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  • Writer's pictureJerry Ipsen, CFE, MBA

Recommended Internal Controls for Construction

Is your company doing enough? Could it do more? Implementing the correct internal controls is a commonsense approach that doesn't require costly high tech or expensive software. I promise you; these internal controls will save your company money, morale, and reputation.

Surprise audits and jobsite visits – Employers can immediately send the message that fraud and theft will not be tolerated. Unannounced site visits as well as surprise audits are the perfect way to get the attention of your employees and subcontractors.

Segregation of duties – Is widely recommended and insists that multiple people be involved in the accounting process. In addition, the CFO should be actively involved in the reviewing and signing of outgoing checks.

Bank Statements – Bank statements should never be mailed directly to the office! Company owners as well as managers independent of the accounting process should receive the bank statements as well as canceled checks for review of the amount and payee before being handed over to accounting. Many employers choose to have the bank mail the statements and canceled checks to their home address.

Purchase monitoring – Someone other than the purchasing agent should review vendor invoices, purchase orders and supporting documents. The use of prenumbered purchase orders, a requisite is just as important as having someone physically check upon arrival the quantity and quality of materials against the purchase order.

Kickbacks and bid-rigging – Winning too many bids? Have your bid process reviewed to ensure that everything is on the up and up and that employees have not disguised possible illegal activities to include numerous change orders in order to secure a winning bid.

Budget analysis – Make sure budgets for the company and each project are regularly compared to actual results. While minor discrepancies are expected, it’s the major ones that deserve further attention.

Payroll practices – So important! Have someone outside the accounting department verify the name and payrate of each employee listed on the payroll. Ghost employees, those either terminated or don’t exist, including those receiving a paycheck on their behalf is a real problem. Check for mailing addresses and similar bank accounts for those on direct deposit.

Vacation policy – Fraud is often exposed when an employee who hasn’t taken vacation for years has been forced to go on vacation. Meaning the fraud that person has perpetrated is often found by another employee assuming that person’s duties. Enforce the vacation policy and ensure all employees use their vacation time.

These internal controls when properly implemented serve as strong fraud prevention measures and a deterrent to those considering wrongdoing. The results can be seen in fewer accounting errors, less waste, and the overall improvement in cash flow from improved efficiency in both the billing and purchasing processes.

When looking for ways to improve the process, remember Ipsen Due Diligence works with companies providing them with written internal controls as well as a means to monitor their effectiveness.

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