3 Steps to Fighting Fraud in the Construction Industry

November 20, 2014

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.

Create an ethical environment by establishing a set of core company values:

  • Test integrity
  • Investigate new hires and employees
  • Perform drug test
  • Implement an ethics policy
  • Bond employees
  • Implement exit interviews
  • Do prosecute fraud perpetrators

Reduce employees’ opportunities to commit fraud with specific policies and procedures:

  • Require periodic job rotation and mandatory vacations
  • Implement surveillance
  • 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

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.
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