Ledgerwood Associates, Inc.’s blog rightfully focuses on business software issues, as the organization is an Authorized Sage Partner. The organization has a regional focus, serving the southwest and Rocky Mountain regions from its Scottsdale, AZ home base.
This contextual information explains the blog’s focus and relevance. If you are using Sage products anywhere (even outside Ledgerwood’s service area) you’ll find some valuable insights to help you get better value from your software. Even if you aren’t, there are still some incredibly useful posts for finance and administration people (and of course company principals/owners).
Quarter million (plus) in?losses!
Internal fraud drains more than $3.7 trillion annually from global businesses, according to an estimate by the Association of Certified Fraud Examiners (ACFE). The median loss from internal fraud at companies in the construction industry is $259,000, according to ACFE?s latest Report to the Nations.
Although companies can experience pilferage from customers, vendors and other sources, employees account for the highest losses, when taking into account offenses such as fraudulent insurance claims, unauthorized time off and theft of proprietary information. Crimes can be as simple as stealing company supplies or as complex as sophisticated financial statement fraud.
More specifically, fraud by managers and key executives generates the highest dollar losses because these employees are in a good position to falsify financial, credential, work-related or test-related documents for personal gain.
Construction companies are more susceptible to corrupt business practices than other industries. This can include bribery and state capture.
Eight ways to fight fraud
What can your company do to prevent theft? The ACFE Report found these measures are effective:
- Improve internal controls. For example, do not allow the same employee to keep books, collect funds, write checks and reconcile bank accounts. Arrange for monthly bank statements to be delivered unopened to the company owner, who should review them for unusual transactions, such as declining deposits and checks to unfamiliar parties.
- Conduct background checks on new employees.
- Arrange for fraud audits by the company?s outside accountants or an internal audit department. CPAs can conduct regular independent internal control studies of cash accounts, bank statements and other items to detect criminal activity. Surprise audits are an effective, yet underutilized, tool in the fight against fraud.
- Be willing to prosecute perpetrators. Some organizations that are victimized by fraud don?t report the cases to law enforcement because they were afraid of bad publicity; reached a private settlement; wanted closure; or considered internal punishment sufficient.
- Provide ethics training for employees. Educate staff members about the possible sources of fraud and consequences, such as the loss of jobs, raises and profits.
- Institute anonymous fraud reporting mechanisms, such as hotlines. Fraud is commonly discovered through tips from employees, vendors, customers or other sources. These people are frequently in a position to see violations of company policies or excessive personal spending by colleagues.
- Install workplace surveillance devices. For example, a video camera monitoring a loading dock where theft is suspected.
- Look for behavioral red flags including the perpetrator living beyond his or her means and having financial difficulties. They can also involve an unwillingness to share duties, a ?wheeler-dealer? attitude, divorce or family issues, addiction problems, refusal to take vacations and an unusually close association with vendors or customers.
Take a zero tolerance stand on fraud. With a few basic procedures in place, internal business theft can be significantly reduced ? or even eliminated ? so your construction business can flourish. Ask your CPA or accounting firm for more information.’
I’m doing a double take on the numbers here. If the median number for internal fraud is close to $300,000, think about the impact on your business — since not every contractor is a multi-billion dollar company. ?Obviously not everyone gets hit the same, but when things go wrong they can go very bad. (See this story from Ottawa Construction News?about a multinational fraud problem that blew a factoring company into bankruptcy, and burned several subtrades, as well as of course the company’s employees.)
Finally, if you are looking at how you can use a blog to help your client development and retention process, it makes sense to review the Ledgerwood blog carefully, including its tools to gather contact information for the company’s eletter list, along with its overall layout and design. There are some excellent best practices observed here. This is a worthy entry in the 2017 Best Construction Blog competition.
You can vote for your favorite blogs until March 31.
Below is an update of the live voting tally.
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