Here's an update on what has been happening in the Koss fraud. Probably not too interesting unless you're a legal or accounting geek.
Bottom line is that she got 11 years, and they're doing what they can to recover as many of the assets as possible (sold her house; continue to auction off all of the expensive dresses she bought; grabbed whatever was in her retirement account, etc.).
Meanwhile, the SEC needed to slap Koss, Jr. on the wrist for allowing all of this to happen under his watch (while he was -- inexplicably -- the CEO, CFO, and COO all at the same time), but for whatever reasons, they haven't done a thing to pursue Grant Thornton (the auditors) who were equally complicit IMO for allowing Koss to operate with such antiquated systems.
http://www.apogeeconsulting.biz/index.php?option=com_content&view=article&id=618:update-on-fraud-at-headphone-maker-koss&catid=1:latest-news&Itemid=55
http://www3.cfo.com/article/2012/1/regulation_sec-settlements-under-dispute-koss-sachdeva
Most telling in this video is the explanation given in terms of falsely building up the cost structure from year to year. This makes a lot of sense to me. In order to slip it by the auditors, what you would have to do is create the illusion that raw materials costs were gradually increasing over time. Nearly everything that auditors do in their testing methodology is based on materiality thresholds, which makes incremental fraud nearly impossible to detect.
So she steals $1m the first year (using cashiers checks and wire transfers on the outgoing end, thus bypassing the normal accounts payable system, as well as Koss, Jr.'s review) and hides it on the incoming end (at least as the theory goes) by falsifying some of the documentation concerning raw materials that were purchased during the year. The auditors buy into it. It's a very simple notion: input prices and/or quantities naturally increase over time! Not exactly a "hard sell". But the auditors negligently don't even bother to get confirmations of price/quantity from the vendors.
So in year two when she steals $3m, she only has $2 million to explain because the first $1 million was built into the auditors expectations from last year, and is already documented in their work papers as being "reasonable" and within materiality constraints. $1 million more can be passed off as further price/quantity increases in year two, and this is entirely plausible relative to $20-$30m per year in cost of goods sold. She then gets a little braver and fudges some more figures to make it all tie together. Meanwhile, Koss Jr. is out golfing with the Grant Thornton partner.