Lessons Learned from the Nigerian Bank

/in /by

A few days ago, I received another email from a “close and personal friend” who is a high-ranking manager at a bank in Nigeria. My “close” friend must really trust me more than anyone else because he asked that I hold, in trust, $10 million US dollars for his cousin, a now deposed village leader. Now, all I needed to do was to email him my bank account numbers and a few personal details to make sure the money got deposited. Sound familiar? If you have owned a computer with online access in the last fifteen years, you have likely received an email from a friend in Nigeria. The scam is a global classic and the reason it has continued for so long is because there is an endless supply of people who fall for it even though this fraud is so obvious.

Not All Frauds are Equal

Not all frauds are quite as obvious, especially in the construction world because of the large sums of money involved in projects. Even in the smallest firms, frauds can go undetected indefinitely and the schemes to defraud are countless.

There are ways to prevent, detect and/or deter fraud. As clarification, we are not addressing property theft or inventory shrinkage. Instead, my focus is more the “white collar” crimes, or frauds that occur mainly in the office such as forgery, phony invoicing, padded time sheets, “feather bedding,” banking schemes, check kitting, supplier bid tampering and workers’ compensation fraud, to name a few of the most common. We have seen all kinds and it boggles the mind.

Pay Attention

The first line of fraud defense is vigilance. Fraud is out there so pay attention to the way the business operates. If your instincts tell you something is wrong, it may be that it is wrong. Change banking and computer pass codes often. Bring in a “surprise” auditor to review your books, and check out your cash management and credit card procedures. Spread rumors about the fact that you are checking for irregularities. Cross train office personnel and every so often rotate positions. Fear that a person’s dishonest activities might be discovered by a fellow employee is a powerful deterrent. Hey, fear works! Sometimes the best deterrent to a would-be internal crook is the fear of getting caught. So, pay attention, put in place some simple precautions and incorporate fear into your controls. It just might prevent hard earned money from disappearing out the door!

Know Thy Equipment

/in /by

Too often, contractors with significant equipment inventory use industry standard rental rates for anticipated equipment usage instead of actual costs when preparing a bid—a practice that could cause you to lose a job in today’s tight bidding environment. Using industry standard rental rates simply does not take advantage of the potentially lower cost of owned equipment.  After all, owning your own equipment is supposed to be an advantage, right?

Looking at the Whole Picture

There is more than one reason to know your actual equipment costs. For example, you should know actual equipment costs in order to make key decisions about equipment replacement. Operating older equipment that is prone to breakdown can actually cost you more than industry standard rental rates. In addition, if your equipment needs frequent repairs, you could incur jobsite interruptions and associated inefficiencies driving down profits and making it difficult to afford replacements. And if funds are not pooled in reserve for equipment replacement, it can become very difficult to afford new equipment due to the additional debt burden required.

Clearly, owning equipment is a double-edged sword. The added productivity that might result from owning equipment can be countered by an excessively high cost of operation. That is why tracking equipment costs is imperative. Lacking equipment costs information, you could dispose of a piece of equipment with a low operational cost instead of another similar piece with a high operational cost. Companies relying heavily on owned equipment can be severely impacted by poor decision-making such as this, likely making it difficult to remain competitive and leading to potential business failure.

There is a saying, “if you want to play you have to pay.” With respect to this topic, “if you want to buy you have to track.” It is that simple. If your company relies on construction equipment to get the work done, implement a comprehensive equipment costing system that monitors all elements of repair and maintenance. With detailed equipment cost tracking, a contractor knows all cost components including fuel, tires and tracks, amortization of major repairs, and hard and soft shop costs, and, therefore, can make intelligent decisions in fleet maintenance and replacement. In short, “know thy equipment.” With this knowledge you can bid more competitively and avoid false expectations.