Fraud of all kinds is prevalent across every type of construction project. And 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:
- Non-payment of subcontractors and material suppliers done 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 labou and equipment actually used.
- Manipulating the schedule of values (SOV) and contingency accounts in one or more of the following ways:
- Failing to update SOV line items
- Charging phony bills
- Failing to associate subcontractors or vendors with SOC items.
- Substituting or remove material. This can include doing things like installing low-grade materials that should require future repairs.
- Stealing tools or equipment from a work-site. This is often done by billing for equipment or tools for the job-site that are 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.