Strange Behavior: Warning Signs of Fraud
Diane C.O. Gilson, CPA, CIA
Certain workplace behaviors can tip you off that an employee may be fleecing your company's assets. Here are some warning signs to watch out for.

Evasive Behavior

Although you should expect all your employees to be completely honest with you,
those in sensitive financial positions must understand that they are held to an
even higher standard of accountability and disclosure.

Be alert to any of the following types of evasive behavior:

• Not being able to answer direct questions, not providing requested
  information, or dawdling when asked to provide information.

If your accounting system is set up properly, competent accountants or
bookkeepers will be able to answer your questions fairly quickly.

Recommendation: Make sure you've got a good accounting system in
place, that the people who use it are well trained, and that they can
provide the necessary management reports for tracking your company's
finances. Write reporting duties into employees'  job descriptions.

• Answering a question with a question, or directing your attention
  elsewhere. For example:

You: "Why are our materials costs so much higher than we budgeted for?"

Response #1: "Hmmm. I don't know. Do they really seem that high
to you? Could the lumber company have changed their pricing
structure?"

Response #2: "That's a good question. I'll take a look at it. By the
way, are you planning on taking Fred to the International Builders'
Show with you this year?"

Neither response answers your question, and both subtly "push" you in
another direction without directly refusing your request. You may even
forget that you asked the question.

Recommendation: Make notes about questions you want answered.
Then set a time or date to follow up on the specifics.

• The "look over there" approach.

An employee up to no good may try to direct your attention to another
area before you begin probing areas where fraud is occurring. For
example, if he or she is stealing from the materials expense account, the
conversation may go like this:

You: "Thanks for giving me those monthly reports. I'll look through them
right now."

Bookkeeper: "I noticed our materials cost is a little high, but what
I'm really concerned about is the amount of overtime that's showing
up! We really need to focus on working with the production
supervisors so they begin to get those overtime costs under
control!"

Recommendation: When you review information, carefully scrutinize
areas that need analysis. Don't allow yourself to get sidetracked by
someone else's opinions or comments.

• Providing incomprehensible or overly complex answers.

Accounting can seem very technical and even boring to most business
owners. Nevertheless, a good accountant should be able to clearly explain
even the most complicated set of transactions in basic terms. Don't let
your bookkeeper or accountant talk "over your head." 

Recommendation: If you don't understand something, keep asking
questions until you do. Request pictures, flowcharts, or written
explanations if necessary. If your current bookkeeper or accountant can't
explain it to you, look for outside assistance. It's your money, so you
should be a motivated to understand what it's doing for you.

• Distracted, confused, disorganized, or inept demeanor.

Employees who seem to be in over their heads may be trying to hide
fraudulent activity. Your assets are at risk if you often hear comments
such as:

"You know, I've been trying to finish those bank reconciliations, but
my sister-in-law has been in the hospital, and my son just got a
promotion and had to move so he needed help, and Fred down the
hall asked me to help him with his mailing, and then…."

"I don't understand how this whole accounting software package
works. I put the numbers into this account and the next thing I know
they show up in a different account or they're just missing
altogether! I'm totally confused." 

"I've just had so much going on here, I don't know where those
papers went. They must be around here somewhere. Maybe under
this stack of papers…."

"I don't know anything about numbers at all! I can't add 2 and 2 and
make them come out to 4. No, I don't have any idea at all how we
sent three identical checks out to the same vendor. I must have
been thinking about something else when I was entering bills."

Recommendation: All of us are occasionally distracted, confused, or
disorganized. But if you notice a pattern of any of these behaviors,
immediately find different caretakers to safeguard your financial and
accounting operations.

• Defensive, indignant, or flippant attitude.

Never accept disrespectful, non-accountable responses to your questions.
They're another tip-off of possible fraud.

