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  • Writer's pictureYvonne Root

You Should Have Checks and Balances: Here’s Why

Checks and Balances can be defined as a set of procedures implemented to prevent potential errors and inappropriate behavior.

The Feds Do It

When the idea of checks and balances comes up, you may immediately jump to the example of the three branches of the federal government (executive, legislative, and judicial.) The founding fathers’ goal was to create a separation of powers through a system designed to prevent tyranny.

The Construction Industry Does It

Another example within the construction industry (with the exception of design-build firms) is the triangle created by architect-builder-client. Functioning correctly, each entity brings checks and balances to the process.

There Will be Trouble if You Don’t Do It

Suppose you leave checks and balances out of the equation in your construction business. In that case, you may be removed from the triangle mentioned above in the construction industry. Yeah, it is that important!

Risk Points

There are specific risk points to consider when determining which policies to implement. Understand that the concept is used to create accountability and to ward off corruption. A few points to consider are:

  • Anything involving cash or inventory

  • The use of company checks or credit cards

  • Aspects concerning the authorizing of expenses

  • Preparation of company financial statements

Reduce Risks

You can reduce risks by insisting on weaving checks and balances into the fabric of your construction business. You can help employees avoid bad choices, improve your company’s reputation, and gain better peace of mind.

15 tips for reducing risks:

  1. Lead by example

  2. Perform background checks

  3. Distribute authority (impose boundaries)

  4. Maintain a written fraud policy

  5. Initiate automatic limits

  6. Investigate anomalies

  7. Ensure bank statements are sent to, and reviewed by, the owner (sent to owner’s home address)

  8. Develop internal means of controlling expenditures

  9. Limit or eliminate debit and credit card usage by employees

  10. Never sign a blank check

  11. Maintain accurate and timely financial statements

  12. Require supporting documentation to be attached to all requests for payment

  13. Routinely review the QuickBooks audit trail

  14. Conduct surprise inspections and observations

  15. Take appropriate action against perpetrators of fraud

Trust but Verify vs. Trust and Confirm

Bob Whipple, “the trust ambassador,” in this article makes a reasoned argument for changing the phrase trust but verify to trust and confirm.

He says, “The confirmation process is the due diligence that recognizes the fact that activities do not happen in a vacuum. We often act as the agents for others as we trust someone to perform a task. Confirming that things are correct is just being prudent and being true to the trust others have in us.”

Here’s Why

Insisting on checks and balances within your construction company and implementing procedures to prevent potential errors and inappropriate behavior is good business. It is about protecting your investment, treating employees fairly, and serving your clients, customers, and GCs well.

Reflection: Which risks are you taking that you can avoid by implementing new or improved checks and balances in your construction business?

Ambitious Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:

  • Clients and customers

  • Employees and subcontractors

  • Vendors and service providers

  • Governmental entities

Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:

  • Remain informed

  • Avoid hassles

  • Reduce risks

  • Be future-ready

Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735

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