Koss Corporation

SUMMARY

June 30, 2009 10-K Report

Koss Corporation received an unqualified audit report (true and fair) for the year 2008 and 2009 by a Big Five audit firm (Grand Thornton) without performed audit on internal control. Management believed the financial reporting was effective because it was evaluating based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Civil Case, 2011

SEC filed a complaint against Koss Corporation financial statement that the financial statements, books and records was inaccurate and lack of adequate internal control from fiscal years 2005 – 2009. Besides, is about accounting fraud distributed by Sujata Sachdeva and Julie Mulvaney to cover up the embezzlement of $34 million from Koss from year 1997 to year 2009. The internal control did not prevent Sachdeva for stealing $34 million to pay for her personal purchases even though one of the internal policy required MJK to approve invoices of $5,000 or more for payment. It is because they able to make post-closing changes due to the old accounting system.

Epilogue

Koss and MJK have consented to the entry of an injunctive order without admitting or denying the allegation in the Commission’s complaint. So, under the agreement, the order :

1. Enjoin Koss from violating and MJK from aiding and abetting violations.

2. Orders MJK to reimburse Koss $242,419 in cash and 160,000 of stock options according to Sarbanes-Oxley Act (SOX).

3. On November 17, 2010, Sachdeva pleaded guilty to 6 counts of fraud and was ordered to pay $34 million and sentenced 11 years in prison.

4. Shareholders received $1 million from Koss’s insurance company.

5. Pursuing litigation against auditor - failed to spot Koss to this embezzlement

6. Collecting $680,000 in restitution from Sachdeva’s liquidation of retirement and stock ownership account.

The main problem in the Koss Corporation being filed a complaint by...