Key Tronic Corporation, a Spokane Valley, Washington contract manufacturer of electronics and medical devices traded on Nasdaq as KTCC, has settled Securities and Exchange Commission charges arising from a scheme at its Oakdale, Minnesota facility in which employees created false inventory entries to inflate profits during a period of declining orders — then reversed them after each fiscal period closed. The company’s then-CFO, now CEO, Brett Larsen, and Senior Vice President of U.S. Operations Nicholas Fasciana also settled related charges.
Fasciana, who oversaw the Oakdale facility among others, was aware of and directed some of the misconduct. Larsen, who received the internal complaint about the scheme on the morning of Key Tronic’s scheduled earnings release in January 2021, is faulted for proceeding with the earnings release that day despite his auditor’s advice to postpone, and for conducting an insufficient materiality analysis of accounting adjustments made hours before the release. The SEC issued its order on April 20, 2026. Key Tronic paid no penalty due to its cooperation in the investigation. Larsen paid $20,000. Fasciana paid $15,000. Both are subject to cease-and-desist orders.
Oakdale Employees Created Monster Jobs to Hit Profit Targets During a $10M Forecast Shortfall
The scheme began in the summer of 2020, during the COVID-19 pandemic, as Key Tronic’s Oakdale facility faced a dramatic drop in orders that created what internal communications described as a $5 million revenue forecast hole — a figure that later grew to $10 million. Employees at the facility were concerned that continued losses would result in layoffs. The Oakdale Controller, with Fasciana’s knowledge, began providing personnel with WIP targets: specific dollar amounts of inventory that needed to be reclassified as work-in-process to meet internal profit goals under absorption accounting.
Under absorption accounting, as required by GAAP, classifying inventory as WIP absorbs labor and overhead costs into the value of the inventory rather than expensing them in the current period. This increases income in the short run but reverses the effect later. Oakdale employees took this further. When it became clear there was “zero chance” of meeting WIP targets naturally, they invented what they called Monster Jobs: entries that falsely classified high-value assortments of inventory as WIP, even though the parts could not actually be combined to make a real product. These false entries inflated absorption and income. They were reversed after each period closed. Fasciana received the November 2020 email documenting the Monster Jobs practice. The East Division Controller told him she was “very uncomfortable” with it. Fasciana responded: “Can we look at winding it down over the next 3-4 months?” The practice continued through the end of the second quarter.
Fasciana Also Directed Employees to Reduce WIP Balances Before Calculating Absorption to Save Credits for Future Periods
Beyond the Monster Jobs, Oakdale also engaged in a second manipulation: deliberately reducing the WIP balance before calculating monthly absorption, in order to save absorption credits for future periods. In August 2020, Fasciana was told the facility was showing unusually high absorption and that the next period would likely suffer if all of it were recorded. Fasciana agreed it would be a mistake to record the full amount. The Oakdale Controller then reduced the WIP balance before calculating absorption for that month — keeping some of it in reserve for future use. This too violated Key Tronic’s internal absorption policy.
In mid-September 2020, Fasciana reported that the East Division was projecting a $100,000 loss for the first quarter of fiscal 2021. Shortly after quarter-end, the Oakdale Controller reported that Fasciana wanted to save absorption in anticipation of challenges in the next quarter. Additional absorption was then carried over into the following quarter in violation of GAAP. The SEC’s order describes Fasciana as having been directly involved in directing the recording of roughly $100,000 in absorption that still did not represent the full amount owed under proper accounting.
On Earnings Morning the Internal Complaint Arrived and the Auditor Twice Advised Postponing the Release
Key Tronic’s second quarter ended December 26, 2020. The company planned to release earnings on January 26, 2021, reporting pre-tax income of $2.09 million and net income of $1.75 million. On the morning of the release, an employee filed an internal complaint about the Oakdale inventory misconduct. Larsen and senior management informed the Board and outside auditor, spoke with Oakdale personnel, reviewed inventory reports, and within hours confirmed the core allegations. They corrected the financial statements, reversing approximately $981,000 in improperly recorded pre-tax income — reducing planned pre-tax income by roughly 47%.
Key Tronic also made three additional accounting adjustments to correct other known errors, totaling approximately $764,000 in pre-tax increases that largely offset the Oakdale reversal. A portion of those adjustments were booked out-of-period, relating to prior quarters. The auditor twice advised postponing the earnings release — once in the morning and again later, noting that additional facts might emerge. About an hour before the release, Key Tronic held a Board meeting. Larsen and management favored proceeding. Documents substantiating the adjustments, their out-of-period components, or their materiality were not provided to the Board at that meeting. The Board unanimously voted to release. The auditor separately told the Audit Committee Chair it had advised against releasing.
The Out-of-Period Adjustments Would Have Cut Net Income by 44% If Booked in the Correct Periods
Key Tronic released earnings as scheduled, reporting net income of $1.58 million — up from $0.8 million in the same quarter the prior year — and EPS of $0.14, up from $0.08. The earnings release included verbatim language provided by the auditor noting the data “should be considered preliminary and could be subject to change.” But the narrative of the release was essentially unchanged from its pre-complaint version.
Had Key Tronic recorded the out-of-period adjustments in the quarters they related to, second quarter net income would have been reduced by approximately 44%, from $1.58 million to approximately $0.9 million. Year-over-year net income growth would have dropped from $0.8 million to $0.1 million. Year-over-year EPS growth would have been reduced from $0.06 to zero. The SEC found that Larsen’s finance team compared the adjustments only to the company’s revenue-based materiality threshold without conducting the more comprehensive analysis the surrounding circumstances required — an analysis that would have considered the dramatic impact on income metrics and EPS. Key Tronic’s Audit Committee investigation, completed in July 2021 with the assistance of independent legal counsel and a forensic accounting firm, confirmed the Oakdale misconduct and led to remedial actions including new internal controls, systems upgrades, reporting structure changes, and enhanced oversight at the East Division facilities.
Conclusion
The Key Tronic case is a documented example of what happens when production-side pressure to meet internal profit forecasts reaches a facility that lacks the controls or culture to push back. The Monster Jobs were not invented by executives in Spokane Valley — they were invented by workers in Oakdale who believed their jobs depended on hitting numbers they could not hit honestly. Fasciana knew and delayed stopping it for months. When the complaint arrived on earnings morning, Larsen acted quickly to correct the Oakdale numbers, but proceeded with a release his own auditor had asked him twice to postpone, while an incomplete materiality analysis obscured how much the out-of-period adjustments were propping up the reported results. Key Tronic cooperated fully with the investigation and paid no penalty. The individuals paid $35,000 combined. The remediation record shows a company that fixed what broke — but the earnings release of January 26, 2021 went out anyway, and the investors who read it did not know what had happened in Oakdale that morning.
