Koss Corporation is a publicly traded company that designs and sells stereo headphones. The Koss family controls a majority of the Company$$s stock. On November $17,2010,$ Sujata $$Sue$$ Sachdeva, the former Vice$-$President of Finance was sentenced to $11$ years in prison for embezzling $$34$ million from the Company. Her attorney claimed that she was a shopaholic. From $1992$ to $2009,$ Sachdeva was the Principal Accounting Officer, Secretary, and VicePresident of Finance at Koss. As a result of the embezzlement, Koss Corporation was required to restate its financial statements for $2008,2009,$ and the first quarter of $2010.$

Sachdeva used the embezzled funds to sustain a lavish lifestyle, including purchasing a vacation ownership interest in Hawaii, a Mercedes$-$Benz, and other automobiles. She also used the proceeds to pay for luxury travel and numerous personal items, including luxury clothing, furs, designer shoes, jewelry, and art. One neighbor stated that packages delivered to her front porch would sometimes reach $6$ feet high! Sachdeva also maintained a large household staff. Such purchases were well beyond her Koss salary $($$$175,000).$ She explained her lifestyle by stating that her husband earned a couple of million dollars a year and that they both came from wealthy families.

The massive misappropriation was ultimately discovered when American Express notified the Company that funds were being wired from a Company bank account to pay for expenses on Sachdeva$$s personal credit card. According to the SEC, Sachdeva authorized at least $206$ wire transfers of funds from Koss bank accounts to pay for her American Express credit card bills and issued more than $500$ cashier$$s checks from company accounts to pay for personal expenses. Sachdeva used the cashier$$s checks to make direct payments to retailers, such as Neiman Marcus and Saks Fifth Avenue. Sachdeva attempted to conceal the identities of the recipients of the checks by using acronyms on the checks such as $$S$.$F$.$A$.$ Inc.$$ for Saks Fifth Avenue, $$N$.$M$.$ Inc.$$ for Neiman Marcus, and others. Sachdeva was able to conceal the fraud by directing other Koss employees to make numerous fraudulent entries in Koss$$s books and records. Julie Mulvaney, the Company$$s senior accountant who was responsible for making journal entries, reconciling accounts receivable, reconciling the Company$$s bank statements, ordering cashier$$s checks, processing wire transfers, and checking the daily bank account balances assisted Sachdeva in covering up the fraud.

Sachdeva and Mulvaney primarily hid the embezzlement by making false entries on the Company$$s general journal. For example, the false journal entries disguised the theft by overstating assets, expenses, and cost of sales, and understating liabilities and sales. Mulvaney maintained binders that detailed numerous false journal entries that were made to the Company$$s accounting books and records. With those entries, Mulvaney reclassified Company funds $$ with no supporting documentation and no legitimate explanation. Mulvaney also maintained a series of folders that included documentation of over $100$ fraudulent transactions that were included in the Company$$s accounting books and records.

Sachdeva and Mulvaney were able to hide the substantial embezzlements in part because the Company did not adequately maintain internal controls to reasonable assure the accuracy and reliability of financial reporting. Koss$$s internal controls policy required Michael Koss to approve invoices of $$5,000$ or more for payment. However, Koss allegedly delegated duties typically done by the CFO to Sachdeva on a regular basis. Koss also had little or no educational background or experience in accounting or finance. Many of the cashier$$s checks exceeded $$5,000,$ and some exceeded $$100,000.$ However, its controls did not prevent Sachdeva and Mulvaney from processing large wire transfers and cashier$$s checks outside of the accounts payable system to pay for Sachdeva$$s personal purchases without seeking or obtaining Michael Koss$$s approval. In addition, many account reconciliations were not prepared, maintained, or reviewed as part of Koss$$s accounting records. Koss$$s computerized accounting system was almost $30$ years old. Other information about the Company:

$$ Michael Koss simultaneously held $5$ senior management positions: Vice Chairman, CEO, COO, President, and CFO. Koss had little or no educational background or experience in the areas of accounting or finance and allegedly delegated important responsibilities typically performed by the CFO to Sachdeva on a regular basis.

$$ Koss did not have an internal audit function.

$$ Koss Corporation$$s control environment appears to have been remarkably relaxed and its corporate board rarely changed. Excluding a member added in $2006$ and founder John Koss, board members had an average tenure of $27$