3-51. Koss management might have placed so much trust in Sachdeva without oversight and monitoring for a variety of reasons: possibly the cost of establishing, implementing and maintaining internal controls seemed prohibitive to the company. Sachdeva could also have had one of those faces that seem like she should be trustworthy, so they didn’t feel the need to monitor her activities.
Grant Thornton should have seen the large variances in the cost of goods sold account and done some vouching of those particular expenses. Perhaps they also should have confirmed with the various suppliers the amounts they were charging Koss for the headphone component parts. In any case, they did not have enough professional skepticism about Sachdeva.
Sachdeva’s lifestyle should have raised suspicion due to the fact that she spent more on individual shopping trips than she made for the entire year. Auditors and the board should be familiar with the fraud triangle, and recognized both opportunity and rationalization. Petty jealousy may have played a part in her coworkers ignoring or explaining away all of Sachdeva’s high-end purchases. It also mentions that they thought she used family money or her husband’s money to pay for her purchases, but perhaps they didn’t actually get to know her background, or research how much money pediatricians make.
As noted above, everyone in this case could have really asked themselves how much pediatricians make, or simply could have asked Sachdeva about her family history in a friendly, non-threatening way and ascertained that she did not come from a wealthy background. Also, the auditor should have vouched invoices related to the costs of goods sold, and inquired of the audit committee about their review of credit card statements, internal control procedures. The audit committee should have been reviewing monthly financial statements, bank