Volume 10 - No. 1 Download PDF
In this edition of
Craft or Graft? The Insidious World of Construction Fraud
it is a public works project, a new high-rise office building, a
corporate headquarters, a stadium or a sewer pipe, few things are as
costly -- and often controversial -- as construction projects.
Major construction almost always affects a considerable amount
of people from company employees to local community members, and when
it comes to public construction, the taxpayers are the ones footing
projects usually result in structures that are necessary for a company
or community to function, and often represent much more than a
building or public service. These
structures represent the very face of major corporations, the modern
appeal of a small town or the convenience of a booming urban
it's no surprise that when major construction frauds are revealed, the
outcry is usually enormous. However,
the unfortunate reality is that most construction frauds go completely
unseen, and millions of dollars are embezzled from unwitting public
and private organizations on a rather regular basis.
while a truly indispensable and mostly honorable industry, has a nasty
reputation for being rife with fraud.
And with good cause... the business is simply littered with
unscrupulous contractors looking to swindle innocent businesses, naïve
organizations and even government agencies.
Scams range from blatant, one-man "take the money and
run" plans to complex financial deception requiring the
cooperation of numerous crooked contractors and outside facilitators.
why has construction fraud become so common, and quite often, so
ridiculously flagrant? The
answer is fairly simple... because construction fraud is easy.
Easy to perpetrate, easy to get away with, and successful
prosecution is often extremely difficult.
Financial officers and public officials sign off on
expenditures without even a cursory glance as corrupt contractors take
advantage of their lack of vigilance, corruption runs rampant at job
sites and local offices, and purchasers procure bids from contractors
without taking the time to research the market.
illicit activity in the construction business is not exactly a modern
concept. Fraud, bribery,
con games and outright theft have seemingly been an inextinguishable
part of the industry for ages, so what would make today's world any
different? Just as it has
always been, the allure of easy money is often enough to draw
hardworking John Q. Public to a life of crime.
one of the principal challenges in the fight against construction
fraud is that virtually any type of scam can be applied to the
business, giving dubious contractors and pure con artists an almost
endless array of opportunities to rip off their victims.
In addition, due to the very nature of large construction
projects, corruption can take place during any phase of the job, from
pre-planning to final inspections.
The result is an industry that presents so many risks that some
type of fraud or dishonesty has become practically unavoidable.
Of course, certain varieties of fraud are more common than
others due to their likelihood of success, low odds of detection or,
as is sometimes the case, forced necessity:
Materials & Labor
the article "Bid Rigging: Fleecing the
Public from Day One" for more information on this clandestine
form of fraud.)
these four examples do not come close to a conclusive list, but they
provide a general overview of the various types of fraud and
corruption in the construction industry.
Quite simply, there are far too many differing schemes and
plots to document here, and most of them are specifically tailored to
a particular segment of the marketplace or a certain geographical
So what does the future hold for construction-related racketeering? Construction fraud has, for quite some time, remained fairly stagnant in terms of innovation. New cons do arise here and there, particularly with the emergence of technology in the accounting process, but by and large, the various types of fraud occurring today are not much different from the scams of twenty years ago.
Fortunately, while construction fraud is still widespread, public awareness is growing at a significant rate. High-profile corporate scandals including Enron, WorldCom and Tyco have brought fiscal malfeasance to national attention, and as a result, many organizations are beginning to institute checks and balances that were sorely missing. In addition, the Internet has made it much easier for potential customers to research the reputations of contractors and to locate fair market rates, giving buyers an advantage and helping to circumvent fraud before it occurs.
But will this heightened vigilance be enough? Will construction fraud continue to plague businesses and public organizations alike? Certainly no amount of publicity or internal control is going to make construction scams disappear... in fact, it will likely cause illicit contractors to become even more stealthy and clever. But for the most part, the populace is taking a step in the right direction, and hopefully this emerging era of accountability will help keep fraudsters at bay and cash in the pockets of its rightful owners.
Copyright © Michael G. Kessler & Associates, Ltd. 2005. All rights reserved.