One Arizona small-business owner is still stinging from being ripped off not once but twice by two different office managers.

"It's sad to say, but you are better off taking the attitude that everyone you hire is a potential thief," said the business owner, who agreed to discuss his woes but was too embarrassed about his $36,000 loss to see his name in print.

He said the first young woman stole about $20,000 from his manufacturing business after persuading him to convert from a handwritten ledger to a computerized accounting program that she alone could run. Over several years, she diverted funds into her own account and destroyed computer records to cover it up.

Vowing never to be a victim of employee theft again, he hired a woman he described as "a real Mary Poppins type." Mary Poppins stole about $16,000 before he found out she was on probation for stealing from a previous employer. She had hidden her identity by using her maiden name, so nothing came up during his checks into her background.

Each year, American businesses lose about $40 billion to employee theft, according to the U.S. Chamber of Commerce. And investigators who specialize in business crime say as many as 75 percent of the thefts go undetected by management.

"Employee theft has a tendency to be contagious and cancerous," said John Case, president of John D. Case and Associates in San Diego. "Theft results from a breakdown of procedures and a poor management attitude."

Case, who counsels business owners around the country and abroad, said the most lethal form of theft involves collusion between an employee and an outsider. "The employee is able to circumvent procedures and the outsider can transport the goods off the property," Case said.

Every business owner, no matter how busy, should watch for danger signs, including any unexplained shortage of inventory or a sudden drop in profits, Case said.

Make an unannounced visit to your storage area every month to look for merchandise that is out of place or in partially filled boxes, which may mean things are missing.

If photocopies are frequently replacing original invoices and other documents, it could mean trouble. And if an employee who handles cash refuses to take a vacation or accept a promotion to another department, this is also worth investigating.

Case encourages business owners to listen to employee gossip because eventually rumors will surface about illegal activities. While a number of workers may know what's happening, they don't like to snitch, Case said.

He also suggests talking openly with employees about the impact of theft and emphasizing that a dishonest employee not only steals from the company but jeopardizes the jobs of his or her fellow workers by weakening the business.

Investigators agree that preventive action, including careful screening of applicants, is cheaper and easier than trying to trap a thief later on.

"By the time a business owner figures out someone is stealing, the company may not have any money left," said Daniel Jones, president of D.Y. Jones & Associates in Glendale, Calif. "The best thing a business owner can do is not hire bad people to begin with," he said.

Jones has developed several techniques for detecting re'sume' fraud. He encourages employers to tell applicants that they plan to conduct a thorough background check and ask if there is anything they would like to share. Next, ask for the name and phone number of their former supervisor.

When you call, ask to speak to the supervisor directly rather than to the company personnel director. Also try to talk to former co-workers to get a real sense of what the person was like as an employee.

Take the time to check municipal court records to see if the person has been sued or has filed for a business license or a fictitious business name. If a resume shows long periods of self-employment, ask for the names and number of vendors or clients. Then call them to find out exactly what kind of services the applicant provided.

Jones also suggests asking the applicant to provide a Department of Motor Vehicles report to check on his or her prior driving record.

Jane Applegate is a columnist for the Los Angeles Times.