Say you ask an employee, "Why are our materials costs so much higher
than the budgeted amount?" Non-acceptable responses may include:

•"What? Don't you think I entered the numbers correctly?"
•"What? Don't you trust me? Do you think I'm stealing from you?"
•"Beats me. I have no idea what those guys in purchasing are
doing."
•"I just enter the bills. I don't analyze the numbers."

Recommendation: Remember — it's your business and your money.
Assuming you respect your employees, give them adequate training, and
compensate them fairly, you have every right to expect full explanations,
or an immediate, helpful offer to investigate and provide the requested
information.

Acting Out: Other Odd Traits

• Possessiveness.

A healthy sense of job ownership is good, but embezzlers often are
extremely possessive about their work and environment. Be on the
lookout for employees who:

•Never take vacation or sick time, even when urged to do so.
•Aren't willing to cross-train others to do their work.
•Resist sharing duties that act as checks and balances (e.g., not
•wanting someone else to mail out vendor checks).
•Work unusual and/or excessive hours without a valid reason.
•Closely guard and/or lock up their desks and papers.

Recommendation: Insist that employees take one- to two-week
vacations, cross-train others in their job, and that their desks and papers
remain accessible to the company owner.

• Signs of ongoing stress.

It takes a lot of time and attention to keep a fraud afloat. Not surprisingly,
embezzlers often work long hours. Guilt can take a toll on those who carry
on lengthy schemes and cause its own set of "symptoms."

While respecting their rights, see what you can learn about employees
who appear to be:

•Overly stressed
•Irritable
•Self-medicating
•Having family problems

Recommendation: No matter how busy you are, it's important to pay
attention to your employees' emotional states. Ongoing stress can indicate
other situations that may pose a risk to your business. Monitor stressed
employees closely.

Note and Warning: After fraud is discovered, company owners and managers
often realize they ignored warning signs or didn't know what to look for. That's
why it's so important to learn about behavior patterns that may precede or
accompany fraudulent activity. Please remember, however, that recognizing any
of the behaviors discussed above doesn't mean that fraud is actually in progress.
If you suspect an employee of wrongdoing, respect the person's legal rights and
immediately locate a qualified professional to assist you. Read Protecting
Yourself From Fraud: Principles of Self-Defense for some pointers on how to
proceed.

Diane C.O. Gilson, CPA, CIA, is a Certified QuickBooks ProAdvisor and
MasterBuilder ProAdvisor, author, trainer, and construction accounting coach, as
well as a frequent speaker at The International Builders' Show and The
Remodelers' Show. Her firm, Info Plus Accounting PC/CPA, offers bookkeeping
and support services to help construction companies do more accurate and
timely job costing and run better management reports. Contact Diane at 734-544-
7620 or Help@InfoPlusAcct.com.

Check out Accounting with QuickBooks Pro® for Home Builders and
Remodelers. From writing payroll checks to generating up-to-date income
statements, this book will help you get the maximum benefit from your
accounting system and put good financial controls in place. It includes a CD-
ROM with a trial version of QuickBooks Pro®. The price is $22.50 for NAHB
members and $25 for non-members. Call 800-223-2665 or select this link to
order it online.

New Escalation Clause Helps Safeguard Profits
Responding to recent sharp price increases for a number of critical building
materials — including OSB, plywood, and steel — NAHB has prepared for its
members a new escalation clause for sales contracts that can be adapted for any
number of materials that a builder may want to include.

Sales profits from a home can be seriously eroded or even turn to losses when
builders base their bid or contract prices on building materials prices that rise
significantly by the time construction actually begins.

An escalation clause can help protect builders from the adverse consequences of
price spikes, especially for materials with volatile markets or where there are
indications of possible shortages.

In completing the escalation clause form, in order to avoid future disputes with
the owner over the actual cost of materials at the time of the bid or contract, it is
recommended that the specific building material be listed, along with its current
price per appropriate unit of measurement, as of a certain date (such as the date
of the contract or bid) and with the name and address of the supplier.

