As the economy continues to challenge everyone, the motivation for some employees to steal isn't hard to understand. Although the term "fraud-proof" may be a bit hyperbolic, it doesn't hurt to shoot for the stars when trying to safeguard your revenue and assets. One way to divide and potentially conquer fraudsters is to focus on the three primary areas where fraud typically can occur:
1. In the office. The bulk of your work may occur on the job site, but the money you make from that labor is processed in your office. So your office may, in fact, present your greatest fraud vulnerabilities.
You've probably heard that you should be dividing accounting and finance-related responsibilities among two or more employees. Are you? Some contractors set up this measure at one point but let it go following staff cuts. If you've become vulnerable, consider, for example, having someone independent of the purchasing or vendor payment functions review all new supplier entries.
In addition, invite your CPA to the office from time to time. Random, unannounced audits can help identify dangerous gaps in your controls and procedures. And these audits put potential wrongdoers on notice that your eyes are open and they could get caught.
2. At the bank. We're using that term figuratively. One would hope that no one at your bank is defrauding you. Rather, we're talking about your own employees seeking to misuse bank transactions for their own benefit.
If you haven't already, check into whether your bank provides "Positive Pay" check-matching services. Typically, this means you send the bank a list of checks that have been written each day, and it matches the account number, check number and dollar amount of each check presented for payment against the list you sent.
You can take other bank-related steps. For example, don't use signature stamps for checks, and prohibit checks payable to cash. Also, set a dollar limit for which checks can clear without the bank contacting you for authorization.
3. On the job site. Naturally, you need to do everything you can to prevent the outright theft of cash, tools and equipment from job sites. But don't forget another common source of project-related losses: fraudulent incentive arrangement claims.
You set up these plans to drive productivity. But a foreman or project manager, desperate for cash or just plain greedy, might shift costs around to create the illusion of savings. Combat this by preventing anyone who stands to earn extra pay from assigning job costs. Hold regular job status meetings as well.
