• Robert Patin

Keep Your Construction Business Protected from Fraud


It’s a sad fact of the construction industry that fraud is all too common. As the owner of your own construction company, you have stay alert to whether your contractors, subcontractors or employees might be trying to rip you off. You not only have to worry about the dollars you’re losing due to fraud, but also your professional reputation. If someone commits fraud on behalf of your company, it could leave you exposed to career-ending lawsuits.

Avoiding fraud requires strong systems for ensuring everyone working with your business is compliant. Here are some best practices that will help you keep your construction business protected from fraud.

Always perform a background check

One simple way to ensure that the people you’re working with are trustworthy is by performing background checks on everyone who works with your business. This may seem unnecessary or even rude, but it’s worth it in the long run.

Employees expect that you will perform a background check and will likely feel comfortable submitting to a background report. Clients, vendors and subcontractors may be less used to the practice. Check for tax liens, lawsuits, legal judgments and violations. You may not even need to pay for a full background check –you’d be surprised what information a Google search and references will provide.

Hire a compliance officer

Many construction companies have someone on staff whose job it is to ensure compliance. The compliance officer regularly conducts reviews and monitors business activities specifically to check for fraud. Activities include analyzing payroll, monitoring contracts, verifying employee activities and establishing relationships with contractors and subcontractors. The compliance officer is also a resource for people to anonymously report fraudulent activity.

Double-check your invoices

More than half of all fraud occurs with false payment applications. Contractors and subcontractors might inflate the costs of their materials or amount of work performed.

One common fraud type is category fraud. A subcontractor might charge the rate for a journeyman when an apprentice actually performed the work. In other cases, a contractor might charge for Class A materials when they’re really using Class D materials. In order to know whether a contractor or subcontractor is defrauding you, you or the compliance officer will need to be onsite to determine whether what’s on the invoice is fraudulent.

Document all claims

One way to help you in case someone tries to defraud you is to make sure everything is documented. If you later learn that a contractor or employee knowingly falsified claims, and you have written proof of their falsified claim with a signature, that will help you in future legal proceedings. As with background checks, it’s always best to do too much rather than too little.

Avoiding fraud starts with thorough bookkeeping. The financial professionals at Patin and Associates specialize in help construction businesses like yours keep strong financial records. Contact us today to learn more.

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