Time card fraud is a growing epidemic plaguing construction companies of all sizes. With the industry’s tight profit margins, inflated labor costs from falsified hours can seriously impact the bottom line. While paper time sheets make committing time card fraud simple, modern construction-focused solutions like ExakTime provide the oversight needed to combat this problem.
In this comprehensive guide, we’ll cover what exactly time clock fraud is, the major ways it negatively affects construction businesses, and most critically, what concrete steps contractors can take to prevent it.
Defining Time Card Fraud
Timecard fraud refers to employees deliberately falsifying the work hours they report on paper or electronic timesheets in order to get paid for time not actually worked.
This fraudulent activity takes many different forms within the construction industry. Employees may claim hours for an entire shift when they only worked a portion of it. They may also exaggerate the time spent on tasks, taking two hours to complete something that only required one. Skipping mandated rest breaks but counting that time as hours worked is another common tactic.
Some employees go as far as clocking in and out from home instead of the actual job site to get paid for hours when they were not even present. The infamous “buddy punching” scheme where employees have friends or coworkers clock them in and out when late or leaving early also qualifies as timesheet fraud.
Working additional “under the table” hours for cash payment without reporting it on time sheets is another fraudulent activity. On the opposite end, managers sometimes pressure crews to underreport work hours to reduce labor costs.
Supervisors falsifying or inflating the hours of their team members before submitting their time cards to payroll also constitutes fraud. With paper timesheets and manual data entry, this kind of end-of-week manipulation of time card data is extremely difficult to catch.
The ease with which construction workers can alter or exaggerate hours on paper makes manual time cards exceptionally vulnerable to exploitation. Without proper digital verification procedures in place, construction firms have little recourse to confidently prevent and detect time theft.
The Major Impacts of Time Card Fraud
While employees may see inflating their hours as a harmless way to gain some extra pay, time card fraud has far-reaching detrimental effects on construction businesses:
Every hour paid out for work not actually performed cuts directly into a contractor’s bottom line. With already slim profit margins in the construction industry, these labor cost leaks can seriously hurt the financial health of a company.
According to estimates by the Association of Certified Fraud Examiners, businesses lose around 5% of annual revenues to fraud on average. For a contractor doing $10 million in business, that equates to $500,000 in financial losses each year.
And as with any fraud, time theft tends to grow. If employees realize they can get away with small additions, it often leads to even bolder misreporting. What may start as padding an hour here and there can snowball into flagrant payroll abuse.
Inaccurate Job Costing Data
When hours are incorrectly coded or inflated on timesheets, it skews the data used to estimate costs and bid on future projects.
Construction accounting relies on accurate labor reporting to determine true job costs. When the data going into these cost models is false, it severely undermines the accuracy of estimates and project management.
Moving forward, contractors using falsified time and attendance records are likely to underestimate the costs of new projects and underbid work. These lowball bids may help win business initially but ultimately result in even greater financial losses.
In addition to direct financial impacts, time card fraud often leaves construction firms out of compliance with important labor regulations.
Accurate pay records are necessary for adhering to prevailing wage requirements on government contracts. Without proper documentation of hours worked, overtime hours and wages, and authorized deductions, contractors fail to meet the compliance criteria.
Timecard fraud also commonly results in violations of labor laws governing required meal and break time. If breaks are not happening or are not documented correctly, contractors face stiff penalties and legal problems even if they didn’t realize issues were occurring.
The potential fines and legal risks resulting from time card non-compliance are massive headaches contractors should seek to avoid.
Poor Labor Resource Planning
For project managers, having complete and precise data about time spent on projects is critical for forecasting labor needs accurately.
When time card data is inflated or falsified, it becomes unusable for planning purposes. Construction firms are left trying to predict future staffing and costs using faulty historical data.
As a result, managers often end up with the wrong number of people on jobs. Hiring too many workers lowers profitability due to unnecessary labor costs. Having too few workers reduces productivity and causes project delays.
In summary, time card fraud’s drain on financial resources, distortion of data, non-compliance risks, and obstruction of planning make it a primary threat to the operational health of construction businesses.
How Accurate Attendance Data Deters Time Card Fraud
To effectively combat falsified time reporting, construction companies need access to accurate, real-time attendance data. Complete and precise tracking of hours worked and location provides transparency into true workforce activities and makes employee time theft much harder to hide.
Digital time card software should record exact clock in and out timestamps to confirm presence during reported shifts. Geo-verification through GPS tracking and site geofencing validates workers are punching in and out from the proper job location.
Tracking project assignments ensures hours get accurately coded to the right cost codes. Detailed break time logging guarantees workers take and properly document mandatory meal and rest periods. Location data like GPS tracking identifies potential unexplained gaps in time on site.
Together these types of verifiable attendance records make manipulation of working hours nearly impossible for employees. Digital time cards also cannot be modified after employee submission without creating a detailed audit trail.
For supervisors, access to live attendance analytics closes loopholes. Discrepancies and potential fraud can be identified and addressed quickly rather than waiting for falsified paper timecards to be submitted at week’s end.
