Dive Brief:
- According to the 2015 Kroll Global Fraud Report, 75% of construction, engineering and infrastructure companies have experienced a fraud incident in the past year. The most common types of fraud experienced by respondents in the construction sector were theft of physical assets or stock (36%) and vendor, supplier or procurement fraud (24%). In 32% of surveyed firms, a senior executive or middle manager was involved in a fraud against the company.
- The construction fraud rates were second only to the retail sector. Construction also had the highest percentage of regulatory or compliance breach fraud, 18%, of any sector. Exposure to fraud has increased for 92% of construction industry respondents in the last year — the highest increase to exposure for any sector.
- Despite problems caused by high staff turnover, the consulting firm found that only 30% of construction companies are planning to invest in background screening in the coming year, and only 25% plan to spend on management controls — less than the survey average.
Dive Insight:
"While technology has enabled new ways to perpetrate fraud, our daily work with clients confirms what the report also reveals — that old fashioned theft, bribery and kickbacks are still amazingly effective and pervasive," Daniel Karson, chairman of Kroll, said in a release. "Human nature being what it is, fraud will always be with us, whether it occurs in a company’s corner office or a world away in its supply chain. However, there are numerous strategies, resources and best practices available to companies that can go a long way toward helping them protect themselves and their investments."
Other types of construction fraud reported on the survey were internal financial fraud (11%), corruption and bribery (11%), information theft (9%), management conflict of interest (9%), IP theft (7%), money laundering (4%), market collusion/price fixing (4%) and misappropriation of company funds (1%).
The industry has seen what seems like an endless parade of contractor fraud — including insurance fraud, bribery, kickbacks, misappropriation of funds, minority business fraud, payroll tax fraud and affordable housing fraud.
Recently, there has been an uptick in penalties for contractor misdeeds, and New York City authorities finally had enough. Earlier this year, city officials established a construction fraud task force, comprised of five city agencies, to investigate "wrongdoing and unsafe practices" at construction sites, including fraud, bribery, extortion, money laundering, bid rigging, larceny and safety violations.
