Author: Caleb Newquist

Founding editor, Going Concern.

Sue Sachdeva Was Needlessly Paranoid About Grant Thornton’s Fraud Detecting Abilities

About a year ago at this time, we just started learning about Sue Sachdeva, the convicted embezzler extraordinaire of headphone cobbler Koss. It took a little less than a year for everything to get sorted out including quite the inventory of luxury loot, her emerging talent for stealing money, lawsuits, a guilty plea and a sentence of 11 years.

Since all that’s settled it’s on to the lawsuits and Suze was recently deposed in Koss’s lawsuit against Grant Thornton where she testified about many interesting things, including being a nervous nelly from the get-go:

Former Koss Corp. executive Sujata “Sue” Sachdeva worried each day that she would be caught embezzling money that eventually totaled $34 million.

“Fear was one thing. I thought it was imminent,” she said in a recent court deposition. “Their auditors, every time they walked in, I’d say, ‘This is it. They’re going to catch me.’ 

Turns out, S-squared was paranoid for no good reason because – as we all know – GT had no clue that she was lifting millions every year to pay off her AMEX, partly, she says, because they were throwing green auditors at the company every year:

Sachdeva said in the deposition that Grant Thornton considered Koss to be a well-run company and a good training ground for its new auditors.

“Every year, we’d have at least one or two new auditors come through, and I know Michael (Koss) and I both objected to that – getting kids right out of college and had to explain the business to them every time,” Sachdeva said.

Sachdeva said she never held back documents from the auditors. They didn’t question the amounts of money flowing in and out of the company, nor did they question the internal controls, she said. The lack of inquiries surprised her, she said.

Then there were the allegations that she was having regular three-vodka-shot lunches, according to an October article in Milwaukee Magazine:

Retailers who lunched with Sachdeva say she downed vodka shots at the North Shore Bistro with Julie and Tracy. “Then they all went back to work bombed,” says one shop owner.

One consignment shop owner recalls picking up Sachdeva and taking her to Harvey’s restaurant in Mequon. “Sue told the waiter she wanted her ‘juice.’ They knew that meant vodka,” says the shop owner, who was surprised by how much Sachdeva drank.

Well, it all kinda makes sense now doesn’t it? She was either paranoid because she drank or drank because she was paranoid. OR the amateur auditors drove her so batty and she had no choice but to get a little loaded. Anyway you slice it, the auditors seem to be ones to blame, which seems like a trend these days.

Koss embezzler feared discovery from start [MJS]
The Diva [Milwaukee Magazine]

Some People Are Bent Out of Shape Over the ‘Compressed’ Tax Season

Earlier in the roundup, we linked to The Hill story that brought the unfortunate news that anyone itemizing expenses their tax return will “have to wait until mid- to late February to file their returns.”

The IRS is acutely aware of the problem but lucky for all of you, Emancipation Day falls on April 15th this year (and is effectively a national holiday for tax purposes), so the Service extended filing deadline is Monday, April 18th:

The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline.

Despite the extra 72 hours of fun, some people would rather focus on this “mid- to late February” business, namely, John Ams of the National Society of Accountants, as reported by NPR:

“What this has done is effectively compress the tax season from three months to just six weeks,” says John Ams, executive vice president of the National Society of Accountants.

Now, we don’t know Mr Ams backgound but his bio over at the NSA states that he is a Chief Audit Executive and we have no doubt that he’s a more than capable accountant. But most abacus wielders we know are pretty familiar with deadlines snafus, doing more work in less time and waiting on additional information. In fact, any accountant worth their salt has plenty of stories of pulling emergency all-nighters for week(s) to make sure a project gets accomplished on time only to get the very last piece of data needed at the 11th hour. NOW, when the IRS explains that Congress – who is only reliable for being unreliable – has forced their hand into this less-than ideal predicament, apparently it’s okay to get all huffy about it. [breathe] Look, the majority of the work on these tax returns can simply be done and then the 1040 jockeys will just wait for the rest of the information. It isn’t – as it’s popular to say – rocket science.

