Unfortunately, employee theft (asset misappropriation, corruption and financial statement fraud) is all too common and can hit small businesses hard. The Association of Certified Fraud Examiners (ACFE) estimates that organizations worldwide lose five percent of annual revenues to fraud every year. Even more startling, the ACFE’s 2014 Report found that the fraudulent activities they studied lasted an average of 18 months before being detected. Here are a few basic steps you can take to reduce the likelihood of employee theft:

Know Your Employees. There are indicators of potential employee fraud. Be aware of employee behavior, especially unexpected changes:

• New, sudden, apparent devotion to work and/or working late;
• A lifestyle well above salary levels;
• Strong objections to procedural changes related to financial, inventory, or supply matters;
• Not taking vacations (many violations are discovered while the perpetrator is on vacation);
• Overly-protective or exclusive about their workspace;
• Working after hours or taking work home because of a preference to be unsupervised;
• Financial records sometimes disappearing;
• Unexplained debt;
• Addiction problems such as drugs, compulsive gambling, and alcohol abuse.

Studies have shown that employees who commit workplace crime or fraud do so because they are under pressure, feel under-appreciated, or perceive that management behavior is unethical or unfair. They then rationalize their behavior based on the fact that they feel they are owed something or deserve it.

Establish Hiring Procedures. While keeping in mind that all hiring procedures must be lawful, conducting a thorough background check and following up on all references and educational and work histories is crucial. Incorporate evaluation of the employee’s compliance with company ethics and anti-fraud programs into regular performance reviews.

Audit. Auditing can be uncomfortable in a small business environment. But regular internal audits, surprise audits, and annual external audits can not only help you detect theft and fraud, they can also be a significant deterrent to fraud. Perpetrators of workplace fraud recognize and seize opportunity where weak internal controls exist. A good resource is ACFE’s Fraud Prevention Check-Up.

Hire Experts. Accountants, especially those certified in financial forensics or who are certified fraud examiners (CFEs), and legal counsel are key in helping businesses establish anti-fraud policies and procedures that withstand legal scrutiny while helping to reduce the risk of employee fraud.

All businesses are at risk for workplace fraud. By taking intentional steps to reduce that risk, you can deter employee fraud, or at least increase your chances of detecting the fraud early on.