Preventing employee fraud.

Employee fraud can be devastating. Your financial security is compromised. Your decision making is questioned. Your trust is violated – you saw your staff as your partners and then you got burned. Propel Insurance reports that employee fraud is a $3.7 trillion problem around the globe. In 2012, an average of one out of every 40 employees was caught stealing from his or her employer.

Avoid employee fraud by establishing safeguards today:

Define your employees’ roles.

In a small to mid-sized business, employees often have several responsibilities. That’s fine – but make sure you have some structure in place. recommends separating the tasks of recording and processing transactions between employees. Only certain employees should have access to financial assets like company bank and credit accounts – and you need to know who those people are. A process should be in place for the review and explanation of all transactions.

Use background checks and verify references.

Who, exactly, are the people you are trusting with your life’s work? Caron Beesley of the U.S. Small Business Administration recommends that you find out. “Basic pre-employment background checks are a good business practice for any employer,” Beesley writes, “especially for those employees who will be handling cash, high-value merchandise or have access to sensitive customer or financial data.”

There are limits and restrictions to how deep you can dig – you usually cannot, for instance, demand a polygraph test. Check the SBA website at for more details.

Did you ask your potential new hire for a list of references? Did you follow up? The inability of a job applicant to provide a list of three to five professional references who speak highly of his or her work should be a red flag.

Perform informal audits.

Ask an employee to explain a business expense report. Review accounting practices with the team. Hop behind the counter to make sure cash transactions are handled smoothly. According to SCORE, a nonprofit organization that advises small businesses, potential skimmers can be discouraged when they feel you are engaged with the business.

Welcome whistleblowers.

Most employees dislike fraud as much as you. Let your staff know that your door is always open – and provide a mechanism for private reports, from simple suggestion boxes to anonymous online forms. “We tend to think that whistleblowers go outside the company because they do not trust their employer,” Patricia Harned, president of the Ethics Research Council, told Business News Daily staff writer David Mielach. “But in most cases, employees actually turn to their management first. Many see whistleblower as a derogatory term for a disloyal employee, but we’ve found that the whistleblower is often forced to go outside, either by fear, inaction or both.”

Create a trusting, respectful environment at your business. The best defense against employee fraud is your own employees.