Brace Your Business for Disaster Scams

Few things in life are certain, but when disaster strikes, the number of fraud incidents will probably skyrocket.

In the wake of a hurricane, tornado, flood, fire, earthquake or other unexpected catastrophe, fraudulent operators are always quick to surface. Often, however, they carry warning signs to alert savvy business owners.

Construction Con Jobs

Construction fraud is particularly common following a disaster, in part because businesses focused on reopening as soon as possible may not vet contractors as carefully as they would in better times. That's what fraudsters are counting on.

If your facility needs repairs after a disaster, work with your insurance company to be sure the repairs you're planning are covered. Your insurer will probably send an adjuster to evaluate the damage, giving you a ballpark estimate of what repair costs should be.

Take the time to obtain several bids. Review them carefully, bearing in mind that "special tornado offers" may be nothing more than come ons. Be sure the bids specify exactly what work is included, all costs and a time frame for completion.

Beware of anyone who looks or acts unprofessional or offers to save you money by using materials left over from another job. You may be agreeing to shoddy components or unsafe workmanship. Before you hire anyone, ask for a state contractor license number and proof of insurance.

Then put everything in writing. Get a signed contract before work begins, and don't sign it until all the blanks have been filled. Don't pay in full until the work is completely finished — including site clean-up. And don't pay more than the amount in the contract — even if the contractor claims the cost of materials went up unexpectedly. Most states have laws regarding liens placed against property by contractors or suppliers. Before you make your final payment, ask the contractor to sign a Release of Lien form or a release of all liens, including subcontractor liens.

Other Opportunities

Construction fraud garners the lion's share of attention after a disaster, but it isn't the only scam to be aware of. Also watch out for:

• Vehicle Repair Fraud. These scam artists employ many of the same ruses as fraudulent contractors, and the safeguards against them are similar: Seek recommendations for reliable mechanics, check if the shop is accredited by the Motorist Assurance Program (MAP), and request pricing and warranty information up front. If prices are significantly higher than they were before the disaster, be alert for price gouging.
• Fake Relief Workers. Ask to see photo identification cards from anyone claiming to work for the Federal Emergency Management Agency (FEMA) or the U.S. Small Business Administration (SBA). Don't be fooled by an official-looking shirt or jacket, and remember that FEMA and SBA inspectors don't charge for their services nor do they solicit information such as credit card or bank account numbers.
• Charity Schemes. Your business may be ready to help others in need after a disaster, but you don't want to support con artists. Before contributing money or goods for disaster relief, verify the charity's legitimacy through the IRS, Better Business Bureau, your state attorney general's office or a nonprofit watchdog site such as GuideStar.org. Be sure to ask the charity how it plans to use your donation.

Prevent a Second Disaster

Disaster sites may be breeding grounds for fraud, but you don't have to help make them fertile. With common sense and caution, you can avoid the aftershock of fraud.