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Questions are raised about the ethical behaviors of the business as a whole. Only time and consistent performance and results can improve and rem ove the tarnish from the reputation of the affected company or business. There are many types of corporate and employee fraud that affect business of all sizes and all types. The fraud and theft can come in many forms – actual theft of cash, property, or other assets; procurement or contractual fraud; payroll theft; and misrepresentations of financial statements are just a few. No business is one Journal of Business and Behavioral Sciences 105 hundred percent immune to havin g a circumstance occur in their business. Even businesses that have the most “impactful” and detailed ethics statements and detailed procedures and seg regations can still be a victim . Companies send employees through training sessions that discuss ethical decision making and practices that employees should not engage in while conducting business; however, these occurrences still happen. A business must ensure that it has practice s in place that can help prevent, or at the least, identify the issue very qu ickly to prevent larger impact to the organization. Segregation of duties where there are financial transactions and audit checks to verify processes are just a few ways that an organization can help to prevent fra ud and theft. Also, simple employee behavi ors and actions can also be indicators of concern – living well above their means and wanting access to management systems or details that do not relate directly to their role are a few examples. The instances that allow a person to consider and actually p articipate in fraudulent and theft practices are sometimes so innocent in the beginning. This requires that employers and businesses keep a watchful eye on areas where there is opportunity for one to be involved in such activity. This report will provide more examples of fraud and employee theft activities within the business world over the last several years and will look into the business culture and structure that allows for the employee behaviors. The paper will provide the impact costs to business – both direct and indirect costs. The paper will also provide actions or changes that a business can take to prevent fraud and employee theft. LITERATURE REVIEW Corporate fraud and employee theft are not new to this day and age. However, the rates seem to have become more staggering over the last several years. Back in 2007, it was estimated that theft and fraud by a business’s own employees cost businesses $100 billion dollars worldwide each year (Sauser, 2007). Another article shows that in 2010 the magni tude of fraud and theft on businesses worldwide could be as large as $2.9 trillion dollars ( Davis, 2 01 3). In 2013, the number of cases of employee fraud and theft that exceeded $100,000 for each case grew at a record pace of almost five percent (2013: Highest Rate). In five years of case studies from the Marquet Report on Embezzlement , there were more than 2 100 cases of employee theft that exceeded $100,000 and nearly two thirds of perpetrators were women (Powell, 2014). These numbers are all staggering no matter how one looks at them. From the research conducted by Free, employee misconduct behavior had begu n with small incidents and then gets larger as the associate realizes no one is aware of the issues (2015). Activities generally do start out very small and almost somewhat innocent like; then, as the individual, or indivi duals in many cases, raises their confidence level, the activities become larger and wider spread across the organization. Johnson describes the far -reaching impacts of corporate fraud on a business in terms of “reputational sanction” ; in other terms , customers being weary of dealing wit h a firm that has dishonest management, which causes reduction in Peters and Maniam 106 demand for their services or products (2014). Also mentioned in this research is the results that in the fraud cases studied, nearly six percent of customers stop doing business with a compa ny that has been affected by a fraud event. The research from Marcel shows that not only are customer relationships affected by fraud and theft but that employee and board of director relationships are also affected. In the article written by Marcel , it states that board of directors who separate themselves from the affected business, normally come out ahead in terms of reputation (2014 , p. 929 ). By vacating their board post early, it is possible that their name will not be mentioned in news and press release articles. Another impact of fraudulent and theft activities is increased government regulation and policies to address or help to alleviate concerns from the business world, investment markets and consumers around the world. Such a regulation woul d be the Sarbanes – Oxley Act approved in 2002 (also known as the Public Company Accounting Reform and Investor Protection act of 2002). This act’s purpose is to focus on internal controls, accounting reports, auditing processes and review and structure of boards and committees (Mill iar, 2009). This Act was a response to one of the most notorious cases of corporate fraud, Enron. In a study of the cases of fraud by the Securities and Exchange Commission (SEC) between 1998 and 2007 found that ninety eight per cent of cases had