According to a recent study by the Associated Certified Fraud Examiners, small businesses are more susceptible to fraud than bigger publicly held corporations. The average fraud scheme lasts an average of 18 months (from inception to discovery).

It is our experience that most fraud schemes are discovered by accident. This is the result of small businesses not dedicating resources to prevent the problem.

Below are some suggested recommendations that are easily implemented to help ward off fraud.

Understand the Financial Statements

If business owners are not engaged or become distant from the accounting processes, employees will know this and take advantage of the situation. It would be wise to brush up with some financial accounting courses or work with your CPA to strengthen your understanding of financial statements.

Segregation of Duties

No single employee should control a financial transaction from beginning to end. The person writing your checks should never be the person signing the checks. The individual who opens the mail should not also record the receivables and reconcile the accounts. By dividing up responsibilities you can make it more difficult for a person to steal from the business and manipulate records to cover it up.

Review Receivable Ledgers

Review postings to the receivable ledger on a weekly basis. Be sure to look for receivables that are extended out too long, more importantly, be aware of all credits, discounts or strange transactions to the ledger. You never know when employees can deposit your funds into their new business start up.

Personally Receive Bank Statements

Business owners or an outside accountant should review unopened bank statements and cancelled checks each month. Review these checks carefully. Examine the payee, signatures and endorsements on each check. Look for:

• Checks to suppliers or people you do not know
• Checks made out to cash
• Signatures that may be forged
• Missing checks

Specific Construction Industry Procedures

There are certain procedures specific to the construction industry that an organization can implement to deter and detect fraud.  Some examples are as follows:

• Review job costing ledgers for comparison to budget, unusual postings and to maintain familiarity with vendors
• Visit job sites and assist in delivery of payroll checks
• Participate in the vendor approval process
• Good communication with project managers and the accounting department
• Systems for accounting of unused material
• Review all significant credits posted to sales journal
• Compare gross profit margins on job cost estimate with gross profit margins on financial statements

There are many more procedures and policies that businesses can implement. BSPJ is a full-service accounting firm that works with dozens of business owners on internal controls and other issues they face. In each case, the goal is to ensure that the business value is kept intact over the long haul while maximizing opportunities. Contact Barry Schimler at 678-741-2510 or bschimler@bspj.com to talk with someone who can help bring these and other issues into perspective for your business.