Maybe! If you figure an incestuous management team is a clueless management team, the argument can certainly be made. How else could Sue Sachdeva hold garage sales at her desk without anyone noticing? This went on for five years:
How is it that nobody noticed $5 million missing each year when the company’s net income is about $5 million? I mean, the business of “stereo headsets” isn’t really a complex business model. There’s revenue, cost of sales, and expenses. How do you somehow manage to hide $5 million when expenses are only $10 million … and cost of sales is $25 million?
The answer becomes clear when you look at the company’s management team. Michael Koss is the company’s CEO. He’s also the company’s vice chairman, president, COO, and CFO. The company’s VP of sales is, that’s right, John Koss. Together they own 65 percent of the company’s stock. Another Koss, John Jr., owns 8 percent of the company’s stock. Who knows how many other Kosses there are scattered about the place. No checks and balances there. No hands on the wheel, either.
Sooo, the question becomes: Should Grant Thornton have noticed this sleepy management oversight? Did Michael Koss just give them the “I involved in every aspect of the business so there’s nothing to worry about” story and GT just bought it? Discuss.
The Problem with Incestuous Management [The Corner Office/Steve Tobak]
Caleb,
That woman really is a pig. Can you photoshop a bag over her head?
Concerned,
NG
The company had retained the same national audit firm (Grant Thornton – Milwaukee office) for the past five years. Based on the professional fees disclosed in the proxy statement it is possible that Koss was a small fish in the big pond of this national firm and may or may not have gotten the service it needed and deserved. Some large national firms have been known to ‘rank’ their clients. If you are not the big dog on the porch you are not likely to get the same level of expertise, experience and service as the bigger clients.
I pulled the last financial statements – for the year ended June 30, 2003, Koss paid another national firm $90,000 for that year. Now Grant for the year ended June 30, 2009 only charged $71,000 — WTF. With much higher than inflationary audit rates they are charging that much less. According to the 2004 10-K, of the total professional fees, $23,970.00 was attributable to Grant Thornton and $176,697.90 was attributable to this other national firm. It appears the fee was next to nothing and likely so was the work. I think it’s time to blame Grant – clearly they bought this work over 5 years (March 15, 2004 according to their 2004 10-K) ago and this lax audit envionment contributed to the atmosphere that allowed Sue to steal $31 million.
Where is the BOD as well? Hard to believe nobody on the BOD or Mgmt team ever questioned the bottom line, or that this wouldn’t have shown up in a budget to actual review, unless the owners were pilfering the profits as well!
Should I invest in Koss?
I mean without her around the profitability of this firm is gonna increase big time, more then double based on her stealing average and a relatively similar perofming year!
So maybe these shares have been underpriced going forward cos of this fraud!!