how to prevent fraud
ContractorsInsurance No Comments

Fraud in the construction industry does damage in the hundreds of thousands of dollars every year. Any given incident of fraud can cost the industry between $100,000 and $300,000, a whopping figure which drives up costs, increases liability issues and even puts legitimate companies out of business. It’s vital for every contractor to know how to prevent fraud in the construction industry. Here are some tricks, tips and information to help you learn to spot and prevent these problems.

How to Prevent Fraud

There are certain basic educational and informational elements you need in order to combat fraud in the construction workplace. These steps are:

  • Know the types of fraud
  • Establish internal controls
  • Spot the signs
  • Carry insurance

how to prevent fraud

Types of Fraud

There are four main types of fraud that plague the construction industry. These include:

  • Billing Schemes: Whether it’s a payment to a vendor that doesn’t exist, overpaying a vendor or using company funds to purchase personal items such as tools and equipment, this is a common and sometimes tricky to spot fraud.
  • Theft: Theft from the office or job site is one of the most common forms of fraud.
  • Misuse of company resources: When someone uses company equipment for their own purposes that aren’t related to company business, this is fraud.
  • Rigging bids and corruption: We’d all like to think our business is free from corruption, but it’s not so. Bribes, bid-rigging and corruption are major issues.

Establishing Internal Controls

It’s vital to create channels of control within the company to stop fraud before it starts. Make sure that there are multiple eyes on every aspect of the business, with full checks and balances in play. Everyone should have clearly defined duties with backups when they can’t perform. Check every bid and estimate for accuracy. Require multiple vendor quotes for high-cost jobs. Make sure that your paper trail is solid regarding purchase orders, invoices and receiving reports.

Refer to jobs by specific work orders and job numbers, and make sure someone signs off on every order, invoice and payment. Keep detailed financial records, and review every aspect of your business monthly, if not weekly.

how to prevent fraud

Spot the Signs

Most who commit fraud don’t have a prior record of it and tend to actually be long-term employees, so pre-screening usually won’t find them. Watch for employees who seem to be living beyond their means, or who have overly friendly relationships with customers and vendors. Supervisors or employees who take shortcuts can be a red flag, as can those who seem overprotective of the documentation surrounding their practices or who refuse to take time off or get help from others.

Carry Insurance

Fraud can be devastating to a business. Carrying the right insurance coverage can be a life saver if this happens to you and can make the difference between recovery and going out of business. If you’re not sure about the kind of coverage you need, that’s where we come in. Read about the different services we have, and give us a call for an evaluation of your coverage today.


Free General Liability Insurance Quote