Construction companies are even more susceptible to financial malfeasance because there is a high volume of money flowing through the business and construction accounting is complicated, providing numerous opportunities for covering up white-collar criminal activity, she said.
There are a number of steps that owners can take, according to Gilson. Among them:
- Require your bookkeeper to keep your financial office neat, enter documents promptly and organize accounting records, which should be accessible and easy to retrieve. “You should be able to find your way around the accounting office,” she says.
- Go looking for information occasionally, poking around in the files. Let your bookkeeper know that you are watching things by pulling documents and asking a question or two about them.
- Keep blank checks under lock and key, and immediately destroy them when an account is closed.
- Require your bank to provide your cancelled checks with your statements, so that you can actually check the physical endorsements.
- Have bank and credit card statements mailed to your home, so that before you hand them over to your bookkeeper for reconciliation you can take a few minutes to review the payee and endorsements on your cancelled checks, direct debits on the bank account statement and the expenditures on your credit card.
- Obtain bonding for your employees. This is a must, Gilson says, and it can be very inexpensive.
- When considering a job candidate, ask former employers if they would hire that person again.
- Also a must: Require employees to take annual vacations of at least a week’s duration. “Most frauds are discovered when people are out of the office,” said Gilson. “And most employees who commit fraud do not want to leave the office.”
- Regularly review the estimated costs vs. the actual costs for individual jobs. “This is a place where people often bury money,” she said.
- Check to see that individual job costs equal total job costs for the company.
- Understand your balance sheet accounts and watch for unusual changes. “Fraud,” Gilson said, "often gets buried in balance sheet accounts.”
- And work with your computer advisors or CPA to institute full computer security provisions.
To get a real feel for the subject, Gilson recommends reading Frank Abagnale's “The Art of the Steal” and “Catch Me If You Can,” which can provide business owners with insights into the workings of the criminal mind of the defrauder.
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