Construction Fraud Costs An Estimated $860 Billion
Fraud in the construction business is “commonplace and in some cases endemic across Australia, Canada, India, the UK and the US,” according to a new report from Grant Thornton, amassing a global price tag of up to $860 billion today—between 5% and 10% of total revenues. The accounting and advisory group projects that annual fraud cost in the sector could rise to $1.5 trillion by 2025.
“The greatest threat of fraud comes from within—from employees and senior management,” said David Malamed, fraud expert at Grant Thornton Canada.
While the risk of insider fraud is highest, the odds of fraud in a construction project increase drastically with the number of stakeholders. The primary sources of major frauds in the sector include billing fraud, bid rigging, money laundering or tax avoidance, theft or substitution of materials, bribery or corruption, false representation (of documents, figures, certificates), change order manipulation and fictious vendors, LiveMint reported.
“Individuals and organizations need to invest the time and money to put a fraud prevention and detection plan into action before they become a victim,” said Bo Mocherniak, Grant Thornton’s national leader for construction, real estate and hospitality. “The push for fraud prevention requires strong governance and leadership, and must start at the very top of the organization.”
But one of the primary nations at risk offered promising news for public risk managers this month on the efficacy of anti-corruption efforts in the sector. In Canada, the Quebec government announced a $240-million savings on road contracts alone for the first 10 months of the year. According to the Globe and Mail, Minister of Transportation Sylvain Gaudreault said the building and maintenance of roads and bridges in the province has dropped 16% below the estimated costs projected for 2013, crediting the battle against corruption and collusion for forcing builders and engineering firms to play by a tougher set of rules.
Gaudreault’s administration has focused on more rigorous oversight and enforcement to minimize graft losses over the past year. Moves are currently on hold in the formation of a formal transportation agency tasked with approving and monitoring road construction and maintenance contracts, but the minister has hired 321 employees – including 118 engineers – to “reinforce” the expertise in his department. The local government has also promised legislation in the coming weeks aimed at recovering at least part of the money obtained by construction and engineering firms through collusion and fraud, the Globe and Mail reported.