As a matter of fairness, both the owner and the builder should have a right of
termination if increases in materials costs become exorbitant and threaten to
make the house unaffordable or too expensive to build.

NAHB's sample escalation clause provides for termination in the event that
increases in materials prices cause the total contract price to increase by more
than a certain percent, although this can also be stated as a certain dollar
amount. Both the owner and the builder should mutually agree on the percentage
or the amount. This may be pegged to the lending limits on the construction loan
or another figure that both parties find acceptable.

Because the builder must take affirmative steps to claim the increase, it is
possible for him or her to waive or ignore increases considered to be minor.
However, including the clause in the contract is insurance against suffering the
effects of crippling builder material cost hikes.

To download the escalation clause, select this link. For further information, e-mail
David Crump, NAHB's director of legal research, or call him at 800-368-5242
x8491; or e-mail David Jaffe, NAHB's staff vice president for construction liability
and legal research, or call him at 800-368-5242 x8317. [return to top]

Down With Construction Defect Suits
Getting hammered by costly construction defect suits may eventually become a
thing of the past. Bills to create new and enhance existing Notice and
Opportunity to Repair laws are continuing to make progress around the country.

Here's a list of legislation introduced as of March 16 to create new Notice and
Opportunity to Repair laws:

• Georgia Senate Bill 563
• Hawaii House Bill 2761, Senate Bill 2358
• Illinois House Bills 3627
• Maryland House Bill 1324
• Mississippi House Bill 722 and Senate Bill 2638
• Missouri House Bill 1166 and Senate Bill 1081
• Nebraska Legislative Bills 1200 and 1225
• Ohio House Bill 175
• Oklahoma House Bill 2136
• Pennsylvania House Bill 1875
• Tennessee House Bill 2787/Senate Bill 2931 and House Bill 2771/Senate
  Bill 2201

And here's a list of legislation introduced as of March 16 to amend or enhance
existing Notice and Opportunity to Repair laws:

• Alaska House Bill 340
• Arizona House Bill 1311
• California Assembly Bill 2812
• South Carolina House Bill 4460
•  Washington Senate Bill 5536

For information on specific legislation, contact your state lobbyist. NAHB's Sam
Leyvas (800-368-5242 x8326) can answer general questions regarding Notice
and Opportunity to Repair legislation. [return to top]

Builder Bright Ideas

• Put professional quality, interior and exterior photos of your best homes on your business cards. This is an excellent way to create a high-impact first impression. In addition, people are less likely to throw away a photo.
  
  
• Before breaking ground on a new home, introduce yourself as the builder and "neighbor" to residents on the block. Ask them to let you know about any problems they experience with vehicles blocking the road, jobsite cleanliness, etc. Your new "neighbors" will tend to watch your project and alert you to suspicious activity. They may also become a terrific source of referrals.
  
  
• If your homes include an unfinished room, don't label it a "Bonus Room." Call the extra space something specific: "Future Bedroom #4," "Exercise Room," or "Home Office," for example. Names like that carry value in customers' minds and increase the perceived value of the entire home.

You'll find hundreds of terrific tips on accounting, personnel, customer service,
sales and marketing, management, trades, production, and design in More!
Management Ideas That Work from NAHB's Business Management Department.
The book costs $25 for NAHB members and $31.25 for non-members. Call 800-
223-2665 or select this link to order it online. [return to top]

Business Opportunities From NAHB's Councils and Departments

Sign Up For Seniors Housing Symposium

Want a piece of the fastest-growing segment of the housing market? There's still
time to register for Building for Boomers & Beyond: Seniors Housing Symposium
2004, which takes place April 14-16 at the Hyatt Regency Chicago. Sponsored
by NAHB's Seniors Housing Council, this is the premier educational and
networking event for industry professionals serving that burgeoning part of the
population aged 50 and up. More than 500 builders, developers, architects,
interior designers, merchandisers, land planners, sales and marketing pros and
others will be in Chicago to participate in this incredible opportunity. Get more
information and register online, or contact the NAHB University of Housing at
800-368-5242 x8338.

