Construction fraud – How to prevent it?

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Construction Fraud – is it possible to prevent it?

Unfortunately, construction fraud is happening more and more, as people are trying to get more for their money without providing anything for the money that they are earning.  This is bad news for construction companies, as it means that they are losing profits that could take them from being a successful company to a failing one.
It can be easy for construction companies to miss some of the signs of construction fraud at first too, because they have multiple job sites, numerous employees, and multiple suppliers.  Since the owners cannot be everywhere at once, they may not recognize the signs until it is potentially too late.
Here are 3 common types of construction fraud:

  1. Theft of Time

Construction workers who arrive at work late or leave early, or even take too many breaks are hurting the productivity that can be achieved by the company each work day.  While that is bad enough, and will cost the company money, it is when the time sheets are altered when the real theft comes into play.  Those altered time sheets are stating that employees were on the clock when they were not, which means that they are getting paid for work that they did not actually do.  That additional money will cost the company more for the project that they are doing, which means that the bid for the cost of the project that was given will end up being less than the money that is eventually being put out.

There are not too many ways for employers to do anything about this type of theft, although, security cameras near the time clock can help.  The camera would capture the time that employees are clocking in and out and that recorded information could help prove whether or not the time sheets are accurate.

  1. Theft of Fake Injuries

Most construction companies are required to have workers’ compensation benefits for their employees, which will cover their employees if they get injured on the job.  Unfortunately, some employees will fake an injury, so that they can get paid without needing to do any work.  This can cause the companies’ workers compensation benefits rates to increase tremendously, which will cost them even more money.

Security cameras are the answer to this type of theft as well because employers can record what happens at the job site every day.  This way, if someone does get injured on the job, the employer can go back and review the footage to see what happened.

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  1. Theft of Being Billed for Unperformed Work

Subcontractors are necessary for any type of construction work, because there are many specialties that a single contractor cannot do on their own.  While many subcontractors perform honest work and bill accordingly, there are others that will try to make the most amount of money that they can for the least amount of work.  There are many ways that subcontractors can successfully perform this type of theft, but the most common ways include overstating the units of production, overstating the units of labor, and even stating that equipment was used when it was not.

There is never an easy way to know when a subcontractor is being a thief, but companies can take a few precautions during each project.  Companies should always have a signed contract with each one of their subcontractors, and each one should also have a license and proof of insurance.  It is also best if local companies are used, because word of mouth is a great way to find out if a subcontractor has tried to cheat another company in the past.

There are a few other things that companies can do to prevent construction fraud from occurring and they include the following:

  • Conducting background screenings on everyone that is working on the project can be helpful, because employers may find clues that might suggest that theft could be an option.
  • Every company should have at least two people monitoring the activities of the business for fraud. These people can continuously check the payroll, bills that are being received and paid, and even work closely with all the contractors on the job.
  • Every company should review each invoice that they receive to make sure that it contains the information that it should. Any sign of inflated costs or improper wages should be flagged and investigated immediately.
  • Any itemized payment applications should be reviewed because there are times when contractors will bill for Class A materials when they really used Class D materials for the job. Companies can pay a lot more for a project if those items are not caught immediately.
  • False claims are common in the field of construction, which is why written documentation should be received for any claim that is being made. This documentation can then be used during lawsuits if the claims are deemed to be false and causing theft.

Find also: Why is construction so prone to corruption?

While it is amazing how common fraud is in the construction field, it shouldn’t be of any surprise to any company.  That is why every company will want to make sure that they have all their bases covered, so that they do not suffer needlessly while losing revenue in the future.