1. Describe the methods that Smith and Jones could have used to steal $34 million in cash over 12 years under KOSS's current internal control system. AAER's second point is significant. It states: "While Koss' internal control policy required Michael J. Koss to approve invoices of $5,000 or more for payment, his controls did not prevent Sachdeva and Mulvaney from processing large wire transfers and cashier's checks beyond out of the accounts payable system to pay Sachdeva's personal expenses. purchases without seeking or obtaining the approval of Michael J. Koss "There were various methods that Smith and Jones could have used to steal the money with the audit system existing interior of KOSS. They include: • Skimming. Since the wire transfers and cashier's checks were outside of the accounts payable system (accounting system), this is indicative of skimming. Wire transfers and check transactions posted to bank accounts are historical and must be identified as part of the reconciliation process. The case states: "...many accounting reconciliations were not prepared or were not maintained as part of Koss' accounting records. To the extent they were conducted, the reconciliations were improperly performed by the same individuals who initiated or recorded transactions (i.e. Sachdeva or Mulvaney)”• Not identified, but certainly plausible with the internal control processes described is “death by a thousand cuts.” Sachdeva and Mulvaney were able to make small transactions that could go undetected. This is a cash theft scheme. Another cash theft scheme that could have been committed was reversing transactions or reverifying entries. By stealing the funds, Sachdeva and Mulvaney could have gotten back into… middle of the paper… without it having occurred (the outdated accounting system deficit again). Additionally, analytical procedures could be used to compare budgets/forecasts with actual results and variations (e.g., higher-than-expected expenses or lower-than-expected profits) could be analyzed. The following is an article by Tracy Coenen that is more critical of KOSS management than of the auditor, Grant Thorton. She argues that while the auditor should have detected this fraud, management is more to blame for failing to address internal control issues. http://www.sequenceinc.com/fraudfiles/2010/01/koss-corp-fraud-defending-grant-thornton-no/Works Citedhttps://www.sec.gov/about/laws/soa2002.pdf (page 45) http://www.bizjournals.com/milwaukee/news/2013/07/05/koss-gets-85m-in-settlement-with.html http://www.aicpa.org/Research/Standards/AuditAttest / Downloadable documents/AU-00329.pdf