Case Study: PRIVATE FITNESS, LLC

I. Introduction

Many times, it is observed that many companies or persons acting on behalf of the
company adopt acts that subsequently prove to be fatal to a large extent. White-collar
crimes are encroaching on corporate culture these days, harming our country's trade and
economy and the firms' statistics. With all of the obligations that come with running a
successful manufacturing company, fraud detection and prevention may go to the bottom
of the priority list. When critical positions are filled by long-term, trusted personnel,
business owners may not even recognize the potential threat of fraud. Yet, according to
survey data, those with a thorough understanding of the industry, a high amount of
responsibility, and the freedom to operate with little monitoring are the most vulnerable to
illegal activities.

The case study about Private Fitness, LLC discusses Rosemary Worth’s
ramifications of a larceny that had recently occurred at the business she owned. Kate
Hoffman, who has committed the employee fraud, is a long-time friend of hers and
happens to be a good instructor and a good salesperson at the same place
simultaneously. Because this is a significant breach of Kate's courtesy, the firm was
obliged to implement stringent control to avoid occurrences like these. The company's
policies and regulations are not yet stable. Kate is the only person responsible for
recording gross receipts and receiving hard currency. It is necessary to segregate or
delegate responsibilities appropriately. That is the basis for Kate's ability to conceal
deception.

In furtherance of this paper, relative information on the consequences and

mitigatory strategies are discussed in the following sections to facilitate understanding
and provide action plans to minimize the occurrence of these actions as businesses
stretch the boundaries of their stability in the market. The framework of this paper is
based on Private Fitness, LLC incident – a small business situated in Rancho Palos
Verdes, California, anupscale community located in the Los Angeles area.

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 II. Discussion

In any corporate organization, the concept of ethics is critical in formulating

operational strategy. Various decision-making procedures, including employee
recruitment, defining the organization's goals and objectives, designing the appropriate
organizational structure, developing corporate strategy, and integrating the approach into
business operations, necessitate ethical consideration. The case analysis presented
outlines the organization's employee fraud experience. The team was able to convey and
provide helpful solutions that would prevent, if not eliminate, the crimes committed by
internal personnel. Additionally, the work presented brilliant ideas that have demystified
areas that need improvement and covered those with solutions to possible problems the
firm may encounter going forward. However, it would have been best to support the
analysis with relevant statistics showing the uprising internal company misdeeds. The
figures will provide concrete evidence that these acts should not be taken lightly and
overlooked by employers, stakeholders, and company partners regardless of the accused
person's relationship to the superior.

Every fraudster is motivated by their objectives and chances. One reason that can
drive an employee to commit fraud is pressure. Targets to meet, the need to get promoted
or personal reasons such as gambling habits and financial difficulties can all cause stress.
Employees subjected to these pressures believe that they can be alleviated by engaging
in dishonest behavior. Another reason that can inspire someone to commit workplace
fraud is rationalization. All these can have a variety of consequences for a company. It
could have severe financial effects on a company, such as a pivot of the organization's
financial standing and a negative impact on the stock market price of its shares. Possible
outcomes also include ruining the management's reputation and jeopardizing the
company's capacity to fulfill future commitments. It will cause negative public opinions,
obstructing prospective clients and customers, cynical employee morale and retention,
and future employment (Shairwal, 2021).

Fraudulent activities have been rampant, and offenders' attempts have become
increasingly sophisticated. Digital fraud attempts increased by 25.07% in the first quarter
of 2021. The figure is significantly higher in the financial services industry. According to
TransUnion's analysis in 2021, the percentage of suspected financial services digital fraud
has surged by 149% internationally. The threat of fraud has grown so widespread that the
Royal United Services Institute announced in January of the same year that it should be
deemed a national security issue in the United Kingdom, costing the country up to £190
billion per year to combat. (TransUnion, 2021)