But forget about the shrinking tax season, Mr Ams wants you to think about the Luddites!

Some of the changes to the tax code will be a headache for tax preparers and their clients at the busiest time of the year, Ams says. One rule, for example, requires anyone preparing more than 100 returns per year to file them electronically, while the other forces tax preparers to get an identification number.

“Electronic filing is great and most accounts [sic] love it. But there are many clients out there, in particular the elderly, who still believe computers are the work of the devil,” Ams says. “They don’t want sensitive data like tax information going over the Internet.”

If people don’t want to e-file, Ams says, “we’re supposed to say: ‘Here’s your form. See ya.'”

Christ. We know grandmothers that use text messaging. Plus, CPAs have been saying “Here are your forms. Sign here, here, here and here. Oh, and here. See ya next year (but only if you pay),” for decades and people have made due. Can anyone explain how this is still a problem?

IRS Kicks Off 2011 Tax Season with Deadline Extended to April 18 [IRS]
The Tax Man Cometh, But This Year He’ll Be Late [NPR]

Volunteers for an Emergency Inventory Needed (Audit Experience Desired)

This is getting ridiculous.

“[A]n estimated 500 birds that littered a quarter-mile stretch of highway,” in Louisiana, according to the AP. Oh, and apparently in Kentucky too only numbering in the dozens, so that barely qualifies as a story.

Obviously, no one in the MSM is concerned about getting an exact body count but an “estimated 500” is certainly better than the Journal’s stab of “Between 1,000 and 5,000.”

As for the cause, well, everyone seems to have a theory but the conclusion we’re most inclined to believe is along the lines of “we’ve got no fucking idea”:

“There was probably some physical reason, but I doubt anyone will ever know what it was,” Thurman Booth, Arkansas’ wildlife services director, told CBS.

The latest occurrence of more dead birds turning up in Louisiana only compounds local residents’ worries, as in the week prior to the Arkansas blackbird mystery, 83,000 dead drum fish washed up along a river about 100 miles west of Beebe. Wildlife officials claim the incidents are not related.

Oh, right. The fish. People are needed to count fish too.

(UPDATE 2) Outlook 2011: How Will the 9th Circuit Rule in Campbell v. PricewaterhouseCoopers?

~ Update includes oral argument date included in third paragraph

~ Update 2 includes correction of the spelling of “Stepan Mekhitarian” under the list of amicus briefs for the plaintiffs.

One of the stories that we’ve covered with interest since the launch of Going Concern has been the wage and hour lawsuits in California. For those needing a refresher, these are suits that were brought by non-licensed associates against various accounting firms (list of cases at bottom of this post) included who believe they were misclassified under California law as exempt professionals and are due overtime and other benefits due to non-exempt empltle differently, “I worked a ton of hours during busy season and all I got was sleep deprivation, a fat ass and I still don’t have a CPA so, pretty please, I’d like a little more money.”


Every once in awhile we get asked about the status of these cases and since it’s been a few months almost a year since our last post, we thought we’d update you briefly. You may remember that the main case, Campbell v. PricewaterhouseCoopers, is currently with the 9th Circuit Court of Appeals on interlocutory appeal over the issue of whether “learned professionals” can be defined as an exempt employees.

We recently spoke with a source familiar with the defense’s strategy in this case and learned that the two sides are to give oral arguments before the court sometime early this year on February 15th, after which, the Court will likely render its decision in the latter part of 2011 (everyone’s hoping, anyway). Regardless of the decision in the 9th Circuit, the case will go back to the trial court, so get comfortable.

While the developments in the case have been slow, it is interesting to note that both sides are both confident in their chances of victory in the 9th Circuit and make no mistake, it’s an important ruling. If the 9th Circuit were to rule in the favor of the plaintiffs, it could very well be a quick resolution, as the plaintiffs’ attorney, Bill Kershaw told us in July 2009, “the likelihood of the case resolving itself prior to trial would substantially increase,” although, our source disagreed with this sentiment, so we’re counting on a battle.

