Why GC’s Are At Risk Of Internal Embezzlement

  • 3 min read

Contractors and construction companies, with their intricate financial transactions and numerous subcontractor relationships, are unfortunately prime targets for fraud, scams, and embezzlement. In a recent article from a reputable trade publication, a distressing case of embezzlement came to light, revealing the vulnerability of a construction company to financial crimes.

The Case of Greg Wyman Construction: A Million-Dollar Embezzlement

In San Luis Obispo, California, Greg Wyman Construction fell victim to a significant embezzlement scheme. The company’s bookkeeper, George Wild, orchestrated an elaborate plan that resulted in the misappropriation of nearly a million dollars. Wild, who later pled guilty to charges of embezzlement and forgery, managed to pass 64 fraudulent checks, leaving the construction company in a precarious financial position.

The Anatomy of Construction Fraud

Construction fraud often involves the creation of “ghost companies” or the issuance of checks for seemingly legitimate invoices. Fraudsters might employ tactics such as using names or amounts similar to legitimate vendors to divert funds into their accounts. In the case of Greg Wyman Construction, the scam involved directing checks meant for subcontractors into the embezzler’s personal account.

Protecting Your Construction Business: Fraud Prevention Measures

For general contractors and builders, implementing robust fraud prevention measures is imperative. Here are some key steps to safeguard your construction business:

1. Double-Check Payables:

Regularly review and reconcile payables to ensure you are not paying invoices twice. Scrutinize the details, and if anything seems amiss, investigate promptly.

2. Verify Invoices:

Match every payment to invoices, confirming that the addresses and business details align with the original schedule of expenses for the construction project.

3. Implement Stringent Approval Processes:

Establish a rigorous approval process for financial transactions, especially those involving significant amounts. Multiple layers of authorization can deter potential fraud.

4. Conduct Regular Audits:

Regularly audit your financial records to identify irregularities or discrepancies. An independent audit can provide an unbiased assessment of your financial health.

5. Educate Your Team:

Ensure that your staff, especially those handling financial matters, are trained to recognize potential red flags and report suspicious activities promptly.

6. Utilize Technology:

Leverage accounting and project management software to track and manage financial transactions. Automated systems can add an extra layer of security.

7. Enhance Vendor Due Diligence:

Before engaging with new vendors or subcontractors, conduct thorough due diligence. Verify their legitimacy and reputation within the industry.

Vigilance is Key

The story of Greg Wyman Construction serves as a stark reminder that no construction business is immune to financial crimes. By remaining vigilant, implementing comprehensive fraud prevention measures, and fostering a culture of financial responsibility, contractors and builders can protect their businesses from the devastating impact of scams and embezzlement.

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