How Should HR Tackle Employee Dishonesty in Project Site Cash Handling?

Dear Seniors, I am working as HR with a project construction-based company. Presently, I have found some problems at our project site. Most of our employees are involved in petty cash pilferage at the site. For example, suppose Ram convinces the management of the company that Rs. 10,000/- needs to be given to the XYZ officer in the XYZ department for XYZ purposes. The company sanctions this amount according to the conversation with Ram. In that case, Ram has settled with this XYZ officer with Rs. 5,000/- and shown the company that expenses occurred amount to Rs. 10,000/-. I believe you understand the problem. Please suggest to me what actions should be taken against this type of dishonest employees.

Thank you.

You have explained your problem; however, there are a few more questions listed below:

a) Do you have centralized authority responsible for controlling the project cost?

b) Is that centralized authority supposed to verify the accuracy of the expenditure? Why has this not occurred?

c) All purchases are required to go through the purchase department. Why is "X" giving money to "Y"?

d) Money is "given" to make purchases. In this case, were three quotations obtained, and was a price comparison done?

e) Was it possible to make the purchase through a departmental store or mall where price negotiations were unnecessary?

f) Have you trained your staff in purchase negotiations? If so, was the training solely on body language and eye contact, or did it include fundamental procurement principles?

g) Do you have an independent audit authority? Have you documented any past instances of fund misappropriation? If so, have you trained your staff based on those instances?

h) What market research was conducted before making the purchase?

Do you work in the construction industry? In construction projects, these issues are common. However, there are methods to control costs. Currently, you are conducting a domestic inquiry, and if the accused is found guilty, you may bring him to book.

I have trained over 200 procurement/store officers in a major infrastructure company. I understand the psychology of these individuals. Based on my interactions, I have developed around 30-35 ratios for which project managers or operations are accountable. This is a unique system I have created and is not part of any ERP. I only share this information with my participants.

Thanks,

Regards,
Dinesh V Divekar

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Yes, I am from the construction industry, and it is a private limited company (small unit). In the project area, there are some suppliers who supply consumable items to the company. In a limited company, there are standard rules and regulations, standard policies, but our company tries to implement them.

You mentioned that if we collect rate quotations from different suppliers for price comparison, we should track these types of things. I agree with you, but here are some questions raised, and I want to know how to track it.

Suppose I am going to a supplier to collect a rate quotation and negotiate with the supplier to quote the rate including my commission of 2% or 3%. After that, I submit it to the company and finalize it. The company pays the bill to the supplier monthly through a cheque, and I collect cash from the supplier as per the deal.

Another Case:

You know very well that without money, no work can be done in any government office or private office. In that case, suppose I am going to the DLO office to renew our labor license and negotiate with the DLO office that a miscellaneous Rs. 5000/- has to be given for the renewal of the license, and it is forwarded to the company, meaning the authorized person, that we need Rs. 10,000/- as miscellaneous expenses for the renewal of the license. After that, the company has sanctioned Rs. 10,000/- for the above subject, and I pay the DLO office Rs. 5000/- as per the deal. The company knows I have paid Rs. 10,000/- as miscellaneous expenses for the labor license.

Sir, I want to know how to track or control these matters. You do not have any proper evidence of the above examples. If you think we should identify the culprit who is involved and after a domestic inquiry, terminate him, there is a problem if we think to take this type of decision. We would be wrong because 70% to 80% of people are involved in that type of case.

Regards.

Dear friend, Your case is of "fence eating crops." Nothing much can be done if you have manual processes. Secondly, you need to have the right Project Manager to keep the costs under control. How effective is your project manager?

Implementing Effective ERP Systems

To avoid problems of this kind, you need to have a sound ERP where e-Procurement is also included. A software called "Quadra" is quite famous in the construction industry. In this software, there is a provision for a Vendor Portal. Whenever there is a requirement for material, the purchase team can upload RFQ on the vendor portal. They can generate login IDs and passwords for each vendor. Vendors can log in and send quotations. The software does price comparison. The second benefit of using Quadra is that one vendor cannot come to know what another vendor has quoted.

Challenges in Procurement

However, there lies a catch as well. What if the procurement personnel who have access to the price quoted by the vendor start disclosing this information to someone else to fix the prices?

Role of the Project Manager

The final solution lies with your Project Manager. He should not only be good at technical activities but also in knowing market prices. Hold him accountable to control the material cost.

Otherwise, the construction industry is infamous for accepting kickbacks. I have trained over 200 procurement professionals of a major infra company. I was shocked when my participants told me stories on how money can be made. That is why in any construction company, around 40-45% margin is left. About 20-25% is eaten away because of corruption and wrong specifications. The leftover 20-25% is what owners can enjoy. This is why construction costs go up in India!

Thanks,

Regards, Dinesh V Divekar

Handling Incidental Expenses in Construction Procurement

The incidental expenses mentioned must be handled by trusted individuals. No evidence can be provided for the payment of such expenses to the authorities. In terms of the regular procurement of consumables in the construction industry, the procurement team is familiar with the standard price list from reputable manufacturers, which can be cross-verified with them.

In local purchases, trust is paramount. It is not feasible to scrutinize each individual involved in commission matters. If there are doubts about a specific person, it is advisable to relieve them of such responsibilities and assign someone who is deemed trustworthy.

Regards,
Pon, Chennai

Thank you for your suggestion, but is it possible to divest any person? Because if we get started with divestment or any other action, there are so many problems created in our organization. Most of our employees (from top to bottom) are involved in such cases. Sir, I need your view on what the best procedure for the future should be to control (or reduce) these types of things. My management would not want to divest anyone or dismiss them. Our organization is very small. Your positive reply in this regard is highly appreciated.

Regards.

Form a committee, and the committee will approve the local purchase after going through the quotations or cross-verification. If all are involved in a scam, nothing can be done except to disband the structure.

Regards,
Pon

Dear Pon Ji, thank you very much for your previous advice. You mentioned that "The incidental expenses mentioned should be handled by trusted individuals, as there is no proof available for paying incidental expenses to the authorities." In this scenario, how can I ensure that the person involved is trustworthy? I am seeking a better solution to prevent such scams in the future.

Thank you.