Something else worth noting (that we may have glossed over in prior posts) is that there are suits brought in both state and federal court. The main difference being that at the state level, once a suit is classified as a class-action, individuals are classified as plaintiffs until they opt out while the cases at the federal level are “collective action” where once a particular group of people are identified as plaintiffs, they are given the chance to opt in to participate in the lawsuit. In other words, employees of a firm who are thought to be non-exempt under California law, are automatically members of the class-action in state court while in federal court, potential plaintiffs have to choose to participate voluntarily. This makes the federal cases broader in scope geographically but trials at the state level will have a larger number of members in the class-action, which could mean a larger settlement.

Finally, some additional new information that we have to pass along are the organizations that filed amicus briefs on behalf of both parties. Here are the groups that filed amicus briefs on behalf of both parties; the notables being the U.S. Chamber of Commerce and AICPA for PwC:

Organizations Filing Amicus Briefs in Support of PwC

1. Employers Group, Chamber of Commerce of the United States of America, and California Chamber of Commerce (one brief)

2. American Institute of Certified Public Accountants

3. California Employment Law Council

Organizations Filing Amicus Briefs in Support of Plaintiffs

1. California Employment Lawyers Association

2. Former Commissioner of the California Industrial Welfare Commission (Barry Broad) and Former Chief Counsels of the California Division of Labor Standards Enforcement (Miles Locker and H. Thomas Cadell) (one brief)

3. Brandy Blaske, David Lee, Julia Longnecker, Stephan Stepan Mekhitarian, and Svetlana V. Murphy (all are Plaintiffs in Mekhitarian, et al. v. Deloitte & Touche, a proposed class action involving D&T’s Tax line of service)

So while it will be some time before we’ll see a ruling in Campbell this year, not to mention a resolution at the trial level, you can bet lots of unlicensed PwC employees will be working plenty of hours this busy season.

Wage & Hour Lawsuits

KPMG Takes Subtle Approach Wooing Anyone Interested in a Job at Ernst & Young

Recruiting for the talent amongst the Big 4 is competitive. This is known. What isn’t widely known are all the tactics in this competitive game of catch the accountant. In the past, we have seen direct solicitation by an E&Y recruiter which may be an effective method but it may be too abrasive for many within in the business who value propriety over the win-at-all-costs attitude.

Now comes news of a more subtle approach from KPMG, courtesy of an E&Y tipster who was searching for the firm’s career website:

While searching for the link to my firm’s career website I stumbled upon a pretty awesome ad (in a “ohhhh no you didn’t!” sort of way).


Since we’re fairly unfamiliar (read: completely unfamiliar) with Google’s method to the madness, we can only speculate how this little link found its way to the very top of Google search of “ey careers” but it does say “Ad,” so make of it what you will. Anyhoo, just for fun, we did our own quick Google Search of “ey careers” and got this:

So, it’s in the margin for us as opposed at the very top. But it’s still prominently placed on the search page and it’s also pretty hilarious that the hyperlink, “Ernst & Young Opportunities” goes directly to a KPMG URL (yes, it’s clearly disclosed by the Jobs.KPMGCareers.com at the bottom but who pays attention to that?). Perhaps our tendency to make mountains out of molehills is getting the best of us here but at the very least, this is an exciting twist on Sneaky Pete Piet.

Accounting News Roundup: Jerry Brown Is Bringing the Pain; Who Resolved to Improve Time Management?; Pet Airways Names CFO | 01.04.11

Brown Says Calif. Budget He Proposes Next Week Will Be `Painful’ [Bloomberg]
Jerry Brown said the budget he’ll propose as California’s new governor, 36 years after he first stepped into the job, will be “painful.” Brown, 72, a Democrat who served two terms as governor from 1975 to 1983, faces a self-described “day of reckoning” over a $28 billion budget gap that promises battles with lawmakers, unions and investors threatening to shun the bonds of the most- indebted state. “The budget I present next week will be painful but it will be an honest budget,” Brown said at his inauguration today in Sacramento, the state capital. “It is a tough budget for tough times.”

