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.