Common Construction Fraud Schemes
Employees are the trusted ambassadors of a company put in place to help address customer issues and provide solutions to their needs.
See also Construction
While most are honest people working hard to make a living and advance their career there are sometimes others who have different agendas. Unfortunately, there are some employees that engage in theft and fraudulent behavior taking it upon themselves to “help themselves” to company resources, assets and money. Unfortunately for construction companies and contractors this type of behavior is prevalent in the industry and requires management to proactively plan for such contingencies. While we all want to believe that it “can’t happen here”, this approach is very dangerous and leaves the company and its stakeholders exposed to potential issues. It’s important to be aware of the common schemes fraudsters run to plan proactive measures, but also understand when it’s time to take action. To help clients, prospects and others, Hanson & Co has provided a list of the most common construction fraud schemes below.
Common Fraud Schemes
- Credit Card Misuse – Generally supervisors or other management professionals that travel to multiple job sites are issued a company credit to purchase fuel and other as needed items. Unfortunately, many of these employees take advantage of the freedom and rather than simply purchasing fuel for their work vehicle they will often use the same card to purchase fuel for their private vehicle and make other non-work related purchases on the card. This behavior is not only unethical but it costs construction companies thousands of dollars every year in improper expenses.
- Payroll Alteration – This type of fraud generally occurs because of an internal payroll or financial professional has decided to act improperly. Unfortunately, it more and more common that internal accounting professionals often issues paychecks to ghost employees and then cash the checks and keep the money for themselves. It’s also common for these same persons to modify their W-2 to show more withholding was taken out than actually was. This allows the individual to receive a larger refund on their tax return. It also creates serious issues for the company because when IRS records are examined the discrepancy will appear and lead to an investigation.
- Check Tampering – Again another form of fraud committed by so called trusted accounting professionals. In these situations, an employee writes a check to themselves for the exact amount of money due to a vendor. When the check is entered into the accounting software it is made to appear that the check was correctly written to the vendor. Even when the check is cashed unless there is careful scrutiny it will appear that the vendor received payment.
- False Billings – In this scheme, an accounting professional will create accounts for fictitious vendors. Once the account is active they write checks for so called services rendered. The checks are written to themselves and then cashed. If there is not a careful review of monthly bank statements then this scheme can be quite difficult to detect. The key is that the employee is able to mask their behavior or make it look legitimate.
- Theft of Assets – It’s quite common on a job site for there to be several groups of employees coming and going throughout the day. Some are sub-contractors while others may be direct employees of the company. Dishonest employees will “borrow” tools and just not return them. Others simply steal tools or smaller items that are harder to track on a regular basis. Finally, there are even some people who will be so brazen as to take large and expensive machinery hoping they will not get caught. While this is the rarest form of fraud it certainly can be expenses without the proper controls in place.
The key to limiting your exposure to these and other schemes is to plan ahead. There are many different types of internal control policies and programs that can be implemented ahead of time to dissuade and curb this type of behavior. A thorough review of accounting policies along with worksite rules and regulations can go a long way to protect the organization. However, the truth is that without a comprehensive review and analysis of your accounting processes and procedures prevention can be difficult.
Concerned that improper behavior is occurring at your company? Noticing unusual behavior or transactions and something doesn’t seem right? Now is the time to take action. By the time fraud is discovered a company may have already been victimized for a significant amount of money. Hanson & Co wants to help! For additional information on fraud prevention or our other construction accounting services, contact us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon!