Preventing Project Fraud

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Have you ever experienced project fraud? Examples include:

Time theft: Team members charging for time they didn't spend on a project or overlapping time on multiple projects

Resource theft: Loss of physical resources, such as software or hardware, or use of project resources for activities not in the project scope

Conflict of interest: Any kind of subcontracting to or employment of resources based on friendships or connections rather than skill sets required for the project

So how can project fraud be prevented?

One way is to have clear policies and procedures for resource utilization, and processes for timesheet management, recording, charging and justifying time.

Implementing internal controls for managing and reporting on project progress and utilization of resources can also help.

Many elements of fraud cease to exist when you use weekly report cards on key project reporting elements: budget, time and scope. Reporting on resource usage based on project activities can show and account for time charged quickly and with clarity as to where and how resources are used.

Keeping track of the entire project inventory with a systematic approach can reduce or eliminate resource theft. Sometimes it's a matter of implementing processes that simply do not allow for resource misappropriation. For instance, sometimes it can be easier to manage consultants than members of the permanent staff. Why? Because there's a forced process to account for time spent.

Some organizations also require permanent/full time staff to report time spent on projects. This allows for a more controlled use of time, as resources, regardless of what field they are working in, will be accountable for the time they put in.

What other types of project fraud have you seen and what are your recommendations for combating them?
Posted by Dmitri Ivanenko PMP ITIL on: July 16, 2009 08:44 PM | Permalink

Comments (5)

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Steve Romero, IT Governance Evangelist, PMP
I understand the rationale you describe in your post, but I think it puts process in a negative light. Far too many people look at process as a means to control, restrict and prevent – as opposed to enable. I suggest the following steps before introducing any new processes: - Understand and articulate the scope and affect of the problem you are solving - Investigate and understand what is incenting folks to commit this "fraud" - Define specific objectives for the new processes and metrics measures for determining their success - Understand the discipline of process management - process design, implementation and management - Avoid creating unnecessary bureaucracy and don't turn yourself into the "Process Police" I hope this does not give folks the impression I am anti-process, quite the contrary. I am a Certified Process Master and a HUGE proponent of good process. In fact, I am a contributing author to a brand new book written by Mark Perry titled, "Business Driven PMO Setup" My contribution to the book was in the chapter called "Creating High Performance Teams." My section of that Chapter is titled "Better Process Means Better Performance." I will close by reiterating my desire for folks to look at process as being enabling as opposed to restricting. Steve Romero, IT Governance Evangelist

Mary Anne Oswald
Great article on Project fraud. This extends not only to projects but to most departments in general. I know recently of a case where there is insufficient tracking of "banked" time and the employee often disappears when he is supposed to be working - claiming use of banked time. All he has is an excel spreadsheet that is not managed by anyone but himself. On project work, which is directly charged by his department to the project team - the result is that most of the time he's just not there performing the work he is supposed to do. I think a great way to manage Project Fraud is to make use of the PMO who pretty much acts like a project auditor - verifying spending, project decisions and vendor relations to avoid any conflicts of interest and raising them to the Project Manager. However there has to be a delicate balance between having the PMO enforce proper project management and helping project teams who are struggling for success. Hiring should be handled by the Project Manager and PMO, to the best interests of the Project and not based on personal relationships or lack thereof. Hiring should never be done through an unrelated department (ie : finance, operations, sales) or through a manager who may have these conflicts of interest. Ultimately, the project team should be managed by the Project Manager. Daily SCRUM meetings can also be used as an opportunity by the Project Manager to direct and control the project, including project resources and their time. Overtime can be tracked here by knowing who worked when. It would logically follow that if a project team member did 4 hours of overtime the previous night, the results of that four hours of work should be evident. Hardware, and other project resources should be tracked at all times - even if it means assigning the duties to a trusted project team member. Another great way to prevent project fraud is to insist on copies of signed contracts with suppliers. Read them and be knowledgeable on exactly what work or delivery is expected. Most contracts are signed by upper management and then given to project teams to execute - this leaves a lot of room for the supplier to renege on contracted obligations with no one being the wiser.

Filme Runterladen
Great idea, thanks for this tip!

Nigel Chen
I personally do not agree that timesheets curb project fraud. Consultants or full time employee will still perform activities outside the scope of the project during the designated project schedule period. Depending on the author's objectives, if is is to have proper account of the time taken by the personnel spent on the project for future reference. Then I will recommend to create a culture of "Curriculum Reporting". The team members are strongly encourage to report all curriculum they are engaged in truthfully to the manager. In this curriculum report, we capture and classify these activities into groups such as - Fostering Relationships (e.g. doing a favor for a colleague in another project team) - External Project Urgent Issues (e.g. Unexpected issues occurs in a deliverables of a separate project and needs immediate attention) - Innovations Development (e.g. New technologies identified and may require some time to investigation in its relevance for the project) - Personal Interests (e.g. Activities totally not related to the project that requires some time off.) - etc. This allow the manager to understand the nature of time that was spent. These activities are not necessary evil, it simply reflects the reality of work environment! It is just impossible for any employee to be 100% dedicated to a single project. Let's be open about it.

I would argue that management incentivizes some project fraud. For example time card fraud can rise when management gives staff few options for charging non-billable time and/or imposes personal financial penalties on staff for non-billable time. Non-billable time can be controlled (but usually not eliminated) without creating this bad incentive, it just takes a lot of work to do so.

I believe that a great deal of additional fraud, for example improper charging on time cards and use of project resources for other purposes, comes about because staff have lost interest in their work. Application of good leadership skills is crucial to keep staff fully engaged and excited about the work that they are doing and reduce fraud.

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