Koss fires auditor, says losses reach $31 million

Koss Corp. has fired its auditor, Grant Thornton, as an expanded internal investigation turned up new losses that now total $31 million, going back to 2005, the company said Monday.

Stock in the Milwaukee-based stereophone manufacturer has not traded since Dec. 21, when the company’s vice president of finance, Sujata (Sue) Sachdeva, was charged with embezzling $4.5 million.

The company said Monday that it was evaluating candidates to replace Grant Thornton. The company expects to have a recommendation on a new auditor from its Audit Committee within the next week.

“None of Grant Thornton’s audit reports of Koss Corporation’s financial statements, including the ones for the past two fiscal years, contained an adverse opinion, a disclaimer of opinion, nor were they qualified or modified as to uncertainty, scope, or accounting principals,” Koss said in a news release.

The company’s internal investigation is continuing, supervised by an independent committee of Koss’ board of directors, including the committee’s independent counsel and forensic accountants. Koss also is trying to recover merchandise related to the unauthorized transactions of which Sachdeva, of Mequon, is accused.

According to the federal charge, Sachdeva used the money she embezzled to buy millions of dollars worth of expensive clothing and jewelry. Unable to find room in her home for all of her purchases, Sachdeva rented space to store the clothing, including 1,000 square feet in a Third Ward office building, according to the people who are close to the situation.

Koss said Monday that the company’s financial statements going back to 2005 are unreliable. The company also said it is not known how much of its losses due to fraud may be offset by recoveries of insurance of other assets.

Koss is controlled by the family of founder John Koss, which holds 73% of the shares.

Sachdeva, 46, is free on an unsecured $50,000 bond, and has turned her passport over to the court. She has not yet entered a plea, and has a court date set for Jan. 11.

Sachdeva has held her current position with Koss since 1992. Michael Koss, son of the founder, holds the title of chief financial officer. He also is chief executive officer and chief operating officer.

Because of its size, Koss hasn’t been required to have its outside auditor assess the effectiveness of the company’s internal controls over its financial reporting. Grant Thornton’s annual statements specify that Koss did not contract with the accounting firm to conduct such reviews.