One of today's hottest topics is identity theft. It's alleged to be the fastest-growing white-collar crime in the U.S., affecting as many as 10 million Americans and costing businesses $50 billion each year.

How does it work? Thieves gain access to the numbers on someone's key documents--Social Security card, checking account, credit cards, insurance policies--and conduct high-priced transactions by using those documents as if they were their own. How do they get the numbers? One way is a process that's been dubbed "phishing." According to the U.S. Treasury Department, phishing commonly starts with an e-mail message sent to a big list of consumers. It directs recipients to a fraudulent website designed to resemble those of government agencies, big-name financial services firms, Internet auction sites, or electronic payment services. The website then asks consumers to "update" sensitive personal information--such as credit card numbers, Social Security number, e-mail address, and so on. When a consumer fills in the requested information, bingo--the thieves can begin using the numbers immediately. One recent survey found that 1,125 instances of phishing were reported in April 2004, an increase of 180 percent from March 2004.

What's identity theft got to do with HR?

Quite a lot, as it turns out. First, many thieves don't use the relatively sophisticated phishing method to obtain the numbers they need. Instead, they gain access to paper records from other sources. Any provider or vendor that collects lots of information from its users will do, but here are several particularly good sources: doctors' offices, insurance agencies, and--you guessed it--employers. That's where HR comes in, because payroll records and employment applications are goldmines of information. One way for thieves to get the information is "dumpster diving" outside buildings whose tenants don't shred records containing personal information. In fact, a class action lawsuit is reportedly pending against U-Haul, which failed to shred customer records containing such information as names, addresses, dates of birth, and credit card numbers. Apparently, many renters of U-Haul trucks may have had their identities stolen.

Besides scrounging through paper records that weren't shredded, thieves can gain access to payroll records or employment applications by getting hired as summer interns, temps, or part timers in HR departments. So besides shredding records, the next way that HR can help fight identity theft is to conduct thorough background checks on anyone who will be given access to employee records.

A third way that HR and identity theft can intersect

Such insurance companies as AIG, Farmers Group, Travelers, and Chubb have begun advertising to employers the availability of group rates on identity theft insurance for employees. According to insurers, here are the advantages:

• Employers that offer this type of coverage expand their benefits packages at no cost to themselves.

• Employees can purchase such coverage at lower rates than they could buy it individually.

• Employees who have coverage will need to spend far less time straightening out a case of identity theft than uninsured employees.

It takes an individual consumer between 175 and 250 hours to track down all the ways in which a case of identity theft needs to be rectified--and those hours may be spent at work, lowering productivity for the employer. Insurance costs between $25 and $60 a year and covers an attorney's fees and some mailing and notarization costs. Insurance also typically offers up to $2,000 in "lost wages," for unpaid time off to straighten out the mess.

But some observers say such insurance is not a good value. Monitoring services from credit card companies or credit reporting agencies are often free, although they don't kick in until theft has already occurred. The biggest problems with theft can be damage to the individual's credit rating or even a criminal record. But the Federal Trade Commission reports that only 16 percent of theft victims rack up a criminal record, and correcting credit ratings is an inexpensive, if time-consuming, process. A middle ground? Offer group rates on insurance if employees are very fearful, but remain neutral on its value.