Do Business With the World

NAHB International represents the interests of international manufacturers,
builders, and suppliers. International's primary focus is to promote worldwide
awareness and offer internationally focused information on the home building
industry. 

NAHB's Access Mexico Project provides a variety of opportunities to link U.S.
and Mexican homebuilders and suppliers such as the 2nd International Housing
Conference of the Americas, which takes place November 7-10 in Mexico City. 
Conference highlights include pre-arranged, one-on-one networking meetings
between U.S. and Mexican company representatives, property tours of Mexico's
top builders, and interactive, highly informative panels. Table-top exhibit space
and sponsorship opportunities are still available but are going fast. If you're doing
business in Mexico, be sure you represent your company at this event.

Select this link to register online for the conference. For more information about
NAHB International, call 800-368-5242 x8417 or e-mail international@nahb.com.
 

Highlight Your Marketing Prowess

Have you produced a successful marketing campaign on a limited budget? 
Recognize your achievements by entering the Idea of the Year Contest, which
pays tribute to creative and cost-effective marketing ideas. The contest is
sponsored by NAHB's National Sales and Marketing Council.

Winners receive passes to the International Builders' Show as well as recognition
in Sales & Marketing Ideas magazine.  For more information and an entry form,
please visit www.SMImagazine.com.

 Reward Your Sales Team

Looking for a cost-effective way to reward and motivate your sales team?
Sponsored by NAHB's National Sales and Marketing Council, the Million Dollar
Circle Awards program pays tribute to the industry's best sales people and sales
managers. Offering personalized citations, plaques, and pins, the Million Dollar
Circle awards has recognized outstanding new homes sales achievements for
over 36 years.

Order your awards online at www.MillionDollarCircle.com.  The process is fast,
easy, secure, and you will receive immediate confirmation of your order. [return to top]

Plan Ahead For New Homes Month
This April, sell prospects on the financial benefits and other plusses of
homeownership with special resources from NAHB Public Affairs. The 2004 New
Homes Month Promotional Kit is now available online, and is brimming with ways
to help members call attention to the myriad benefits of owning a new home. This
year's kit includes op-eds, consumer articles, a press release, homeownership
ads and a proclamation, along with special tips for making the most of New
Homes Month in your community. For more information, contact Stacy Hope  at
800-368-5242 x8132. [return to top]

Make Housing a Priority In Congress
Members can mark their calendars and sign up for the most important grassroots
lobbying event of the year — NAHB's 2004 Legislative Conference on
Wednesday, April 28 in Washington, D.C.

The conference kicks off the NAHB Spring Board of Directors meeting and is
your opportunity, along with fellow NAHB members, to: 

• Meet with your Senators and Representatives on Capitol Hill
• Lobby on crucial housing legislation
• Take a stand on issues affecting your bottom line

The daylong event will start with a morning briefing, followed by visits to
congressional offices and ending with a reception and feedback session.

For information or assistance in scheduling meetings with your Representative or
Senators, contact an NAHB Congressional Representative at 800-368-5242
x8470.

For information or to register online, visit the Legislative Conference page on the
NAHB Web site. [return to top]

Member Advantage: Save 15% On Payroll Processing With Paychex®
NAHB members save 15% on payroll processing charges and 401(k) and Section 125 set-up fees with Paychex.  In addition to employee payroll checks and statements, Paychex produces accounting records and management reports, tax payment notices, and payroll tax returns.

Call 800-729-2439 for complete details. Identify yourself as an NAHB member and use Member Advantage code 5685.

To order online and for details on more than a dozen other money-saving Member Advantage discount programs click here, or go to http://memberadvantage.nahb.org.

Go to www.nahb.org to explore the numerous advantages associated with
membership in your local, state, and national home builders association. [return to top]