Construction companies build the world around us, but they operate with surprisingly tight profit margins averaging around 3.5%. With material costs rising and things getting even tighter in some markets, it’s critical to understand the signs of fraud at your construction company so that you can prevent it and handle it quickly if it occurs. The United States Department of Justice found that fraud is more prevalent in construction companies than other industries, and the median loss per case is a whopping $259,000. Here’s what you need to know.
What Are the Most Common Types of Construction Fraud?
- Cash Schemes: This can occur when people who have access to your cash flow use funds inappropriately, doing things like creating false discounts and refunds, changing receipts and skimming money off of transactions.
- Inventory Schemes: Unprotected inventory is very appealing to thieves, especially as prices continue to rise for raw materials. In these schemes, someone will steal inventory and use it themselves or sell it elsewhere.
- Purchasing Schemes: If you do not have safeguards and controls in place, you are at risk for fraud at your construction company. The fraud can take a variety of forms, including creating unapproved paychecks, fake invoices, overbilling or purchasing excess.
- Fixed Assets: How much do you pay attention to your fixed assets like trucks and equipment? Making personal use of these assets without authorization or stealing them outright are two types of fixed asset fraud.
Avoiding Fraud at Your Construction Company
Fraud is most common at small and mid-sized construction companies, who often know their employees well or feel like they don’t have the need for checks and balances. Working with a third party for bookkeeping and accounting tasks makes sure that your office manager or administrative assistant is not overworked and that they don’t have too much control over the books without oversight. We can help you to determine small changes that will make a big difference to prevent fraud at your construction company, like requiring dual signatures on checks or receiving bank statements at multiple addresses to ensure that they are not being altered. Remember that fraud can happen even when you are working with people that you feel like you can trust. Working with the professionals at MKS&H is a great way to protect yourself from financial fraud.
Prevent Fraud at Your Construction Company with MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry, including construction. We can work with you to improve your company and make sure that it is financially secure now and in the future. Contact us today for a consultation.