involvement of the CEO or CFO , according to Venkatesan (2015). Businesses must take actions and implement control procedures with departments and policies that will help prevent fraud and theft attempts by associates. The first step is strategic to business function – simply care about your associates and the work they are performing (Timofeyev, 2014). Internal controls and segregation of duties are always considered top methods of preventing and eliminating the opportunities for associ ates to create fraudulent details or commit an act of theft against the company. However, it is not as simple as putting controls and policies in place, a company must “reinforcing and vigilantly adhering to the existing controls” (Cheney, 2008 , p. 20 ). In looking at various instances of fraud and theft activities found in businesses today , each business affected must be able to develop practices that will prevent a reoccurrence. FRAUDUENT & EMPLOYEE THEFT ACTIVITIES FOUND IN UNITED STATES BUSINESS Business examples of fraud and employee theft can come from a business that is large or small, public or private, and in any shape or form. According to Curtis Verschoor, a simple search of database in the month of August 2014, uncovered 200 stories of som e type of business related fraud, theft or embezzlement activity (2014). As shown in other research as well, small to midsize companies actually have the greatest risk of having a fraud or theft issue within the business. These instances are also easier f or the local new sources to bring details quickly to the public. Bernie Madoff’s Ponzi scheme is a well know example of securities fraud over the last few decades that affected a great deal of people and their personal Journal of Business and Behavioral Sciences 107 retirement future. This is a situa tion that had far reaching impacts than just another’s retirement account. Individuals took their own lives based upon Madoff’s scheme that affected their whole life’s plan . Another example of securities fraud would be “pump and dump scheme ” in which a party pumps up the hype about a particular business to get investors to put their money into the business to raise the market prices, and then when the price reaches the point that the fraudulent party desires, they dump the sto ck for a profit for themselv es and causes a loss for the other investors (Galletta, 2015 , p. 55 ). An example of accounting fraud would be Health South inflated earnings in the early 2000’s to exceed Wall Street expectations of the business and create inflated market prices for the business. This inflation of the books was the result of the CEO’s instructions to the accounting and finance team. Another example would be the Enron debacle from the early 2000’s as well, that caused both substantial business investment tidal waves and large losses to the employees of their business through their life savings . These type of fraudulent activities often involv e the CEO or CFO position of the business. In 347 cases of fraud, 89% of the cases reviewed by the “Fraudulent Financial Reporting: 1998 -2007” involved the CEO and CFO of the corporation; CEO a re implicated in over 72% of the cases, and CFO are implicated is over 65% (Boyle, 2012). Employee theft can occur in many shapes, forms, and at any level of associate within the business . Seventy five percent of employees have taken items from employers according to the survey conducted by the Association of Certif ied Fraud Examiners (Galletta, 2015). This can be an associate that regularly takes advantage of entering excess hours on their payroll documentation than what was physically worked; or an associate that takes merchandise from the business without paying o r being approved to take the items and benefits from this in a positive manner; or could be an instance where the employee is taking funds from accounts without anyone’s knowledge and depositing them into their personal accounts. Employee theft could also be an associate that is stealing research ideas and products from the company and selling them to the competition. In naming off these few examples of practices that could be considered employee theft, it helps to document the problems encountered when trying to determine an estimate d amount or value and the scale of employee theft from a business (Sauser, 2007). It is very difficult to put a single amount to what these type of activities cost the business world each year. Other types of fraud and theft that impacts business of today are ones that do not even initial ly start because of the business or its employees. Corporate identity theft and database breaches are also large scale issues that affecting businesses today in terms of their business results and reputations. A recent example of this would the Target database breach that affected millions of credit cardholders that had shopped at Target. This type of activity is yet another focus area for businesses to ensure they have the correct internal con trols and processes in place to protect not just their business data but also the data of the customers that have expectations of the company to protect them as well. In addition to Peters and Maniam 108 employee behaviors, business culture and practices that are allowed impact what an employee is capable of committing in terms of fraud and theft. BUSINESS CULTURE ASPECTS THAT ALLOW FOR FRAUD & THEFT ACTIVITIES In many cases of