Grant Thornton US has lost its appeal to dismiss a lawsuit filed against it by US headphone manufacturer Koss Corporations (Koss), after a ruling by the Circuit Court of Cook County.
Koss filed the suit against its former auditor Grant Thornton, accusing it of gross negligence for not uncovering $34m embezzled by former Koss finance vice president Sujata Sachdeva, who is currently serving an 11 year sentence for the crime, brought to light by American Express in 2009.
The suit asked the court to order corporate governance reforms at the company and for any money paid by defendants in that case to be paid to Koss, according to US media reports.
A Grant Thornton spokesperson told the International Accounting Bulletin the fraud committed by Sachdeva and others in the finance function at Koss had hurt a lot of innocent people, including some of its own staff.
“Fraud always starts with a breakdown in a company’s internal control system – breakdowns that may not be detected even by a financial statement audit done in accordance with professional standards. This is why [Grant Thornton] have advocated for so long that all public companies should be required to have an independent audit of their internal control systems under Sarbanes-Oxley Section 404(b) – a requirement that was publicly argued against by Koss’ management,” the spokesperson added.
Koss also has suits pending against firms that were involved in payments using embezzled funds. A suit against American Express was dismissed earlier this year.