Construction industry has a high transaction rate and the transaction amounts are pretty high as well. So it is safe to assume that frauds in construction accounting can lead to big losses. While these losses are not unheard of, it is best to avoid any misdoings at all costs. With the current economic situation, people have plenty of motive to commit frauds. It is your responsibility to ensure, however, that they do not get an opportunity to do so.
Read on to know how you can establish some best practices in internal control and avoid any chances of financial frauds.
Controlling the Cash
- Make sure that the invoices are always approved
- The best way to ensure that checks are not misused, is to have dual signatures on the check books, and to establish a diluted authority. In order to do that, confirm that the signatories on the check book cannot issue the checks themselves
- In a bid to dilute authority, do not allow the billing personnel to receive the cash directly
- Use a lock box to receive payments from the customers
On the Job-site
- Check the purchased material and compare the prices to the original estimates regularly
- Install security cameras to counter any misdoings on the site
Monitoring the Payroll
- Use a direct deposit method for paying your employees
- Monitor work hours with sign-in and sign-out systems
- Plan surprise visits randomly and on paydays to ensure that no employees getting paid are fictitious
- Reconcile the payroll bank account personally or with the help of someone outside the payroll department
Dealing with Suppliers and Subcontractors
- Compare all payments with their original contract amounts
- Monitor the bidding process for the subcontract/supplier
- If the contracts are revised, compare them with the original contracts
Frauds occur in every industry, but in construction, a huge sum of money changes hands for every project approved. Therefore, it is important that your internal controls are up to the mark. Change or update your systems regularly for an added security and ensure that you have a functional supervision mechanism. All of these efforts will surely help you avoid any major instances of frauds.
After all, it’s better to be safe than sorry.