The average business loses 5 percent of its annual revenues to occupational fraud, according to estimates by participants in an Association of Certified Fraud Examiners (ACFE) survey. Public utilities, rural co-ops and telcos are particularly vulnerable to inventory theft (e.g., cable, copper, tools and miscellaneous supplies) which employees use for cash sales. These losses are more common than accounting and financial fraud.

While you may think it’s a losing battle, there are ways you can beef up your controls to fight back.

Add a chapter to your employee manual describing your company’s policies on employee theft and fraud. Be specific. If a worker were to steal 20 feet of coax cable for personal use, spell out the consequences. Make sure they understand that their employee benefits do not include even negligible quantities of company inventory.

Make sure your policy explains that violators will be terminated and could face criminal prosecution. In addition, inform employees they need to be aware of what is going on around them and alert a supervisor if they suspect foul play.

Telling employees to report any wrongdoing is one thing, but you also need to protect those who do. Provide a confidential mechanism, such as a toll-free hotline, through which a worker can communicate concerns or “blow the whistle” on perpetrators. Taking this step increases the likelihood that fraud will be exposed before it seriously harms your company.

The best way to prevent fraud and theft is to identify wrongdoers before they start working for you. Conduct thorough background checks on prospective candidates — even those who come highly recommended from trusted sources. The most common behavioral red flag among fraudsters is that they live beyond their means. Other indicators include gambling, drinking and drug issues. Although you may need to hire an outside firm to search for previous criminal convictions, this extra upfront expense can save you money, hassles and your reputation down the road. Moreover, be wary of job applications and resumes that show frequent job changes, and make sure any gaps in employment history are reasonable and fully explained.

Smaller operations may rely on one or two employees to handle several critical duties. For example, one person may be responsible for both accounts receivable and accounts payable. However, personnel responsible for billing and receipt functions should never come into contact with cash receipts or deposits.

To make it harder for workers to dip into the till, divide accounting and finance-related responsibilities among several employees. For example, have someone independent of the purchasing or vendor payment functions review all new supplier entries.

Your CPA is a good resource for uncovering fraud and embezzlement. For example, he or she can make random, unannounced audits to help identify potentially dangerous gaps in your controls and procedures. A CPA can also help create an effective internal control environment and monitor bookkeeping records, invoices, bank statements, payments, journal entries, financial reports and other documents with an eye toward identifying red flags.

Fraud is likely here to stay. But that doesn’t mean you have to tolerate it. By implementing the steps noted above, you’ll have a fighting chance to combat thieves. If you’d like to learn more about how to tackle internal fraud, contact your CPA.