How Time Tracking Technology Prevents Time Card Fraud
Old paper processes open contractors up to time theft, but modern time clock technology can prevent it. Here are some of the ways the latest construction-focused time card software systems combat fraud:
Mobile Time Tracking Apps
Mobile time tracking software solutions remove manual processes and create digital verification trails that prevent time card fraud. Features like photo capture confirm employee identities and account for hours worked. This prevents employees from using buddy punching schemes. Location services through GPS integration validate workers are on site when clocking in and out.
Geo-fencing features generate alerts if employees attempt to clock in from outside designated job site boundaries. Mobile time clock apps also allow field teams to track on-site equipment inspections, materials checks, safety incidents, and other activities. This creates additional confirmation that employees were present and working during the hours reported.
By digitizing and automating the time tracking process, mobile apps close many of the loopholes that lead to timesheet fraud cases and falsification. Features like biometric logins, GPS tracking, and geo-fencing make it extremely difficult for workers to manipulate or falsify hours. Robust activity tracking functionality provides concrete verification of tasks performed during all reported time on site.
Real-Time Insight and Custom Alerts
Supervisors leverage digital time tracking software tools for live attendance data, enabling proactive identification of discrepancies. Automated alerts signal potential fraud in real-time, flagging missing punches, early clock-ins, late clock-outs, excessive hours, and irregular breaks.
Daily review of real-time data and customized alerts help supervisors catch issues promptly, preventing unnoticed problems until formal timesheet submissions. This custom alert system via digital platforms proves critical for construction firms to monitor compliance and prevent time theft ensuring a vigilant approach.
Accounting and Payroll Platform Integrations
Integrations between digital time tracking software and existing accounting and payroll systems are key tools to stop time clock fraud. Automated data flows into cost and job tracking programs to validate hours worked without manual data entry errors or manipulation. Direct integration with payroll systems provides yet another check before finalizing pay.
By syncing field data to back-office software, contractors gain full visibility into how reported regular and overtime hours translate into project costs and job productivity. Tight platform integrations can help avoid time card fraud.
Custom User Permissions
Defined user roles and permissions settings allow administrators to prevent timesheet fraud with digital time card software. Field employees can be limited to clocking in/out and submitting verified hours. Supervisors are granted access to manage team member work schedules but require approval for edits. Only authorized payroll admins have final access to process hours.
Restrictive role-based permissions prevent employees from modifying their own hours while holding supervisors accountable. Proper configuration ensures only valid, verified hours get processed for pay. Advanced systems mitigate vulnerabilities of paper tracking through thoughtful user permission design.
Time Card Fraud Prevention Tips
Time fraud can be further prevented through strong company policy and procedures in addition to using advanced time card software.
Daily proactive review of regular and overtime hours enables supervisors to catch discrepancies right away rather than waiting for timesheets. Restricting supervisors from modifying team members’ work schedules without an audit trail and secondary approval provides accountability.
Strict enforcement of break policies ensures compliance with labor regulations. Ongoing training at all levels educates staff about the implications of time fraud. Watching for unusual overtime requests, payroll discrepancies and other red flags allows issues to be addressed before costs escalate.
Payroll audits checking withholdings against hours reported can detect off-the-books payments. Clear written policies communicate expectations and consequences for falsifying hours. A 360-degree approach combines advanced technology with strong oversight procedures and training to minimize timekeeping fraud risk.
Frequently Asked Questions
What Percentage of Construction Companies Face Time Card Fraud?
Research indicates over 75% of construction contractors experience some degree of time and attendance fraud. The decentralized nature of job sites, cash payroll practices, use of paper records, and lack of oversight all contribute to high rates across the industry.
What Is the Most Common Type of Time Card Fraud in Construction?
The most frequent occurrence is employees padding hours by adding a few unworked minutes here and there. Workers know that inflating an hour or two is unlikely to get flagged compared to bolder moves like adding whole unworked days. Over weeks and months, these small increments add up to major losses.
Which Construction Jobs Tend to See the Highest Fraud Rates?
Distributed, remote work sites with less direct supervision tend to have greater rates of time padding and manipulation. When supervisors are not physically present for visual validation, some employees feel emboldened to take advantage.
Why is Time Card Fraud Problematic for Prevailing Wage Requirements?
Accurate pay and hourly reporting are critical for monitoring prevailing wage compliance on government contracts. Underestimating hours while overcharging for labor violates requirements and puts contractors at risk of stiff penalties, lawsuits, and disbarment from future public projects.
Target Time Card Fraud with ExakTime
As a leading provider of automated time and attendance systems for construction, ExakTime offers advanced technology to eliminate time card fraud and its devastating consequences.
With real-time visibility into true workforce activities, ExakTime makes time fraud nearly impossible to perpetrate. Features like GPS tracking, custom proactive alerts, and seamless accounting integrations give managers unparalleled oversight.
Contact ExakTime today to learn more about our powerful, contractor-specific solutions for maximizing workforce productivity, eliminating waste, and protecting hard-earned profits. Our team of experts is ready to schedule a personalized demo showing how robust time tracking tools will empower your business now and into the future.