General Inquiries

Internal Controls - Fraud Prevention

  • 1.  Internal Controls - Fraud Prevention

    Posted 01-04-2019 12:47
    While we all would like to think that we can put 100% trust and confidence in our staff and team to always do the right thing, as humans, sometimes faults in judgement can prevail.

    From the financial aspect, what internal control measures do you have in place to prevent fraud, collusion, embezzlement, etc?

    What constructs do you have to catch or prevent a PM from colluding with a subcontractor over price and getting kickbacks?
    How about from your estimators/salesmen in the sub solicitation phase... how do you catch or prevent them from colluding, or favoring bids from subs that "pay them back?"

    There are a countless numbers of ways to defraud. I am just curious what measures others have implemented?

    Matthew Radniecki
    Baratto Brothers Construction, Inc.
    Crosslake, MN 56442

  • 2.  RE: Internal Controls - Fraud Prevention

    Posted 01-05-2019 11:35

    Fraud is a tricky animal, and as you stated, there are countless ways to defraud and accordingly there is no silver bullet for prevention.  It may sound like theoretical nonsense, but there really is no substitute for having the proper tone at the top.  Our company communications are constantly beating the drum of integrity and our corporate vision statement is "enriching lives".  Management also has to walk the talk or practice what we preach, whichever cliche you prefer to use.  Even with that, the company is still vulnerable to fraud as you can never fully eliminate the human element.  We still have a fairly small accounting department, but we have significant oversight from people within the organization.  We utilize SQL reporting where all job costs (other than specific payroll entries) and cost budgets are visible to all project managers and corporate management.  We have a fairly aggressive profit sharing plan in place where we share job gains with everyone in the company.  While this sounds like it would incentivize cost shifting, etc, the mitigating control is that all eyes are on all jobs so it would be hard to shift significant costs to other jobs without someone else noticing.

    Our management/Executive team gets a weekly dashboard with cash and AR balances, hours worked, billings, etc.  I also hand out and review TIMELY monthly financials and KPI's and review our year to date results against our budgets.

    As far as controls in place over the accounting function, I see pretty much all cash received before it's forwarded to accounting.  We review AR collection issues/write offs monthly with the AR clerk as well as operations managers and billing personnel.  I sign all checks and review the bank recs and I view bank activity weekly, and I review the bank statement and credit card charges before they're sent to accounting for reconciliation.

    We have a service department that utilizes workorders for service work and this was an area of embezzlement in the past.  All work orders and PO's have to be issued by office personnel.  We have completely eliminated the ability for any service technician to create or close work orders and purchase orders.  We also have a report that shows all closed work orders with costs applied and no billings against the job, and we review those monthly to make sure they're appropriate (call backs, warranty, etc).

    Collusion and kickbacks are the most difficult thing to fight against.  Part of that goes back to tone at the top and communication.  We actually had a problem with several instances where it was perceived that certain employees favored certain vendors b/c of those vendors taking individuals out on trips, etc.  Our president issued a letter to all vendors explaining our policy on gifting etc.  If a reward trip or any other type of incentive is offered/awarded to our company, that communication goes to our President and HE decides who gets to go on the trip or if it's a gift, we keep it and hand it out at our christmas party in a drawing for all employees.  This policy has been extremely helpful in reducing the likelihood of collusion, bid rigging, etc.  Of course, we still sometimes hear rumors of perceived favoritism, and we have to remind vendors, estimators and purchasing agents of our policy and we review the underlying circumstances to make sure nothing fishy is going on.  The very fact that we have employees bringing these things to our attention shows that our generous profit sharing program is working and that we're all on the same page in our efforts to maximize profits.

    I apologize for the lengthy response, but as I said, there's no silver bullet for fraud prevention and we take a number of different approaches to prevent fraud.

    Stacy Shiflet, CPA, CFE
    Blauch Brothers Inc.
    Harrisonburg VA
    (540) 434-2589

  • 3.  RE: Internal Controls - Fraud Prevention

    Posted 01-07-2019 10:11

    Great question - Angela Morelock, Partner, BKD, LLP will be addressing these questions and others this Wednesday afternoon.  Please join us!


    Fraud and Embezzlement: Lessons from the Trenches

    Date: January 9, 2019

    Time: 02:00PM - 03:15PM (Central)

    Fraud can wreak havoc on organization's financial performance and undermine business objectives. No business is immune from the risks associated with fraud, and education is the key to prevention. Hear from industry expert, Angela Morelock about insights into the world of internal embezzlement and learn about frequently overlooked prevention tips in this unique, one-hour webinar.

    CPE Information:
    Earn 1.5 CPE credit in the field of Behavior Ethics

    Learning Objectives:

    • Realize the red flags warning of embezzlement and fraud
    • Understand the criminal methods used to embezzle from and defraud organizations and tips to protect your business
    • Steps to take if fraud is suspected

    Level and Prerequisites:
    This is a group-internet based program at the Overview Level. No prerequisites or advanced preparation required.

    Who should attend:
    Business managers, business owners, board members, controllers and outside auditors.


    You can find this webinar and others at CFMA Webinars


    Dana Jensen, CCIFP                                 

    Construction Financial Leader

    The Woodlands, Texas

    (503) 201-4871


  • 4.  RE: Internal Controls - Fraud Prevention

    Posted 01-07-2019 11:19
    Dana - That is great. I definitely just got registered. Thanks for the heads up.

    Stacy - Thank you for the thoughtful response. I appreciate the insightful look into what you have done and the measures your team has taken to establish a culture that aims to prevent fraud.

    Matthew Radniecki
    Baratto Brothers Construction, Inc.
    Crosslake, MN 56442

  • 5.  RE: Internal Controls - Fraud Prevention

    Posted 01-10-2019 12:57
    I enjoyed that webinar.
    I would recommend those interested, who could not attend, to try and get the broadcast.

    Joseph Harper CPA, CCIFP
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449

  • 6.  RE: Internal Controls - Fraud Prevention

    Posted 01-07-2019 08:04
      |   view attached
    ​I came across the attached 2 day Seminar that looks pretty good.

    Hope this helps.

    Jerry Whitaker BA Marketing
    Senior Partner
    Acrisure / Whitaker LaChance
    Portage MI
    (269) 585-7098