fraud and theft, “the ends justifies the means” to the associates that end up caught up in the tang les of deceit (Campbell, 2014 , p. 301 ). An employee or group of employees will rationalize their decision to make changes to statements, thinking that it does not affect anyone else outside of their business, when in fact it has far reaching negative effec ts on many. In Campbell’s study, because the organizations connect the employee’s success to the metrics of the business, therefore making it a “win -win situation”, corrupt business practices can occur without someone raising the awareness flag. Employees that start committing theft or fraud against a company have the following components: financial need, opportunity, and rationalization (Rood, 2014). The business overtone that is set by the CEO is one that will drive its way through an organization. Resea rch shows that a “suspect” CEO arrival into an organization can completely drive existing culture out; this comes about through replacement of key employees with ones that agree with CEO’s focus and requirements and one that is more than willing to follow the directions provided (Biggerstaff, 2015). When comparing the cases of fraud and employee theft, there are commonalities amongst the cases – inadequate controls, no segregation of duties, follow up and auditing, and poorly completely background checks on employees (Verschoor, 2014). Another aspect that comes into the business or employee culture that brings about theft and fraud is what defines “theft”. This is a question that when asked of associates the answers v ary. Some feel it is not theft if they take time paid for lunch break where they were not working, others feel like it is not stealing if items are taken home that have been purchased by the company. These are all part of business theft, in much smaller sc ale than the cases that are being discussed in this research but it is what begins the definition of theft and fraud. An employee may have issues at home that start the process of trying to figure out how to survive; the solution may sometimes include uti lizing business funds or payment methods. These situations are ones that employees must be aware of and must consider in terms of whether or not an employee would have a need or desire to “steal” from the company. From Murphy’s research on the prevention of fraud comes the psychological pathways to fraud diagram shown below. This all starts with an associate that is not predisposed to fraud activities and has not knowingly committed fraud (2011). This diagraph walks through the thought process an associate would go through when considering an activity out of their normal behavior zone. Along this diagram, there are many points where an organization or business can provide training, policies, procedures and reminders that would make an associate chose the pa th away from the fraudulent or theft behavior Journal of Business and Behavioral Sciences 109 choice. When an employee gets to the point in the diagram that they rationalize the fraud, and determination is that it is okay, the employee continues to commit the fraudulent act at a much larger scale than f irst intended . Note : Diagram source - “Psychological Pathways to Fraud: Understanding and Pre venting Fraud ” in Organizations in Journal of Business Ethics, 2011. Peters and Maniam 110 Employees feeling like they are not being rewarded properly for the work that they provide a business is sometimes the starting point for behavior that leads into a theft or fraud situation. According to Hrncir and Metts , these employees may have a feeling the business owes them when fraud or theft is being contemplated; this feeling sometimes starts because of lack of compensation (2012, p. 64 ). The chart (table 1) below from Hrncir and Metts’ article shows some red flags from researched theft cases that b usinesses can look for within their employee workforce. From this chart, it is seen that living above one’s means is a top warning sign, along with employee financial difficulties. When reading various case studies, these two areas appear to be at the top of many research listings for reasons an employee would venture into a theft or fraudulent activity. Many times these acts will start out innocently with a small dollar amount; then, as the employee realizes it is being successful, the scale goes larger an d sometimes for years before it is uncovered. Note : Table was retrieved from the article “Why Small Businesses Fall Victim to Fraud: Size and Trust I ssues ” by Hrncir and Metts in 2012 from the Business Studies Journal . Journal of Business and Behavioral Sciences 111 IMPACTS AND COSTS ASSOCIATED WITH FRAUDUENT & THEFT PRACTICES Business loss of sales is a direct cost impact from fraudulent and employee theft incidents far outweigh the government fines or class action lawsuits that can be filed against them (Johnson, 2014). With the reduction in production due to lost sales, the business also faces an increase in the SG&A costs associated with producing their products. Another direct cost to business in terms of fraud and theft would be the marketing and promotion costs associated with trying to improve the business image after s uch an event occurs. The statistics below come from the Association of Certified Fraud Examiners research dated 2015. The median case incident is $175,000 impact to business impacted by fraud or theft.

