Business of Building e-Source - 01/14/2004 (Plain Text Version)

View Graphical Version | Subscribe to NAHB Publications | Email our Editor...
NAHB Home Page| Browse other NAHB e-publications |Search back issues

Protecting Yourself From Fraud: Principles of Self-Defense

Street smarts dictate keeping your wits about you and not looking like a target. Planning ahead is the best way to safeguard your business.

Several years ago I took a basic self-defense class. I learned effective combat skills, but the most valuable lessons concerned:

Mental preparedness
Proactively avoiding problems before they occur
Recognizing dangerous situations and identifying emerging problems
Planning safe, effective responses to dangerous situations.

Controls are key to self-defense. Several universal concepts come into play whether you’re defending your life, your honor, or your assets (on behalf of yourself, your family, employees, vendors, or customers). Use the following self-defense strategies to protect your business from fraud.

Develop an Awareness of Danger

This is your first line of defense. You must raise your level of awareness to continually recognize that fraud exists and can happen to you.

When you sense danger, trust and act on your “gut response.” For example, if you see an employee furtively slide one sheet of paper beneath another when you walk into the room, or he can’t give you logical answers when you ask specific questions, or she acts defensive when you look in her desk for information you need, don’t ignore your sense of unease. Investigate!

Control Your Environment

You’d plan ahead so you wouldn’t have to walk alone through a dangerous part of town at 2:00 a.m. Likewise, think of possible fraud scenarios so you can avoid or detect them. For each asset at risk,

Consider how it could be used improperly or illegally. Blank checks are but one example of such an asset--it could be easy for someone to steal and use some of your blank checks.
Re-evaluate current risky practices. Do you store your blank checks in a box next to the printer?
Develop effective prevention techniques. Keep blank check back stock in a locked, fireproof filing cabinet and current check stock in limited quantities in a locked drawer in the accountant’s office.
Practice backup and contingency plans. What do you do if someone needs to pay for a delivery and the checks are all locked up?
Monitor usage. To keep tabs on your blank checks and ensure none are missing or used improperly, try keeping back stock in security-sealed boxes, periodically counting current check stock, using manually-prepared check number/approval logs, and performing interim and/or immediate bank reconciliations.
Prepare your weapons. Develop procedures to recover the asset if it has been used fraudulently or if its security has been compromised. Here are some steps you might take if anyone has left some blank checks lying around or you discover some are missing:

· Immediately contact the bank to see if the checks have cleared; make a stop-payment request if they haven’t, and file a police report for stolen checks that have cleared the bank.

· Meet with the bank’s security officer to determine the next steps.

· Change bank accounts.

Many other assets are at just as much risk as those blank checks. You should apply the six steps outlined above to all your vulnerable assets.

Don’t Look Like a Victim

Here are some examples of business weaknesses that contribute to fraud or allow it to occur quietly and undetected over time:

Incomplete or inaccurate financial reporting
Not comparing planned job costs, sales, or company performance with actual outcomes
Checkbook registers that aren’t accurate or aren’t reconciled with bank statements
Bills regularly paid late
Financial transactions delegated to others with little or no supervision
Missing, disorganized, cluttered, or inefficient documents and filing
Letting everyone know that “Sue always handles all of the paperwork”
Company owner and/or management ignores financial reports or the “numbers side” of the business.

If any of these conditions exist in your business, you’re at high risk for fraud. Don’t make the situation worse by advertising these financial weaknesses inside or outside your company. You may need immediate, qualified professional assistance to put effective financial controls in place. Then you can begin to work from a position of true (vs. perceived) strength and internal control.

Act Quickly, Find Help, Fight Smart

It’s one thing to know you’re vulnerable, and another to suspect you’re in actual, immediate danger of losing assets.

If you have any evidence of even a minor problem, don’t wait to take action. Many frauds seem insignificant when discovered, but few are actually as small or innocuous as they first appear. Here are pointers for developing an action plan:

Maintain a friendly, professional demeanor with all employees.
If you suspect an employee of wrongdoing, DO NOT immediately confront him on your own or dismiss him; you may encounter a variety of legal pitfalls.
Contact your attorney, CPA, and perhaps an information technology consultant within 24 hours of discovering or suspecting fraud. Ask them for advice on how to:

· Obtain information from the employee

· Handle the employee’s dismissal and exit from your premises

· Secure your premises and computer data (Note: If you believe the employee’s computer was involved, DO NOT turn the computer on or off or do your own searches. You can easily destroy evidence that an expert could extract).

· Safeguard evidence (e.g., on computers) and determine the full extent of the loss

· Protect yourself from potential lawsuits or other fallout

· Determine whether or not to press charges. Consider the time, stress and money required.

· Try to obtain restitution

· Present the situation to other employees.

DO NOT try to resolve the problem yourself. You don’t have the expertise to handle it, and may make the situation worse or do something that doesn’t produce good long-term results. Instead, ask your professional advisors how to proceed.

Unfortunately, you never really “win” when you encounter fraud or any self-defense situation. The best you can do is to cut your losses as quickly as possible and avoid more bloodletting. That’s why front-end prevention is so critical.

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 visit www.builderbooks.com to order it online.

