Promises Kept

Corporate Boards Must Change to Restore Public Trust and Avoid Fraud

By Sheila Keefe


What a tremendous shock. The well-liked principal accounting officer of Wisconsin-based Koss Corporation, Sujata “Sue” Sachdeva, was accused of embezzling more than $31 million from Koss – a publicly traded maker of stereo headphones – between 2004 and 2009. On Jan. 20, the U.S. Department of Justice indicted Sachdeva.

Koss had been receiving a “clean” opinion on its audited financial statements for years. The U.S. Sarbanes-Oxley Act didn’t help; internal control section 404(b) would have applied only if Koss was bigger. So the members of its board of directors were dumbstruck when it was told about this astronomical fraud.

Many of the methods that boards of directors have historically relied upon to protect the interests of shareholders have been proven to be ineffective in identifying waste and abuse. Research findings presented in the ACFE’s 2010 “Report to the Nations on Occupational Fraud and Abuse” (RTN) indicate that external audits find frauds just 4.6 percent of the time. Those aren’t good odds considering that 8.3 percent of the time frauds are found by accident.

Thankfully, there are more effective tools to assist board members in achieving better corporate governance: 1) risk management 2) performance measurement and 3) fraud prevention and detection.


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