A recent fraud case caught my attention as it brought to life the concern I expressed in a November post (Small companies may get SOX audit relief). I wrote that “internal controls will always be a crucial piece of the business that streamlines financials and paves the way for airtight fraud prevention, regardless of audit requirements.”

Here we are less than two months later, and CFO Magazine is reporting on the fallout from a fraud case that could have been avoided with a better check on internal controls. The article cites the case of Koss Corporation, a small public company that was not subject to an internal controls audit and  which appears on the surface to have lacked sufficient segregation of duties — they paid dearly for it. A company Vice President is accused of skimming more than $4.5 million for personal expenditures over a two year period — a loss that a thorough audit of internal controls may well have uncovered or prevented.  As James D. Ratley, President of the Association of Certified Fraud Examiners indicated in the article, the fraud may have been prevented with the knowledge that auditors would be coming in to specifically audit internal controls.

This example will weigh heavily for those arguing against the permanent elimination of the audit requirement for non-accelerated public companies.

This entry was posted on Wednesday, January 13th, 2010 at 10:22 am and is filed under Audit, Fraud Prevention. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.