And over 33% of bankruptcies are caused by employee t heft according to the statistics provided in this review (Association, 2015). Employee Theft Statistics Data Amount stolen annually from US businesses by employees $50,000,000.0 0 Percent of annual revenues lost to theft or fraud 7% Percent of employees who ha ve stolen at least once from their employer 75% Percent of employees who ha ve stolen at least twice from their employer 37.50% Percent of all business bankruptcies caused by employee theft 33% Amount Stolen Percent $1,000,000 and up 25.30% $500,000 to $999,999 9.60% $100,000 to $499,999 28.20% $10,000 to $99,999 16.80% $1,000 to $9,999 7% $1,000 or less 19% Median Amount Stolen $175,000 Note : Table above was adapted from the article and survey from the Associatio n of Certified Fraud Examiners in 2015 for Employee Theft Statistics. http://www.statisticbrain.com/employee -theft -statistics/ The environment or culture is important, not only for success business results, but it is also important in terms of preventing fraud and theft from occurring each and every day. The negative effects of a tarnished reputation will not be felt immediately by companies that have been a victim of employee theft or fraud. (Guiso, 2015). But over time and additional focus on the situa tion, companies do not want to be associated with other companies that have blemishes on their record for fraud and employee theft, as these areas can be the starting Peters and Maniam 112 points of other unethical practices that management has allowed or turned their heads too .

From Timofeyev’s study, the charts below show the median loss from fraud of $200,000 in 2014 and theft that and the frequency rate rose to 36.8 percent reported in the Certified Fraud Examiners study (2015). This data shows the losses related to incidents are actually dropping; however, the number of cases per year are rising by approximately 3% each year. Business must be willing to make changes within their environments, practices, policies and procedures in order to be able to prevent fraud and theft activities from impact the business . The amount of change required or needed to improve the culture and environment that allows for employees to create a situation where fraud and theft can occur can vary greatly between the affected businesses. Note : Figure 1 and 2 were retrieved from the article “Analysis of Predictors of Organizational L osses Due to Occupational C orruption ” by Timofeyev in 2015 in the International Business Review . . Journal of Business and Behavioral Sciences 113 CHANGES TO OCCUR WITHIN BUSINESS TO PREVENT FRAU D AND THEFT Incidents of fraud and theft within an organization or b usiness can be reduced and prevented with multiple aspects of control. Team awareness, management support, and cross functional team audits are just a few ways that could impact the busi ness in a positive way in terms of fraud and theft. In the article written by Boyle (2012), a bus iness must set a strong ethical tone from the top leaders of the business to set the culture of theft and fraud being an un acceptable practice (p. 65 ). One way to prevent these activities from occurring is to provide the leadership structure that makes another employee feel safe to be able to share concerns and knowledge concerning another associate’s unethical behaviors.

Together, the leadership and the personal safety aspect give the associate the feeling that the business will accept the information being shared and protect the source of the knowledge within the process of investigation. (Liu, 2015 , p. 115 ). The fear of retaliation is most likely reaso n some will not come forward with details about other associates. This fear comes about through thoughts of losing a job or creating a hostile work environment with other team mates. Also, when it comes to the discussion on whistle blowing on teammates, som e assoc iates feel it is someone else’s place to step up to share the information so they remain quiet (Fredin, 2012). The work environment must be one that is positive enough to bring about a more supportive and encouraging environment that also would not allow for the unethical practices to continue to a point to where it would hurt the morale and success of the business. And it must be one that encoura ges team members to share concerns. Internal auditors are “eyes and ears of management” and also should have a high level of professionalism based upon their professional standards (Xu, 2008).

