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August 30, 2018

Construction Fraud: Knowing is the First Step

Modern fraud is an evolving threat, often orchestrated by virtual criminals from overseas that fraudalertseamlessly steal assets in every currency. Much attention has been given to the construction industry in particular for the many ways in which it is vulnerable to such threats, particularly because of the numerous vendor relationships that exist within the confines of a typical project.

Some of the biggest hacks in the last few years have occurred not at the hands of the construction company, but as a result of vulnerabilities exposed at a concrete vendor, or HVAC contractor. Every employee across the entire project team, from the construction manager to the smallest sub, is a potential opportunity to a hacker.

But what if the threat wasn’t overseas? What if your likelihood of being swindled came from a source far closer to home? What if one of your own employees is your biggest enemy when it comes preventing fraud?

It’s time to recognize that financial crimes haven’t ceased to originate from your home office just because cyber criminals are grabbing the headlines. Let’s take a look at some of the ways you can discourage front office crimes.

Buried in Paperwork, Silently Stealing

One of the best opportunities for an employee to steal from his employer is a result of the very nature of an ordinary construction project: stacks of invoices that appear every month, ready to be paid. Some of the biggest arrests in construction fraud cases stemmed from an employee creating a fake company that found its way onto the accounts payable list despite never providing the service or equipment depicted on the invoice.

Dishonest employees may also resort to check tampering to direct payments to their own account via a forgery attempt, while others may partner with a vendor to deliberately overcharge the company, collect payment and then split the difference with the inside man. These types of fraud can go on for months (or years) without detection.

Keeping an eye on your inventory and purchases is critical for catching potential fraud attempts in the act. Software such as Sage 300 Construction and Real Estate Purchasing gives you the tools to stay on top of material acquisition while keeping an eye on the bottom line. Purchasing handles everything from generating requisitions and purchase orders, to tracking PO change orders, to issuing receipts, return authorizations, invoices, and more.

Ghost in the Machine – or Accounts Payable

Fake companies aren’t the only ways unscrupulous employees pocket ill-gotten money: fake people are another tactic. Creating employees that collect a paycheck but who only exist in the minds of the perpetrator is a time-proven tactic, which usually requires a second staffer on your payroll team to work with the individual pocketing the money.

The common thread in all of these fraud attempts are employees who know their employers won’t catch them in the act. Even accounts receivable staff aren’t above suspicion, as history has shown that employees in this role can steal a payment from a recurring monthly service contract and apply the payment to a prior month’s invoice – would you notice it missing?

This is why even small-to-medium sized construction companies need to employ a software solution that helps manage the books so there’s never any question where the truth lies.  Internal controls will always rule the day, and discourage employees from considering theft – no matter how petty.

Internal Controls Can Limit the Damage

Your internal culture is one that should reflect your company’s strict, no-tolerance policy when it comes to fraud. Companies should take the time to share this message, as well as educate employees who don’t commit fraud how this impacts their personal bottom line. A strong culture that understands the value of internal controls, along with how construction accounting software can safeguard against fraud, will be less likely to fall victim to such nefarious activity.

For more information on how accounting software from Sage can help your company develop strict internal controls, contact United Solutions for an evaluation and software demonstration.

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