Nothing can be more damaging to your business than instances of fraud. Whether it’s a loss of money, materials, or both, fraud can erode your company over time. We use the word “erode” because most construction company fraud originates internally. A study by the Association of Certified Fraud Examiners states that there is a direct correlation between the length of time an employee has worked with a company and the likelihood that they will commit fraud. These workers have gained a great deal of trust and comfort, which makes it easier for them to justify fraud and likely get away with it.
It’s not to say that every employee is capable of fraud, most would never consider it, but it only takes one employee to put you in an adverse financial situation. So our first tip for preventing fraud is knowing the signs that an employee may be committing fraud.
Signs of Employee Fraud
Watch out for these indicators that an employee may be committing an act of fraud:
- Unusually close relationships with vendors
- Indications that they are living beyond their means
- Unreconciled bank accounts
- Working hours when few employees are present
- Unexplained budget discrepancies
In addition to looking for these signs, our team of Miami construction litigation attorneys offer the following tips for preventing fraud in your construction company:
Require a Pre-Approval for All Payments
Construction is a “get it done” industry. This leads people to skip steps in order to get projects completed on time. However, this can also lead to unauthorized and potentially fraudulent purchases. A policy requiring a signed approval of all payments enables you to have a level of accountability for each purchase.
Justify Reimbursement Requests
There’s a great deal of fraud involving false payment. It’s important to make sure that subcontractors can’t be reimbursed for items without showing proof that they actually made a purchase on behalf of the company. Make sure to require receipts for all reimbursements along with a completed form for tracking.
Restrict Access to Assets and Financial Information
You do not want to have “too many cooks in the kitchen,” especially as it pertains to company finances. Only 1-3 people should have access to this information, even less should be able to make purchasing decisions.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.