Loud Noise Likely Caused Birds’ Deaths in Arkansas [WSJ]
Can we get an auditor up in this mofo? The Times had the number of red-winged blackbirds at “more than 4,000” but now the Journal reports, “Between 1,000 and 5,000 birds died during the incident, which happened in Beebe, a town northeast of Little Rock.” Is there not a single human capable of getting a hard number of dead avians in all of the Natural State. We realize it involves counting but come on.

Time Management for Young Professionals [AW]
Admit it, this was your resolution, wasn’t it?

Coast Guard CFO takes blame for $138M in misspending [FCW]
Awfully big of you boss, “The Coast Guard’s chief financial officer is taking sole responsibility for the apparent misuse of $138 million despite federal auditors’ assertion that other Coast Guard officers and executives also ought to be considered responsible, according to a report.”

Skype 5 beta is horrible [AccMan]
An unmitigated review.

IRS pursues ‘Little Fockers’ star Teri Polo [Tax Watchdog/Detroit News]
Paying the $450k owed should be a snap now.

IRS forced to put some tax filings on hold [On the Money/The Hill]
Attention homeowners: “The Internal Revenue Service announced in December that it needed to reprogram some of its processing systems after a few provisions were extended during the recent lame-duck session — meaning that some taxpayers will have to wait until mid- to late February to file their returns. Taxpayers who itemize their deductions on a Schedule A form are among those who will have to bide their time before filing. (Itemized deductions include, among other things, charitable deductions and mortgage interests.)”

Pet Airways Appoints Andrew Warner as President and Chief Financial Officer [PR Newswire]
Yes, the company does what you think it does.

Some Poor Sap(s) Had a Bizarrely Morbid Inventory Count Late on Friday

As you are no doubt aware, landing an emergency inventory count on New Year’s Eve is about as an unlucky event that can befall an auditor. Typically, you don’t miss any of the booze or scrambling for a midnight kiss but seriously, who wants to work on New Year’s Eve?

As bad as the 12/31 count may be, when you get a call to count birds that fell out of the sky for no apparent reason at 10 pm on December 31st, you can safely assume that your new year will be far, far luckier.

About 10 p.m. Friday, thousands of red-winged blackbirds began falling out of the sky over this town about 35 miles northeast of Little Rock. They landed on roofs, roads, front lawns and backyards, turning the ground nearly black and scaring anyone who happened to be outside.

“One of them almost hit my best friend in the head,” said Christy Stephens, who was standing outside among the smoking crowd at a New Year’s Eve party. “We went inside after that.”

The cause is still being determined, said Keith Stephens, a spokesman for the Arkansas Game and Fish Commission. Of the more than 4,000 birds that fell on Beebe, 65 samples have been sent to labs, one in Arkansas, the other in Wisconsin. Some results may be available as soon as Monday, Mr. Stephens said.

It’s doubtful that auditors in these counts but the skills involved are no less than of the classic opiner. This just happens to be a far creepier count than you would normally be assigned.

Poll: This Balanced Budget Idea Starts with Higher Taxes for the Wealthy

Republicans take control in the House of Representatives this week and boy, are they ever ready. With the ink safely dry on the extension of the Bush tax cuts, the GOP is moving on to spending cuts, supporting the troops, restoring honor, launching investigations and whatever hell else was in that pledge. Wait, that last one wasn’t in there?


Anyhoo, the idea of lower taxes and spending cuts to get the federal budget in ship shape has been the GOP song and dance long before Ronnie had his own float at the Tournament of Roses Parade but a recent poll has discovered that lots of people don’t agree with that sentiment:

Raising taxes on the rich beats out cuts to defense spending, Medicare and Social Security as U.S. adults’ top preference on how to close the deficit, according to a 60 Minutes/Vanity Fair poll.

Sixty-one percent of Americans said that increasing taxes to the wealthy should be the first step toward balancing the budget.

