Managing risk and avoiding fraud doesn’t have to be an internal job

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By Kristen Frisa

Ontario Construction News staff writer

Finding reliable information on fellow businesses can be a challenging task, but it’s necessary to do due diligence to stay clear of fraudulent activity. This is especially true in the construction industry, because of the complexity and ever-changing nature of each project.

“A lot of companies do not have very strong controls on change orders, or following up on supplier delivery of products,” says Bo Mocherniak, partner at Grant Thornton LLP. “The whole industry has the potential of increased fraud activity going on there.”

The risk of getting into untoward activity grows when working with a new or unfamiliar business. Suppliers, subcontractors, and other associates need to be well-vetted, to ensure all stakeholders are on the same page.

Mocherniak says strict processes within a business can help stave off any chance of underhandedness. First, a culture that emphasises the importance of proper procedure from senior management down, helps a great deal. For example, there should be a process whereby any change order needs to go through certain levels of approval.

“The other thing that we believe is important is a whistleblower program. It’s one of the strongest preventative controls,” Mocherniak says.

There are companies out there that can help vet out potential partners, candidates for acquisition, and suppliers a company is considering using. Grant Thornton, for one, can advise on risk management, transaction decisions, and establish accounting standards.

i20 Research is a new Toronto business that aims to help clients identify and manage risk, avoid fraud, and help them through litigation. Founder Bruce Livesey says his company can provide information based on research from investigative journalists, forensic accountants, lawyers, and asset appraisers, who turn over all the rocks and present the full story of a business’ history.

A press release from i20 says the new venture has already received a “flurry” of requests for information from interest companies.

Mocherniak says that in his experience of contractors, they generally know which businesses are good and which are bad in the industry, and they often work with the same companies again and again.

“I think a lot of companies are big enough that they should be doing that anyway and they can build in some of these processes,” Mocherniak says. However, he says sometimes additional help is requested when a contractor has to deal with a new company for the first time.

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