Shiny new office buildings filling the skyline and sprawling new residential communities opening in suburbia are clear signs that construction is alive and booming. Of course, that means the potential for fraudulent activity at these construction sites exists, too. The most common frauds occurring in Construction include, but are not limited to, contractor’s falsifying hours worked, bid collusion, change order manipulation, material and tool theft, and the payment of bribes to ensure contract wins.
According to the 2012 Report to the Nations (“the Report”), the Association of Certified Fraud Examiners reported that a typical organization loses 5% of its revenues and approximately 50% of the fraud cases included in the 2012 study involved corruption or billing schemes, which poses the greatest risk to organizations. Construction managers need to be diligent in their internal controls, purchasing, and inventory processes to ensure that if committed, the fraud can be detected and the fraudsters prosecuted.
Detection of fraudulent activity on a construction site is often best handled by forensic accountants that are trained, skilled, and experienced in dealing with these matters. However, the best source for detection is more likely to be a tip. Someone who sees something, and then feels comfortable saying something, can help your organization detect a fraud. It is worthwhile to note that the Report determined that frauds lasted a median of 18 months before detection, so staying alert, verifying receipts and disbursements of money and materials, installing a system of internal controls all help in the fight to combat fraud in Construction.