List and briefly justify three or four specific steps that you believe would be most important for Koss, Inc. to move forward after discovery of the fraud.

Question

What will be an ideal response?

Answer 1

Student responses will vary, but this question provides an opportunity to place students in a form of
consultative role, making suggestions for a company’s board of directors and management in recovering
from a major defalcation fraud and in preventing future frauds. Some steps students might indicate
include the following:
? Terminate the employment of employees in any way involved in the fraud.
? Hire a qualified CFO and implement policies and procedures that will establish appropriate
separation of duties at the highest level of the organization.
? Hire a new auditor to help assess prior financial statements and the impact of the fraud and to
provide audits going forward.
? Establish detail-level controls over authorizations and transactions to ensure that only authorized
transactions are carried out, and that appropriate review is in place.
? Create an internal audit function, whether in-house or outsourced.
? Consider making changes to the board of directors, and particularly the audit committee, to ensure
that it understands and executes its responsibilities with respect to ICFR and oversight over the
financial reporting function. These changes could involve bringing in new people or training existing
members, together with implementing policies and procedures to establish proper oversight.
? Implement a new accounting and control IT system.
? Eliminate use of or establish controls around the use of cashiers’ checks.
? Establish requirement for multiple signatures on bank transactions.