According to the same report from July 2021, the US Securities and Exchange
Commission (SEC) has charged FTE Networks, a telecommunications and information
systems business, with multi-year accounting fraud. According to the SEC investigation,
the industry overstated its revenues by up to 108% during certain times. The former CEO
and CFO were also accused of misappropriating millions of dollars for personal gain and
hiding the company's issue of about US $23 million in convertible notes. At the same time,
it was still listed on the New York Stock Exchange. With further investigation and

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 scrutinizing, the people involved may face more than one penalty. Section 447 of the
Companies Act 2013 stipulates that fraud is punishable by imprisonment for a period of
six months to ten years, as well as a fine of up to three times the sum involved in the
fraud. In this regard, Section 36 of the abovementioned legislation is crucial, as it
outlines the penalties for fraudulently enticing people to invest money. In addition,
Sections 448-451 and 454 deal with a variety of sanctions and punishments for
corporate fraud (Corporate Law Reporter, 2022)

The foundation for fraud prevention is a management team dedicated to a culture of

honesty and integrity. They establish a written code of conduct that includes a rigorous,
consistently enforced anti-fraud policy. Employees should understand fraud, its impact
on the organization, and the seriousness with which management treats the issue. For
these reasons, firms are highly encouraged to impose an active training program to
facilitate each member's understanding of this matter. Employees should also have
immediate access to resources in the event that they have queries, as well as a
whistleblower hotline via which they can anonymously report suspicious activities.

Management also helps to prevent fraud by fostering a healthy and productive

workplace. Performance expectations and incentive schemes that are reasonable
reduce the temptation to game the system. The necessary skill sets and personnel in
key departments allow for a separation of roles and suitable checks and balances for
operational and transactional control. Regular employee reviews establish performance
goals and provide a mechanism for rehabilitating weak workers. Finally, management
should exhibit a strong commitment to, involvement in, and interest in the company's
financial concerns, business operations, and employee opinions and contributions
(Lauseng, 2017).

III. Conclusion

Therefore, fraud is an issue that affects businesses all around the world. Although
there are some minor regional differences in the tactics fraudsters employ to conduct
crimes and companies to prevent and detect fraud schemes, the overall trends in our
data are relatively constant, both across borders and over time. This consistency
highlights the magnitude and pervasiveness of fraud's threat to all companies. While
fraud may not be the most visible issue on a company's radar, the repercussions of
ignoring it can be disastrous. Fortunately, experts in the sector can put structures and
processes in place to manage risk with minimum impact on day-to-day operations
depending on the scale and type of business the firm runs and its extent to prevent
such occurrence.

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 IV. References

Business Fraud Prevention (BFP). (2021). Fraud Statistics. Retrieved February 04,
2022, from Business Fraud Prevention (BFP): Empowering Small Businesses
Against Fraud: https://businessfraudprevention.org/fraud-statistics/
Corporate Law Reporter. (2022). Section 447 of the Companies Act, 2013 - Punishment
for fraud. Retrieved February 03, 2022, from Corporate Law Reporter: The
Daily Journal: http://corporatelawreporter.com/companies_act/section-447-of-
companies-act-2013- punishment-for-
fraud/#:~:text=Without%20prejudice%20to%20any%20liability,rupees%20or%20
one%2 0per%20cent.
Lauseng, J. (2017). Fraud: Risks, Impacts, and Prevention. Retrieved February 04,
2022, from Aldrich Advisors:
https://aldrichadvisors.com/manufacturing/fraud-
risks/#:~:text=Beyond%20direct%20financial%20loss%2C%20fraud,%2C%20leg
al%20f ines%2C%20and%20sanctions.
Shairwal, S. (2021). Corporate fraud - an understanding. Retrieved February 05, 2022,
from Lexology.com: https://www.lexology.com/library/detail.aspx?g=f14e4ac0-
4ead-409e- a7f5-74d596bb9b26
TransUnion. (2021). Fraudsters Shift Focus at Mid-Point of 2021 from Financial
Services to Travel and Leisure and other Industries. Retrieved February 03,
2022, from TransUnion LLC: https://newsroom.transunion.com/fraudsters-shift-
focus-at-mid-point-of-2021- from-financial-services--to-travel-and-leisure-and-
other-industries/

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