Without realizing it, contractors routinely face a threat to their business more dire than bad weather or rising material prices. And that threat often comes from a trusted source – employees.
To combat employee theft in the construction industry, financial firm RSM McGladrey will host a free, one-hour Web seminar titled “Employee Fraud: The Silent Killer” April 19 at 1:30 p.m. CST. Rod Foster, the firm’s national construction and real estate practice leader, will discuss how to detect and prevent employee fraud.
“Most business owners doubt employee fraud is happening at their company, when in reality it’s often their most trusted employees perpetrating the crime,” Foster said.
Foster said although employee theft usually starts with stealing small things, over time it can grow to involve substantial sums of money. He said most employees who commit fraud continue to do so until there is some compelling reason to quit.
Employee theft is also a silent and hard-to-detect killer contributing to the failure of one in three small businesses, according to the U.S. Commerce Department. The U.S. Small Business Administration reports as many as 30 percent of all employees steal, and another 60 percent will steal if given sufficient motive and opportunity.
In a report published in 2004, the Association of Certified Fraud Examiners estimated U.S. companies lost 6 percent of annual revenues to employee fraud – the equivalent of $600 billion or roughly $4,500 per employee.
And business owners shouldn’t rely on accounting audits to catch theft.
The ACFE report estimates only 5 percent of employee theft is discovered by this method. Most theft is uncovered by management, but only after it has occurred.
Debbie DeCamp, marketing director at RSM McGladrey’s Des Moines, Iowa, office, said the construction industry isn’t specifically susceptible to employee theft, but employers should be aware it’s happening. She said this is especially important if employees are given a lot of freedom on the job.
The three primary types of employee fraud are – in order of occurrence – asset misappropriation, corruption and fraudulent statements. For any of these to occur, there must be opportunity, pressure for incitement and a rationalization or justification – all of which are what DeCamp calls the “fraud triangle.”
“Many people think it won’t happen to their company,” she said. “Those key employees are the ones stealing from them because they can get away with it.”
Patrick Beeson can be contacted at [email protected].