By contrast, 20 percent of respondents preferred cuts to defense spending as the first option, while 4 percent said that cutting Medicare would be the best way to start cutting the deficit. Three percent said they preferred cutting Social Security.

Now you might expect a major backlash from the more affluent citizens, you know, grumbling at polo matches, yacht races and beside the swimming pools filled with gold doubloons but surprisingly, quite a few of them are okay with it:

Increased taxes on the wealthy tops those four options even among higher earners who might be most affected by a tax hike, the poll suggested. Fifty-eight percent of respondents making between $50,000 and $100,000 per year rated tax hikes as the best first step to balancing the budget, while 46 percent of those making more than $100,000 said it was their top choice, as well.

But as we have learned, the GOP isn’t really down with this. Besides, tax rates won’t be an issue again the until the second and third weeks of December 2012, so they’d prefer we concentrate on things that aren’t already safely chiseled into the political dogma.

Google CFO: We Can’t Quit You, China

Patrick Pichette admits that, despite some less than ideal position on censorship, the GOOG still has a mad crush on those 1.2 billion searchers and their right to know who won the Nobel Peace Prize:

Pichette told The (London) Times that it was not the end. “China has 1.2 billion people. For Google to say, ‘We’re going to live on our mission, but not serve 1.2 billion people’ — it just doesn’t work. China wants Google.”

He spoke of the “great firewall of China,” where censors filter the information that China’s internet users can view.

He said: “[If] you were in China last week, two weeks ago, and you typed in Nobel Peace Prize — there were no results. Think of Google’s brand now. You’re Chinese, you know that’s not true, that the Nobel Peace Prize has not disappeared from the face of the earth. There lies the issue of brand. There lies the issue of our mission.”

Accounting News Roundup: Facebook’s New Friend; Financial Reporting 2011 Outlook; Reflecting on Mistakes of 2010 | 01.03.11

~ Happy New Year Capital Market Servants. Like many of you, we’re easing into 2011 like Warren Buffett eases into a hot bath. Accordingly, we’ll be on an abbreviated publishing schedule today, returning to a full slate tomorrow. If you’ve come back to some pleasant news (e.g. boss orders you to take the day day off) or something less welcome (busy season hours start now!) we’ll be around, so feel free to email us.

Goldman Invests in Facebook at $50 Billion Valuation [DealBook]
This could be considered a ‘Like,’ “The new money will give Facebook more firepower to smployees, develop new products and possibly pursue acquisitions — all without being a publicly traded company. The investment may also allow earlier shareholders, including Facebook employees, to cash out at least some of their stakes.”

Congress Targets Spending [WSJ]
But first, they are going waste everyone’s time, “The incoming House majority will start by offering two measures this week that carry more symbolism than substance. One will be a motion to repeal the health bill that President Barack Obama signed last year, and the second will be a measure to trim the cost of running the House itself. The health-care repeal isn’t expected to go anywhere in the Senate, where Democrats retain the majority, and the package of cuts to the House budget will only save about $25 million from a federal budget that exceeds $3 trillion.”

What’s Going to Happen to Financial Reporting in 2011? [Accounting Onion]
Tom Selling says you shouldn’t get your hopes up, “I predict that 2011 will be a year full of sound and fury, but signifying nothing to advance the cause of high quality financial reporting. You can take it to the bank – by which I mean any one of the banks fighting accounting reform tooth and nail.”

Did Orange Bowl Abuse its Tax Exemption With Caribbean Cruise? [TaxProf Blog]
Man, these Playoff PAC people really hate the bowl system.

Welcome to tax season. Let’s get busy! [CPA Success]
Unlike us, they’re bright-eyed and bushy-tailed over in Maryland for this year’s tax season.


Five New Year’s Resolutions That Will Help You Avoid the Mistakes of 2010 [FINS]
Before tearing off into the 2011 horizon, maybe do a little reflecting on 2010 first.

Orbitz names new CFO [Crain’s]
Former Crocs (yes, those Crocs) CFO Russ Hammer officially took the big seat on January 1.

