For an employer, finding out an employee has engaged in theft, embezzlement or another type of fraud is one of the most heartbreaking things possible. But employee fraud is something an employer has to prepare for and safeguard himself against, especially during these trying economic times. A 2009 study by Business Week magazine revealed that acts of employee misconduct such as employee theft rose a remarkable 20 percent in the second half of 2008, when the economy crashed and the recession really went into high gear.

It is particularly urgent that employers take a proactive and aggressive approach to uncovering employee theft and embezzlement cases because it often takes a long time—up to 18 months—for an employer to catch an employee "in the act." By that time, the losses for the employer may be staggering, and for a smaller business, fatal. The Association of Certified Fraud Examiners reported in 2004 that the median loss for small businesses in cases of employee theft is $100,000.

Employee theft can shake a company to its core, not to mention the employer, but an employer who suspects it is taking place must investigate it further. Following are some tips on how employers can prevent embezzlement cases before they occur or nip them in the bud so that the damage is limited:

—Conduct thorough background checks. While a background check won’t guarantee an employee will never steal from the company, certain warning signs can pop up during pre-employment screening. Employers should be careful hiring potential employees who possess a checked criminal history and employment history. In addition, it may also be beneficial for an employer to run a credit check on interviewees. While their permission is needed to conduct a credit check, it can unearth financial issues that might make an employee more likely to commit fraud.

—Spell out, in explicit terms, to employees what constitutes employee theft. From the obvious instances (such as immediate dismissal for stealing company property) to more subtle acts of fraud such as showing up late and leaving early, taking long lunch breaks and calling in sick when the employee isn’t actually sick, make sure employees know there will be a zero tolerance policy. The stricter you are, the better: If employees realize there is no gray area when it comes to theft and fraud issues, odds are they won’t even try to get away with anything.

—While the idea of losing thousands of dollars surely makes you angry, you cannot act quickly or rashly if you suspect embezzlement cases are occurring at your office or company. An employee might be acting suspiciously just as you realize funds and/or merchandise are missing, but you need to catch him or her engaging in the theft or fraud. Installing closed-circuit cameras in the office and store as well as stockroom areas can provide the video evidence you need. Proving financial fraud is a little more difficult and may require the service of an outside private investigator or accountant, but you can examine bank statements and demand to see all receipts. Does everything "add up?" Discovering discrepancies will be painful, but may save your company.