These individuals are definitely in the middle ground between management behavior that drives the environment of the business and then also the ethical standards that have been established for one in their profession. An auditor must be open minded and look at every detail and process with care to ensure that a business does not have substantial risk in a process or reporting mechanism. A company does not have to have an “auditor” role to get the benefit that an internal look at processes and employee behaviors. An associate with an eye for details can be trained to review another department’s process to verify that the controls and policies are enforced within the depa rtment. Through this process, findings can be reviewed for improvement opportunities to reduce the possibility of theft or employee fraud. Other ways that a business can reduce the opportunity an employee to create a situation of fraud or theft include:  Background checks on new hires and current employees if they are handling large funds Se paration of duties for financial department position . Independent outside review of financial statements to ensure validity Peters and Maniam 114  Protecting documentation that contains sensitive information or details that could be used in fraud or theft situation  Audits of departments where there are potential risks – Human Resources and Payroll, Purchasing, and Credit  Pay close attention to employees who have business credit cards an d have a process in place  According to the article “School Your Clients to Stop Theft”, employees that will not take vacations ( 2007). These are employees that could be concern to the business if the role is one where there is financial reporting or payme nt processing. The concern would come about because of not wanting another associate to look into the processes that could covered up. In the statistics below from the ACFE 2015 study, tips of other employees is the largest percentage of fraud and theft d etection. Referencing back to the strong leadership culture and environment where employees feel safe to sharing details and knowledge about another associates’ behavior is valuable to business owners and leaders when trying to prevent fraud and theft prac tices . Accidental discovery and internal audits are the next methods of finding about an employee’s theft or fraudulent practices, with nearly 38% of the cases being discovered through these methods. Reported Fraud Statistics Percent Tip from employee 26.3% Accidental discovery 18.8% Internal audit 18.8% Internal control 15.4% External audit 11.8% Tip from customer 8.8% Anonymous tip 6.2% Tip from vendor 5.1% Notification from law enforcement 1.7% Note : Table was retrieved from the research information from the Association of Certified Fraud Examiners in 2015 on Employee Theft Statistic s. SUMMARY AND CONCLUSION Employee theft and corporate fraud is costly impact to businesses in today’s world. The managers and financial departments today must be on top of internal controls, procedures and policies, and employee business practices to ensure the business is not aff ected by these types of incidents. According to Ravi Journal of Business and Behavioral Sciences 115 Venk atesan, strong leadership can dramatically change the atmosphere and environment that allows for misconduct like fraud and theft to occur; policies, procedures, practices and audits are all needed as well but the leadership will make the biggest impact to prevent incidents (2014). With varying degrees of controls, audit, segregation of duties, and employee background checks to ensure that associates do not have issues in the past that would be an ind icator of such activity again. There is not one solid method to prevent fraud or employee theft from occurring with a business today, but managers and leadership teams must have practices in place that will reduce the opportunity for an employee to choose to steal from the company and they must be able to reduce the severity of the incident. Ronald Re agan said many times while he was in office , “Trust but Verify” so that is always a good adage for businesses to remember. REFERENCES Association of Certi fied Fraud Examiners, (2015). Employee Theft Statistics. http://www.statisticbrain.com/employee -theft -statistics/ Barra, A. R. (2010). The Impact of internal controls and penalties on fraud. Journal of Information Systems , 24(1), 1 -21. doi:10.2308/jis.2010.24.1.1 Biggerstaff, L., Cicero, D. C., & Puckett, A. (2015). Suspect CEOs, unethical culture, and corporate misbehavior . Journal of Financial Economics , 117(1), 98 -121. doi:10.1016/j.jfineco.2014.12.001 Boyle, D. N., Carpenter, B. W., & Hermanson, D. R. (2012). CEOs, CFOs, and accounting fraud. CPA Journal , 82(1), 62 -65. Campbell, J., & Göritz, A. (2014). Culture corrupts! A qualitative study of organizational culture in corrupt organizations . Journal of Business Ethics , 120(3), 291 -311. doi:10.1007/s10551 -013 -1665 -7 Cheney, G. (2008). 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Journal of Business & Psychology , 22(4), 323 -331. doi:10.1007/s10869 -008 -9072 -2 R epro duce d w ith p erm is sio n o f th e c o pyrig ht o w ner. F urth er r e pro ductio n p ro hib ite d w ith out p erm is sio n.