So many people have jumped on the anti-404(b) bandwagon for small companies that we have lost sight of the potential benefits. Some people just can't see past the pain of auditor attestation of management's efforts. But along comes a really troubling case of fraud at Koss Corp., where a financial executive has been charged with embezzling more than $30 million from a company that had $38 million in sales in 2009.

VP of finance Sujata Sachdeva was fired after U.S. attorneys filed a criminal complaint charging her with misappropriation of more than $4.5 million of Koss's money over two years for the purchase of luxury personal items. It seems obvious that a decent set of financial controls could have flagged that activity.

The auditor Grant Thornton has responded to the controversy by noting that Koss is not yet subject to Section 404(b), which requires an auditor sign-off on internal controls. "The company did not engage Grant Thornton to conduct an audit or evaluation of internal controls over financial reporting," according to cfo.com. This may strike some as weasely, but it's true. The company for its part says its controls were adequate. 

For more:
- here's the article

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