Fraud of all kinds is prevalent across every type of construction project. While cases of construction companies defrauding their clients are the most reported, it is the companies themselves that often lose money to fraud perpetrated by employees, contractors, and partners.
To protect themselves, businesses should be aware of the following most common fraud schemes:
- Nonpayment of subcontractors and material suppliers did by delaying or falsifying lien waivers or using project cash receipts to pay bills for other projects.
- Billing for unperformed work—often by exaggerating the units of production accomplished or the labor and equipment actually used.
- Subcontractor collusion, such as bid rigging and price fixing. It is important to prequalify and pre-approved contractors, provide the full scope of work to bid on and then select the best-priced, most qualified and responsive subcontractor.
- Substituting or removing material, which can include doing things like installing low-grade materials that would require future repairs.
- Stealing tools or equipment from a worksite, often done by billing for equipment or tools for the job site that is then used for other subcontractor projects or personal use, or billing for unnecessary tools.
For further protection, it’s a good idea to implement a compliance and ethics program, set up an anonymous reporting system, properly define project scopes and ensure segregation of duties.