Pretend you’re a small business owner: you spend years of hard work building your business, only to discover a long-term trusted employee is stealing you blind. Don’t think so? The average business loses 6% of revenue or $9 per day per employee to fraud, theft and abuse.[1] And I’ll bet 6% of revenue is material to every one of you reading this article.

So what’s the best way to prevent someone from robbing you blind? Don’t hire them in the first place. To screen out the bad apples, do a background check on all job applicants. For example, people with financial problems are more likely to steal, as are people with drug, alcohol, and gambling problems. And most common are employees having extramarital affairs. The money has to come from somewhere. Think about this……..If the employee will cheat on his/her spouse, who they promised before God to be faithful to, what makes you think they won’t steal your money to do it?

Many states’ laws require employers to make a clear and conspicuous disclosure to an employee or job candidate that a consumer credit check will be conducted. Informing job applicants up front of the check is also an effective screening technique.

Half the people who see the notice hand the application back, so many of the people who might steal from you don’t even apply for a job because they know they won’t pass muster.

Remember, Trust is NOT a Control. Trust is a feeling, not a control.

Even if you screen your employees, it's no guarantee against being ripped off. There are three things needed for an employee to steal: need, opportunity and rationalization, known as the "triangle of fraud."

Employees who steal often feel exploited or underpaid. For example, employees often think, “They're paying me ten dollars an hour, and making seventy off me.” It's a typical justification.

Business owners should also make sure there are strong internal controls in place to protect the money. The same person should not handle incoming and outgoing funds. One of the easiest, and zero or low-costs controls, is to have your business bank statement sent to you at home so you can review the transactions. Be alert for missing expenses (like not paying sales tax), a preventive control. In addition, no matter how busy you are, review and sign every check that goes out, a detective control.

In an all too common example, 63-year-old Carol Ann Huang, was sentenced in federal court in San Jose, Calif, to six and one-half years in prison for embezzling more than $11 million from her employer, a Los Altos businessman who was a general partner in several business acquisition firms in San Francisco.

She pleaded guilty in 2003 to one count of mail fraud and one count of money laundering in connection with a scheme to embezzle $11 million from 1996 to 2002. Huang provided false payroll data to a processing company handling payrolls for two of her employer's companies.

U.S. attorney Kevin Ryan said Huang also cashed out her employer's life insurance policy without his authorization, put up his Los Altos residence as security on an unauthorized line of credit, and routinely forged his signature on official papers and letters.

In addition to the prison term, Huang has to pay restitution in an amount to be determined at a July 26 hearing. She’ll begin serving her sentence on August 1.[2]

A defective compensation system will get you sued

Ever heard, “People behave the way you pay them to behave”? That is, your compensation system is the primary ‘driver’ of how employees behave. Compensation systems are supposed to motivate people to work, but defective systems can drive illegal or dangerous behavior that puts the company at risk of a lawsuit.