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  • Writer's pictureJerry Ipsen, CFE, MBA

Best Practices to Stop Subcontractor Fraud

Updated: Sep 19, 2022

Following these suggested practices can go a long way towards the prevention of subcontractor fraud.

Know your market. Be knowledgeable of labor, material and equipment costs, including reasonable bid pricing on comparable projects.

Your subcontractor selection process should include at a minimum: License checks and proof of insurance to start with. In addition, background checks for tax liens, lawsuits, code violations and criminal convictions go without saying. This information is useful when creating a prequalified list of trusted subcontractors and providers.

Retain the right of first refusal. Don't be tied to accepting a bid that on its face appears inappropriate. It's important to have the ability to reject bids and reopen the request for more proposals. Sometimes, to limit collusion risks, you may need to open the process to a wider geographic area to draw a broader group of subs who are less likely to collude.

Ensure project management is up to speed. Hold Project Managers accountable. Review invoices, compare actual-to-budgeted job costs on a line-item basis. An important part of the due diligence process is to perform regular jobsite inspections of materials and equipment.

When you're serious about preventing or detecting fraud and want to do something about it, you need to contact Ipsen Due Diligence.

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