Employee theft doesn't just happen in big companies. Small businesses are hit every day because they are less likely to take precautions. Many small business owners think they cannot afford expensive security devices. In reality, there are some simple steps you can take to minimize the risk of employee theft.

Some warning signs

Here are some warning signs of employee theft:

• Increase in overall sales could represent concealment of accounts receivable payments
• Unusual bad-debt write-offs could be covering up a fraudulent scheme
• Bounced business checks could indicate that funds are being siphoned out of your bank account
• Inventory shortages could indicate fictitious purchases, unrecorded sales or employee theft
• Slow collections can be a mask to hide employee theft

Four basic steps

You can do four basic things to implement an internal system of controls:

1. Carefully screen all applicants for employment before they are hired
    
2. Periodically examine cancelled checks to see if there is anything unusual
    
3. Take precautions in preparing payroll, such as having more than one person prepare it or oversee it yourself
    
4. Have two people sign off on checks, preferably in front of each other

While no system of internal controls is foolproof, you can create an environment where employees know that they will be caught if they steal.

More precautions

You can also minimize the risk of employee theft by:

• Limiting the endorsement of checks to "for deposit only" unless you are endorsing them
• Examining payroll records regularly to prevent padding
• Making sure that employees who order goods and supplies are not the same ones who receive them
• Restricting access to sensitive records to just you and/or a small group of trusted employees
• Dividing financial responsibilities among employees

Bonding

Many employers protect themselves by bonding their employees. Bonding indemnifies employers for the loss of money or other property.  Bonding can cover many types of "dishonest acts" by employees, such as theft, embezzlement and forgery.

There are several different types of fidelity bonds. A fidelity bond may cover just an individual employee or it may cover all employees. You have many options to customize your coverage.