One of our projects located in a remote area of a foreign country required twenty thousand cubic meters of concrete, which was produced from our concrete mixing plant on site. We transported the cement for the concrete in bulk from a factory six hours drive from the site, using two of our own cement tankers. We couldn’t seem to get cement delivered fast enough and the project was constantly delayed due to shortages.
Our cost reports showed we were losing money on concrete materials. The project team claimed the loss was because the client had requested more cement in the concrete and we would claim the additional costs from the client. The months went past and the continued to increase. Eventually, the project team undertook a reconciliation of concrete materials (something that should have been done from the start of the project) and found that more than half a million dollars of cement was unaccounted for.
Further investigation found that when our drivers returned to the project site with a load of cement they made a detour, stopping off and discharging the cement from one of the tanker’s compartments, which they then sold. In fact, a third of every load of cement was being stolen from the truck en-route to the site.
Not only was there the direct cost of the stolen cement, the project also had insufficient cement due to every truck only delivering two-thirds of what they should have, and the trucks taking a couple of hours longer on each return journey because of the detour to unload cement.
By implementing suitable controls we were able to prevent further theft of cement and never ran short of cement again. But obviously, we were never going to recover the losses we had already incurred.
The many forms of theft on construction projects
Theft on construction projects takes many guises. Project sites can employ hundreds and even thousands of people from diverse backgrounds. Some of these employees are employed directly by the contractor while many are employed by subcontractors and suppliers working for the contractor. But often the client has their own workers on the project and they also even employ other contractors. Project sites can sometimes be difficult to secure as they can cover large areas and ongoing work can prevent the erection of permanent fencing. Equipment and deliveries are constantly entering and exiting premises.
However, theft takes a multitude of forms and includes lots of white-collar crime. In fact, fraud often accounts for more theft than the direct theft of materials.
Some forms of theft on construction include:
- Theft from the site which could include; equipment, tools, materials. Sometimes the theft is even items that have already been built into the project, such as electrical cable, which often causes damage to other items, and additional work to reinstall and repair the damages.
- Theft of delivery trucks – equipment and material are stolen from delivery trucks while they are parked at rest stops on the way to the project.
- Suppliers short delivering materials – this could include not delivering the quantities on the delivery note. I have regularly caught suppliers short delivering concrete and concrete materials.
- Suppliers invoicing for materials that weren’t delivered or double invoicing for the same item or charging more than the agreed rate on the order.
- Subcontractors invoicing for work they haven’t done or charged more than the agreed price.
- The unlawful use of company assets – for example, employees using equipment for their own projects either at home or where they are reimbursed directly by another client.
- Employees depositing payments meant for the company into personal bank accounts. We even had one accountant open a bank account with a similar name to our company so that they could direct clients to pay their invoices into this account.
- Employees accepting bribes to falsify payments and accounts.
- Employees falsifying travel and petty cash claims so they are paid more than they are entitled to.
The true cost of theft
When we have theft we often only consider the direct cost of replacing the item. But the cost is often more than this. The cost may include:
- The cost to replace the item.
- Additional transport costs to get the replacement item to site.
- Project delays waiting for the replacement equipment or items.
- The cost of having the item unavailable (consider personnel who can’t work when their tools are stolen, the theft of an excavator battery which not only means the excavator can’t work but results in trucks and other earthmoving equipment standing because they depend on the excavator).
- Specialist tradespeople may have to return to the project at an additional cost to install the replacement item.
- Damage caused to the facilities by the thieves.
- Management time to order the replacement items and investigate the theft.
Unfortunately, theft is sometimes violent and employees may be held at gunpoint. This could lead to serious injury, but at the very least leads to traumatized employees which impact productivity. In some cases, employees may refuse to work on some high-risk projects.
What we can do
We need to be ever vigilant and ensure that there are checks in place that will detect when fraud or theft has occurred. Not only will this be a deterrent to potential fraudsters and thieves but it will enable steps to be implemented to prevent more theft.
Doing simple material reconciliations on projects is a simple way of detecting stock losses early, but it is also useful as a double check that all work and materials have been invoiced to the client. It moreover serves to detect excessive wastage.
We have to place some people in trusted positions but it’s important to realize that people’s circumstances change and we cannot know what financial stresses they may be experiencing in their lives, or what temptations they are unable to resist. It’s, therefore, important to ensure that where necessary there are 2 stage checks in place. In addition to knowing your employees and regularly talking to them, you may be able to see the warning signs of potential problems.
Management needs to be vigilant and understand how important it is to have checked in place and ensure that these checks and controls are diligently carried out. On project sites where theft is a possibility extra security measures may have to be installed such as cameras, fencing and security guards. High value and high-risk items may need to be secured when not in use.
Construction companies need to be vigilant to prevent fraud and theft and ensure systems are in place to deter and prevent this from occurring. Unfortunately, many companies don’t know what theft and fraud are costing their projects and company.
How prevalent is theft on your construction projects? What theft have you uncovered on your projects and what was the cost?
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