Fraud is one of the biggest issues that plagues the construction industry. A 2017 Kroll report found that more than 80 percent of those in the construction sector were victims of fraud at least once during the prior 12 months.
Fraud in the construction industry could end up costing businesses tens of thousands of dollars, something that could be particularly crippling for small business owners. Below, you will find a breakdown on the common types of fraud impacting the industry and the things that you could do to help prevent yourself from becoming a victim.
Four Common Types Of Construction Fraud
In the construction industry, there are four common types of fraud which take place:
-Misuse of Company Equipment
Theft tends to be a problem because there are many expensive materials at a job site. Jobs could take place in remote locations without much access to quality security. Furthermore, many managers struggle to keep track of materials, primarily when used in high volumes. Things such as concrete, lumber, copper pipe, and cables could all pose challenging to track accurately.
Billing schemes are a problem because managers often run into issues with vendors. They may find themselves paying fictitious vendors or overpaying vendors.
Lastly, the misuse of company equipment is a problem. Things such as employees taking advantage of paper time card systems could fall under this category.
Establishing Internal Controls
As a small business owner, you can’t afford for your construction company to fall victim to fraud. Your resources are entirely too valuable. However, you also don’t have the same methods available for checking and verifying external contractors as bigger firms do. Because of this, it’s imperative that you put internal controls in place to help reduce your likelihood of falling victim to fraud.
One of the best ways to do so is by reducing the number of people who have their hand “in the cookie jar.” Meaning, if you could automate your business practices so that less people have hands-on access to vital information, you could go a long way toward keeping your company safe.
For instance, the person in charge of working with vendors should also not be the person in charge of paying the vendors. Instead, you could set up an automated payroll system that pays the vendors automatically with a pre-programmed figure. Protecting your payroll and financial information will go a long way toward protecting your small construction business.
How A Time Card App Could Help
Over the past couple of years, more and more small business owners in the construction industry have turned to time card apps to help prevent fraud.
First and foremost, time card apps automate the entire payroll system. Employees no longer have to sign in and out on a paper time sheet. Time card apps allow employees to track their working hours on their mobile devices instead. Time card apps also come with integrated location services, enabling small business owners to ensure that their employees are where they claim to be.
Time card apps could help owners keep track of materials as well. For instance, small business owners could instruct their employees to indicate the project that they’re working on and the materials that they used when working on a specific project. This is an internal control that could help hold employees accountable and reduce fraud.