Notice and Opportunity to Repair Legislation Gains Ground

Resolving construction defect disputes could get easier for builders in states that adopt newly amended model "Notice and Opportunity to Repair" legislation endorsed by the American Legislative Exchange Council (ALEC). The new amendments, which were developed by NAHB and adopted by ALEC at its policy summit in December, ensure a more streamlined and transparent process for resolving disputes between builders and buyers. They provide incentives for settling disputes out of court and add fairness to the overall process. ALEC's model legislation, which is already the basis for laws in 14 states, is expected to engender new laws in a number of additional states in 2004. For more information, e-mail Sam Leyvas or call him at 800-368-5242 x8326. [return to top]

Business Opportunities From NAHB’s Councils

Building for Boomers & Beyond

Want a piece of the fastest-growing segment of the housing market? Make plans to attend Building for Boomers & Beyond: Seniors Housing Symposium 2004, an educational and networking event for industry professionals who serve the burgeoning 50+ market. The conference will be held April 14-16 at the Hyatt Regency Chicago.

Sponsored by the Seniors Housing Council, Building for Boomers & Beyond will feature 19 educational sessions, an exhibit area, networking opportunities, tours of seniors and active adult housing communities, and more. Check out the full brochure for a Symposium overview.

Register online by February 27 to take advantage of the early-bird registration fee. Seniors Housing Council members receive a substantial discount. There also is a discount for multiple attendees from the same company or for spouses.

Visit www.nahb.org/build4boomers for more details. Or contact NAHB's University of Housing at 800-368-5242 x8338.

Ad Review Service

Do your ads spawn a slew of leads and closings or do they merely drain your sales and marketing budget? Stretch your advertising dollars and save time by taking advantage of the Ad Review Service sponsored by the National Sales and Marketing Council (NSMC).

A national network of marketing pros will suggest ways to make your ads more noticeable, persuasive, and effective. The service costs just $20 per ad for NAHB members and is free for NSMC members.

Request an Ad Review Service form by sending an e-mail to nsmc@nahb.com. Questions? Call 800-368-5242 x8095. [return to top]

Builder Bright Ideas

Here’s a great way to do subtle marketing and help your customers cope with winter weather. Send a friendly letter containing these home maintenance reminders:

Never leave garage doors open during extreme weather conditions.
Cabinets containing plumbing lines and located on an exterior wall should be left open to allow warm air to flow into them.
Similarly, leave bathroom and laundry room doors open to allow warm air to circulate.
If the outside temperature drops below freezing for an extended period of time, leave hot and cold faucets open so that a tiny stream of water runs from each. The slightest water movement will keep the lines from freezing.
If you do experience frozen water lines, immediately apply heat to the valve under the sink. Check to see if both the hot and cold lines are frozen by opening the left and right sides (hot and cold) of the valve.
Contact us if you need help.

You’ll find hundreds of terrific tips on accounting, personnel, customer service, sales and marketing, management, trades, production, and design in Management Ideas That Work and More! Management Ideas That Work from NAHB’s Business Management Department. Each book costs $25 for NAHB members and $31.25 for non-members. Both are available from BuilderBooks; call 800-223-2665, or visit http://store.builderbooks.com/cgi-bin/builderbooks to order online. [return to top]

In the Market for a PDA?

In January, simply go to www.nahb.org/entertowin and enter for your chance to win. If you don’t have a username and password, click the First Time User link and create your account today. Or, stop by the www.nahb.org booth at IBS and our staff will walk you through the process.

The www.nahb.org booth will be located in the NAHB OnSite area in the lobby of the LVCC main entrance. All active NAHB members, HBA staff, and Executive Officers are eligible to win. Entries must be made January 1-31, 2004. See the official rules for details. [return to top]

Online Coloring Book Teaches Kids About Home Building

Marketing to your youngest prospects and teaching them about our industry might just induce their folks to buy a home.

NAHB’s Homes of Our Own educational coloring book has an interactive new home: www.nahb.org/coloringbook. All children with Web access now can participate in Homes of Our Own, learning the process of building homes, discovering how builders protect the environment, and even drawing and coloring pictures of their own homes in a virtual environment.

Debuting at IBS, the online coloring book contains innovative new features that allow children to e-mail their drawings to friends and family, print their masterpieces, and receive an official “Junior Home Builder” certificate online.

To support the virtual coloring book program, NAHB has developed additional resources to help members and associations implement Homes of Our Own in their communities. Online information includes a resource kit with suggestions about using the online coloring book in your local community, information on ordering the Homes of Our Own companion video, tree-planting guides, and a Homes of Our Own program script featuring a skit and tree-planting ceremony. Hard copies of the Homes of Our Own coloring books are also available; members can download order forms online at http://www.nahb.org/fileUpload_details.aspx?contentID=15252.

The original Homes of Our Own coloring book was developed by NAHB Public Affairs, with support from the NAHB Women’s Council, to teach children in grades K-3 about home building and tree preservation. Members and associations across the country have featured Homes of Our Own as part of overall community and education outreach programs at schools, public libraries, home shows and special events. Since the Homes of Our Own program launched in 1996, hundreds of thousands of children have participated in the program. Body text here. [return to top]

Member Advantage: Get Special Discounts From Hertz®

NAHB members can get deals on car class upgrades and one-way double upgrades, and discounts off weekly and weekend rentals from Hertz.

For more information, call 800-654-2200. Be sure to use CDP No. 051046.

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]