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2. In construction companies; jobsite, plant site and job management related fraud is more common than accounting and financial fraud 3. The most commonly stolen items in a construction environment are: a) Labor b) Fuel c) Minor parts (batteries, oil filters, tires) d) Construction materials (lumber, copper, steel, etc.) e) Subcontract or supplier overpayment for kickback f) Cash
B. War Stories: 1. 2. Fake trucking company paid $11 million over 7-year period Truck manager and CFO paid truckers for extra hauling and received $1 million in kickbacks over 5-year period Job superintendent submitted hours for former employees for several weeks after termination - over 3-year job $200,000 stolen
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Shop foreman signed for diesel delivery in excess of actual split re-sale of dyed diesel with truck driver - $250,000 estimated theft Scale operator at asphalt plant and quarry allowed local friends to circumvent scale and take materials for free Electrical contractor foreman ordered excess copper and resold to scrap dealer - $100,000 stolen
C. Management must Establish a Control Environment 1. Management must set a good example and avoid unethical or fraudulent behavior 2. Background check should be mandatory for all new employees 3. Management should be skeptical and participate in the control process 4. Management should understand and participate in job assignments to maintain appropriate separation of duties
d) If Controller or CFO signs checks, they must be locked out of check writing system e) Check signer must review documentation for checks when signing; signing a stack of checks is poor control f) Scanners have made duplicate or altered invoices easier to prepare; approval initials or stamp should be used to prevent fraud; signer should look for valid approval and authentication of invoice
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Checks should be issue only twice per month not daily a) Most companies issue checks on the 5th and 20th of the month b) Be skeptical of emergency checks and manually prepared checks
Mail clerk should prepare deposit log and copies of receipts for A/R clerk 5. Management should review aged receivable lists monthly 6. Controller should prepare proof of cash reconciliation quarterly to reconcile actual deposits to total A/R credits 7. A/R clerk should not have authority to post journal entries to receivables for bad debts or adjustments CFO or controller should post these entries if necessary
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F. Bank Statements & Reconciliation Controls 1. Implement and utilize a Positive Pay Verification System a) Checks payees and amounts are submitted to the bank as issued b) Unless cleared checks match submitted information, check will not be honored and will be returned unpaid
a) Look at cleared checks for the following: 1) Altered checks (payee or amount) 2) Unusual endorsement 3) Unauthorized or forged signatures 4) Unrecognized payee/vendor 5) Duplicate check in same period to same vendor b) Create fear with owners/management will review checks
3. Monthly bank reconciliation should be prepared within 48 hours of receipt a) Reconciliation should be performed by personnel not responsible for check writing or signature 4. Review and authenticate all electronic transfers or payments
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At the completion of the contract, personnel should audit all payments and reconcile total to pay quantities and schedule of values for reasonableness a) Example, tons of rock purchased should agree to pay item and hauling tickets. 4. If practical, independent accounting personnel should be assigned to review the project management approval process and scrutinize all payments to subs, suppliers and truckers
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Accounting software should lock down and prohibit payment to subs or truckers unless insurance dates are valid and surety bonds are on file 6. Subcontractor bonds should be submitted to company bonding agent for validity verification
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Are trucking tickets and haul payments reconciled to quantities and quotes by an independent person on a regular basis?
3. Purchase orders should be reconciled to Jobs site delivery tickets and invoices 4. Jobsite fuel tanks should require ticket system 5. Jobsite labor must be reported daily utilization of employee card or fingerprint sign-in system prevents labor rounding a) More accurate phase code entry b) Prevents 10-10-10 daily labor reporting redundancy
6. Jobsite equipment usage should be reported daily and based on hour meters 7. Jobsite cameras are recommended
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Someone independent of payroll clerk should trace monthly payroll tax electronic deposits to payroll tax returns 6. Occasionally perform a surprise payroll check off a) Visit jobsite on pay day to verify current employment of each reported employee who received payroll check(direct deposit/smart card) b) Investigate missing employees
7. Implement internet monitoring software to prevent Facebook and surfing abuse by employees on company time
3. Do not allow employees to purchase company supplies with personal credit card to obtain the miles a) It is hard to maintain control if the Company regularly pays personal credit card balances 4. Scrutinize accounting personnel company credit cards 5. Non-employee spouse travel and credit card usage is fraud and can result in IRS felony charges
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Obtain an outside independent review of computer security procedures, passwords, etc. at least once every two years Purchase internet monitoring software Use shredders dont underestimate the danger of identity theft Install and utilize office security system When employees are on vacation or sick, select replacement personnel with Separation of duties in mind