Avoiding Errors

PREVENTING FRAUDYou can prevent fraud and mistakes by going digital.   

By John Kennedy and Richard Bergfeld 

Every construction site is busy. Suppliers deliver shipments. Subcontractors complete tasks. An architect may consult with a foreman. Invoices, receipts, planning documents, blueprints and more move from person to person. At the heart of it all is a construction trailer where workers, supervisors and vendors come and go, leaving and taking paperwork as they handle their tasks. It’s an exercise in controlled chaos, and the resulting mix can become a recipe for costly mistakes or even purposeful fraud. 

The risk of errors exists on even the most tightly managed sites. And the common denominator behind most construction errors or attempted fraud is paperwork. Whether committed on purpose or through carelessness, these inaccuracies cost the industry up to $860 billion per year, according to a 2013 report from accounting and advisory group Grant Thornton. The report, according to Risk Management Monitor, also projects the costs could rise to $1.5 trillion by 2025.  Detecting errors and safeguarding against suspected fraud should be a top priority for builders and their customers. 

In addition to the financial impact of mistakes and fraud, the effort required to manage traditional paper-based processes also carries other significant costs, according to PricewaterhouseCoopers. For example: 

• $122 — The administrative cost of retrieving one paper document 

• 20 minutes — Average time it takes employees to retrieve, copy and forward needed information in a document

• 20 percent — Amount of their time that the average employee wastes searching for information in paper-based filing systems

• 7.5 percent—Average amount of company documents lost completely, directly impacting receivables, customer satisfaction and productivity, according to The Paperless Project.

In addition, an International Data Corporation (IDC) study found that the risks associated with outdated document business processes are extremely high. These risks include failing to meet compliance requirements, losing key customers or employees, IT breaches, audits and PR crises. In the construction industry, where compliance with a variety of governmental regulatory agencies is mandated, lack of access to information can create serious productivity delays. 

Traditionally, construction companies manually review all documentation to search for errors – a time-consuming process that is labor intensive and prone to error. While the industry has been slow to adopt technology solutions to resolve this issue, some industry leaders have invested in document management technology that vastly reduces, if not eliminates, the ongoing potential for these costly errors.

In particular, contractors deploying a cloud-based document management service become dramatically more efficient in efforts to detect and reconcile errors when they occur. By digitizing construction documentation, paper is virtually eliminated at job sites, resulting in better records management. For example:

• Easier error detection – Prior to digitization, construction managers and auditors were required to visually search for and identify errors across all paperwork. Errors that are now easily identified can be as simple as a misplaced decimal point, accidental typos or inaccurate quantities entered into invoices. Using digital technology, it’s easy to enter search parameters that quickly bring to light these issues across documents, even finding inconsistencies in the signatures of documentation that might indicate the possibility of purposeful fraudulent activities. 

• Identifying hard-to-find inaccuracies – While time consuming and laborious, manual searches would typically find many errors across construction site documentation. But there were still errors that escaped the eyes of reviewers. Digitized searches exponentially increase the chances of finding all errors or potential attempts at fraud. 

• Fraud prevention – Once unscrupulous contractors or others in the industry become aware of the power of electronic documentation, it becomes a deterrent to attempts at fraud. Those individuals intent on working the old system to their benefit quickly understand that the previous ways no longer work, discouraging future attempts.

In an industry that has been slow to adopt new technology (according to the MGI Industry Digitization Index, construction businesses possess one of the lowest levels of digital adoption), the necessity of finding new ways to save time and money has never been more critical. And as younger, more technologically savvy professionals enter the construction workforce, digitizing records and processes will become more important for businesses to be competitive. It’s time to digitize your paper-based processes and end fraudulent errors.

John Kennedy is a managing partner and Richard Bergfeld is managing director of Hathaway Partners LLC, resellers of Digitech Systems. Between them, Kennedy and Bergfeld have over 70 years of construction management, accounting and consulting experience. They formed Imaging and Dataflow of Texas which is a service bureau providing document management service for the construction industry imaging files and providing access to any document, any place and any time. In addition, Imaging and Dataflow of Texas will create databases from documents resulting in management information far beyond going paperless to multi-project, multi-year analysis tools.

For more information, contact John Kennedy at Jkennedy@hathawaypartners.com or Richard Bergfeld at rbergfeld@imagedataflow.com.

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