Thankless Audit Client: Tui Travel Edition

Tui Travel is “an international leisure travel group” (which is fancy-speak for a travel agent) out of the UK. KPMG has been audited the books for awhile but this year they found a booboo that resulted in a £117 million write off. At the time the company copped to the error, although you don’t get the impression they were grateful.


From today’s report in the Guardian:

Just two months ago, Tui chief executive Peter Long said: “KPMG identified some system weaknesses and ledgers that had not been reconciled … Yes, they identified some of these control weaknesses which had then manifested themselves into the issues subsequently identified through a detailed investigation.”

Nothing unusual really, these things happen, clients usually grin and bear it but not our “international leisure travel group.”

KPMG said its relationship with “certain [Tui Travel] directors became increasingly strained” following “extensive discussions with the directors”. Among the areas where KPMG had raised concerns, the letter added, were the implications arising from the restated accounts and “their disclosure and accounting treatment in the financial statements”. Relations had reached such a low ebb, KPMG concluded, that “we are not confident that in the future we could carry out an audit of the company to the appropriate standard, but others may be able to do so.”

So it kinda sounds like their annoyance with the whole thing slowly boiled over into flat-out bitterness, leading to some increasingly unpleasant conversations. Sure, the directors in question would start out acting cool about it, “You know [chuckling], you really didn’t do us any favors there.” But eventually it became, “Boy, you’ve really outdone yourself, this time.” And finally, “For crissakes! You couldn’t leave it alone, couldja? [extremely patient KPMG partner explaining on the other end] What?!? [increasingly steamed, drumming fingers] We don’t care if it’s your job; we don’t like being embarrassed. [Pause, eyeroll] Stewards of generally accepted accounting principles?!? What does that even mean? [brief pause] Whatever, you can plan on us being uncooperative going forward.”

Or something like that.

Tui drops KPMG after it found £117m hole in accounts [Guardian]

Accounting News Roundup: Weird Interview Questions; Xzibit Needs a Pimp My Ride Revival; CPA Ink | 12.30.10

Jobless Claims in U.S. Fall to Lowest Level Since July 2008 [Bloomberg]
Initial U.S. jobless claims fell last week to the lowest level since July 2008, a sign that the labor market is improving heading into 2011. First-time filings for unemployment insurance decreased by 34,000 to 388,000 in the week ended Dec. 25, compared with the median forecast of 415,000 in a Bloomberg News survey, Labor Department figures showed today in Washington. There were no special factors behind the drop, an official at the agency said as the data were released.

Xzibit no longer enjoying a pimped lifestyle [Tax Watchdog]
Pimp My Ride getting cancelled was a serious blow.

Better information, better decision-making [WaPo]
A new comptroller general for Congress to ignore.

Glassdoor.com Reveals Top 25 Oddball Interview Questions of 2010 [PR Newswire]
From Deloitte, “How many ridges [are there] around a quarter?”

Don’t Try This, Governor Brantstad (or Governor Culver) [Tax Update Blog]
Looney excuse of the day for not paying taxes.

Tattoos, body piercings, and accounting firms [AW]
Will sleeves soon be allowed year-round at the Big 4?

Eight questions for planning to grow in 2011 [CPA Success]
Tom Hood. Doing his thing.


Looking into the Crystal Ball for Tax Policy in 2011 [Tax Foundation]
Because President Obama and the Congress extended the Bush era tax cuts, taxpayers will wake up on January 1st without the hangover of higher taxes. There will be no increase in tax rates, the marriage penalty relief will remain, the child credit will be the same, and the lower rates on dividends and capital gains will all be the same.

Going for the auditors [The Economist]
The Economist finally gets into the act, “One possible outcome is a settlement in which E&Y agrees to co-operate with the prosecutors in cases they may bring against Lehman’s former executives. If so, the fines and sanctions suffered by the auditing firm and its partners may be stiff but not ruinous. After all, no one wants to cause the fall of another big accounting firm.”