Would you know if there was theft?
Do you know the true cost of theft on your project?
One of my projects was in a remote area of a foreign country in joint venture with another contractor who was the lead partner.
The project required about twenty thousand cubic metres of concrete, which was produced from our concrete mixing plant on site. The plant used cement which we transported, using two of our own cement tankers, from a cement factory six hours drive from the site. The project was constantly delayed due to a shortage of cement.
There was a monthly joint venture meeting at which we went through the cost report. In the second month, I noticed we were losing money on concrete materials, and when I queried this, I was told the client had instructed us to use additional cement, the costs of which we would be claiming from the client. The next month the loss on concrete had increased, again I queried this, only to be told when we submitted the variation for the additional cement we would recover the loss. I asked if we were reconciling the cement on the project and was informed this hadn’t happened, but the project management team would attend to it.
More months went past and the loss on concrete materials got worse. When next I visited the site, due to the infrequency of flights, I had to spend several days there, so had time to do the concrete material reconciliation myself. When we calculated how much cement we should have used, and compared it with the quantity we had actually paid for, we discovered there was more than half a million dollars of cement unaccounted for.
On investigation we found that when our drivers returned to the 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 always 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, but obviously we were never going to recover the losses we had already incurred.
The many forms of theft
Theft and fraud take many guises in construction. It is often difficult to control as we depend on many people, subcontractors and suppliers. Project sites are often spread out and unsecured.
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 off delivery trucks – equipment and material is 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 charging 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 a 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 she could direct clients to pay their invoices into this account.
- Employees accepting bribes to falsify payments and accounts.
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 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
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 have 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, but it is also useful as a double check that all work and materials have been invoiced to the client. It also serves to detect excessive wastage.
We have to place some people in trusted positions but it is important to realise 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 by knowing your employees and regularly talking to them you may be able to see the warning signs of potential problems.
Staff need to be vigilant and understand how important it is to have checks 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.
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