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More importantly, it's a major reason why construction companies fail. According to the U.S. Commerce Department, one-third of all business failures can be traced to fraud.

Although companies can experience pilferage from customers, vendors and other sources, employees account for the highest losses, when taking into account offenses such as fraudulent insurance claims, unauthorized time off and theft of proprietary information. Crimes can be as simple as stealing company supplies or as complex as sophisticated financial statement fraud.

Male employees account for 61 percent of fraud losses, while women are responsible for the other 39 percent of losses.
Small businesses are the most vulnerable because of a lack of basic internal control measures.
Source: 2006 Report from the
Assn. of Certified Fraud Examiners

Examine workplace environment
One important factor in whether or not employees steal is their attitudes. Employees who feel they are treated fairly by their company are less likely to commit fraud. Many offenses are committed by people who hold grudges and are looking for revenge.

More specifically, fraud by managers and key executives generates the highest dollar losses because these employees are in a good position to falsify financial, credential, work-related or test-related documents for personal gain.

What can your company do to prevent theft? A recent survey by the Association of Certified Fraud Examiners found these seven measures are the most effective:

Improve internal controls. For example, do not allow the same employee to keep books, collect funds, write checks and reconcile bank accounts. Arrange for monthly bank statements to be delivered unopened to the company owner, who should review them for unusual transactions, such as declining deposits and checks to unfamiliar parties.

Conduct background checks on new employees.

Arrange for fraud audits by the company's outside accountants or an internal audit department. CPAs can conduct regular independent internal control studies of cash accounts, bank statements and other items to detect criminal activity.

Be willing to prosecute perpetrators. Most organizations (71 percent) that are victimized by fraud report the cases to law enforcement. The main reasons some companies took no legal action: They were afraid of bad publicity; reached a private settlement; wanted closure; or considered internal punishment sufficient.

Provide ethics training for employees. Educate staff members about the possible sources of fraud and consequences, such as the loss of jobs, raises and profits.

Institute anonymous fraud reporting mechanisms, such as hotlines. Fraud is commonly discovered through tips from employees, vendors, customers or other sources. These people are frequently in a position to see violations of company policies or excessive personal spending by colleagues.

Install workplace surveillance devices. For example, a video camera monitoring a loading dock where theft is suspected.

Take a zero tolerance stand on fraud. With a few basic procedures in place, internal business theft can be significantly reduced - or even eliminated - so your construction business can flourish. Ask your accounting firm for more information.