According to the Association of Certified Fraud Examiners (ACFE) 3.4% of all reported fraud cases were attributable to the construction industry. That’s a relief, right? Not necessarily, the median loss per case is $140,000 which is one of the highest of all industries. Fraud in the construction industry is not to be ignored. The myth that “it can’t happen to me” is a dangerous believe to hold for any business. Here are 3 steps to fighting fraud in the construction industry.
I. Create an ethical environment by establishing a set of core company values:
Investigate new hires and employees
Perform drug test
Implement an ethics policy
Implement exit interviews
Do prosecute fraud perpetrators
II. Reduce Employees’ Opportunities to Commit Fraud with specific policies and procedures:
Require periodic job rotation and mandatory vacations
Prepare monthly financial statements
Separate duties related to cash receipts, disbursements and reconciling bank accounts
Have monthly bank statement mailed to owner at home
Scan cleared checks for signatures and payees that look odd
Review all automatic bill payments and wires out of account
Review detailed payroll ledgers
Compare payroll tax deposits from bank statements with payroll ledger
III. Establish Internal Controls:
Identify risk areas.
Control environment and how information is communicated to employees on how internal controls should work and the related responsibility of employees.
Implement and enforce policies and procedures that help ensure management’s directives are carried out and risks are mitigated.
Monitor constantly and make revisions to keep controls relevant and address new risk as they arise.
Stephen H. Staton, CPA, Partner
Lanigan, Ryan, Malcolm & Doyle P.C.
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