Amongst the many challenges facing the construction industry, fraud is one of the most widespread; with almost all companies being at risk of falling victim to it.
It is not just the vast amounts of money and size of the industry that attracts fraudsters, the nature of the sector and the way it operates make it especially susceptible and accommodating of financial crime.
The threat also does not come from career criminals, maybe more so than any other industry there is a culture amongst a sizable contingent where trying to ‘pull one over’ on their employers or building management companies is seen as a matter of course and not the serious crime that it is.
As such, these crimes can come from both external fraud and internal fraud sources.
One of the most common scams used to target builder’s merchants. A fraudster will pose as a legitimate construction company, either by setting up a shell company or posing as a real company.
Their aim is to purchase goods on credit with no intention of paying for them. A fraudster may open an account with a merchant and commit the crime on the first purchase, where their credit limit would be relatively low; or they make several purchases, which the pay for on time, until they are able to increase their business credit limit and then make off with a larger amount of goods.
Invoice fraud is where a criminal will create a fake invoice in order to steal funds. This invoice will either impersonate an actual supplier used by the business, with just the payment details changed, or appear as being from a shell company created by the fraudster.
This is similar to invoice fraud but it is when the criminal sets up a fraudulent repeating payment or standing order.
Criminals carrying out supplier fraud will impersonate a legitimate supplier of a company in order to steal from them. They may submit fake invoices for actual transactions the company has made which link to their bank account, as well as for transactions the criminal has fabricated. In some cases, the fraudster may be able to physically intercept invoices from the supplier and doctor them to contain their banking information.
Another example of supplier fraud is where the fraudster makes contact posing as a supplier seeking to convince a member of staff to change the payment bank account details they have on file to those of a bank account controlled by them. In some cases of internal fraud a member of staff themselves may change the details on file to an account controlled by themselves.
This is where companies collude to fix the bidding and tendering process for their overall mutual financial gain. Companies engaging in these schemes can have an agreement where they rotate who wins the bids or that the winner will sub-contract some of the project out to their conspirators.
Companies engaging in bid rigging will usually submit a purposely high offer or withhold from bidding entirely.
This is where an individual who is able to make or influence a decision is paid (either in cash, assets, or experiences) by a third party to act in their favour. Often this is in relation to the awarding of contracts.
Another extremely common type of fraud in the construction industry. An employee or contractor will submit a inflated timesheet in order to be paid more than they are due. In the case of contractors they may also claim that more workers were present than in reality, also know as ghost employees.
This is effectively the theft of tools and materials to be sold by the criminal or used on another job. These assets can belong to the employing building management company or to contractors/employees.
This is where superior materials than what were used are invoiced for. The amount of materials used may also be inflated.
This is a type of fraud committed by a supplier. They may subtly increase prices above what was initially agreed, add non-existent ghost supplies to invoices, or increase order amounts without being requested to.
The vast majority of these schemes exploit the often large scale and disjointed nature of building projects where there are usually several degrees of separation between those procuring and those paying invoices, usually with no communication between the two.
They are also aided by the sector’s continuing reliance on manual processes, which makes it impractical for accounts departments to investigate and query every invoice that comes across their desk, which can be thousands a day.
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