still in their shopping bags with the expensive price tags attached. The company also dismissed its outside auditor, Grant Thornton.
The company later learned that Sachdeva colluded with two other former employees of the accounting department in circumventing Kosss existing internal controls and operating procedures, and concealed the misappropriations from management, including the directors and officers of the company.
Koss released restated earnings for fiscal years ended June 30, 2008 and 2009, and the quarter ended Sept. 30, 2009. Koss also amended quarterly reports filed with the SEC to include financial statements that were omitted from the company's previously filed reports for the quarters ended Dec. 31, 2009 and March 31, 2010.
The facts are clearly articulated in the restatements," president and CEO Michael J. Koss said in a statement. Our team has done a tremendous job in preparing these restatements and amended reports, and we look forward to continuing to report on our financial condition going forward now that these misappropriations are behind us. We also understand that with the filing of these amended reports, the company will be in compliance with the applicable NASDAQ stock market listing requirements.
The company's amended reports reflect the effect of the unauthorized transactions on the company's financial results. The unauthorized transactions are recorded as a separate operating expense line item on our income statements," Koss explained. These transactions are essentially treated as a theft loss.
Given that certain unauthorized transactions were concealed in the companys sales and cost of sales accounts, our sales were higher and our cost of sales was lower than previously reported in both 2009 and 2008, he added. This correction has revealed an increase in gross margins for our company. From this perspective, the companys performance was actually stronger than originally reported.
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