A Spotlight on Fraud and AP Challenges in the Construction Industry
Accounts Payable (AP) departments in the construction industry are battling labor shortages and heavy turnover, delayed payment processing, lost time due to manual tasks, and fraud.
All industries are susceptible to fraud; however, the nature of the construction industry puts it at a heightened risk of a fraudulent attack. Several high-dollar transactions that multiple employees are managing are difficult to keep track of, especially within the back office of an organization.
The median occupational fraud-related loss experienced by construction companies between January 2020 and September 2021 was $203,000, landing it in the top five of the highest median losses among other industries1. Moreover, the five most common types of fraudulent activities in the construction industry are2:
- Corruption/Collusion: Collusion between project managers and vendors/subcontractors, including kickback schemes, bid-rigging at the subcontractor level, conflicts of interest, bribery, etc.
- Billing: Substitution of materials while billing for higher quality, falsifying pay applications and billing for uncompleted work, incorrect labor rates, etc.
- Expense reimbursement: Falsifying invoices for expense reimbursements and inappropriate use of company credit cards and gas cards.
- Noncash misappropriation: Stealing the noncash assets of company assets such as job site supplies, equipment, scrap metal, other materials, etc.
- Check and payment tampering: Office employees may have the opportunity to write checks to fictitious vendors or collect checks from customers and hide the activity through entries to the general ledger.
Cybersecurity is also a growing threat to the construction industry because the interconnected nature of the vertical lends itself to vulnerability3. Data breaches are on the rise, and while many construction executives believe their firms could fall victim to a cyberattack in the future, 68% of them have no security measures in place.
How AP Automation Can Help:
Ultimately, fraudulent attacks negatively impact your organization’s bottom line. Payment Automation reduces the risk of fraud while combatting other challenges impacting AP departments.
Eliminating paper checks and moving to secure electronic payments is one way to keep your organization safe from fraud. According to the 2021 Payments Fraud and Control Survey Report from the Association of Financial Professionals, 66% of companies paying by check experienced real or attempted fraud, compared to just only 3% when paying with single-use virtual cards4.
When organizations implement Paymerang, they get increased security benefits through encrypted account data and multi-factor authentication. Also, the organization will no longer have to store vendors’ sensitive banking data because it will be stored with Paymerang.
Paymerang also has internal security measures in place to stop hundreds of fraud attacks against clients and has saved companies millions of dollars each year. Paymerang’s security team provides an extra set of eyes on your payments, often catching fraud attempts missed by an organization. If fraudulent activity is suspected, the security team will monitor an organization’s payments for any suspicious activity.
Payment Automation increases efficiency by eliminating manual, repetitive tasks, therefore saving organizations thousands of hours annually. According to the 2019 National Construction Payments Report updated in April 2022, the construction industry is slower than any other industry when receiving payments, averaging 83 days to complete5. This impacts developers, subcontractors, and material suppliers, and often results in payment fraud and incurring late fees for organizations. Paymerang provides white-glove service by handling payment reconciliation and ensures all payments are handled in a timely manner.
Last but certainly not least, implementing Paymerang provides business continuity to clients, which is critical in an interconnected industry like construction. Payment Automation establishes role-based controls and gives AP leaders visibility across the company, reducing the time contractors spend hunting down and approving documents.
In a perfect world, organizations would operate without fear of fraud. But that’s not the case. Fraudsters are continually coming up with new schemes that are harmful to your business, and you must take extra steps to protect your organization from fraud. Implementing Paymerang’s AP automation solution adds an extra layer of protection against fraud while also alleviating other challenges riddling AP departments in the construction industry.
12022 Association of Certified Fraud Examiners Report to the Nations
2Association of Certified Fraud Examiners’ 2018 Report to the Nations on Occupational Fraud and Abuse
3Contractor Mag: Is the Construction Industry the Next Big Cybercrime Target?
42021 AFP: Payments Fraud and Control Survey Report
5Levelset: 2019 National Construction Payments Report (updated in April 2022)