What Is Occupational Fraud? What Should You Do About It?
When I was young, the latched screen door was often the only deterrent our family had against unwanted visitors. And as we all know, that was no deterrent at all against the determined. These days, deadbolts, keypads, video doorbells, and alarm systems are the norm for protecting against the bad guys who might want to enter your private space.
Don’t think that the equivalent of a latched screen door is the only means you should employ to prevent fraud in your construction company.
Occupational Fraud – The Down and Dirty
Occupational fraud, also known as workplace fraud, is committed against a business by its own officers, directors, or employees.
The three primary categories of occupational fraud are asset misappropriation, corruption, and financial statement fraud.
According to the Association of Certified Fraud Examiners (ACFE), “It is impossible and impractical to eliminate all fraud in all organizations. However, effective leaders address fraud risk as they do any risk — they manage it.”
Watch for Occupational Fraud
The first step in managing anything is understanding what is happening, what is functioning well, and what is going or could go wrong.
Financial Executives International provides a warning list of the top six red flag behaviors to be aware of; they are:
living beyond their means
unusually close association with vendor/customer
control, issues, unwillingness to share duties
Implement a Separation of Duties Tactic
One example of separation of duties for in-house accounting would be to organize banking responsibilities so that a billing person issues invoices, and collections or deposits are handled by another person, with monthly bank account reconciliation performed by a third person.
More examples of segregation of duties:
If Joe requisitions the purchase of goods or services, he should not be the person who approves the purchase.
When Sally approves the purchase of goods or services, she should not be the person who reconciles the monthly financial reports.
George, who approves the purchase of goods or services, should not be able to make the payments for those goods or services.
Scroll to “Risk mitigation through checks and balances” in our article, Trust and Risk Mitigation in Construction, for more information concerning the separation of duties.
Develop and Enforce a Fraud Policy
The folks at Deloitte provided an article concerning why you need a fraud policy and what it should look like.
You can also let your Google fingers direct you to samples or templates of fraud policies found on the internet. We suggest that you speak with your attorney to craft an optimum version.
You must have a deliberate plan to detect and limit fraud. Furthermore, never underestimate the potential of an attack from within.
Consider a Fraud Tip Hotline
ACFE provided a press release on March 30, 2022, titled “Organizations Worldwide Lose Trillions of Dollars to Occupational Fraud.” Part of the vital information imparted in the press release is, “The best way to stop occupational fraud remains something available to all organizations: Create anti-fraud controls and train employees how to use them. In the report, tips were the most common way fraud was detected. With their high success rate and low implementation cost, all organizations should have a tip hotline or mechanism to report fraud.” (Emphasis added.)
Warning – a blatant plug for our services follows. 😉. Remember that working with an outsourced accounting advisor, like The Profit Constructors, will protect against many fraud schemes employees could otherwise try to perpetrate.
Ambitious Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:
Clients and customers
Employees and subcontractors
Vendors and service providers
Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:
Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735