Forensic Accounting
Brand Protection
Computer Forensics
Corporate Investigation

Volume 10 - No. 1                    Download PDF

In this edition of
The Kessler Report:

Craft or Graft?  The Insidious World of Construction Fraud

Bid Rigging: Fleecing the Public from Day 1

Understanding the Need for an Independent Inspector

Q&A with Fraud Specialist Ronald Goldstock

Construction Contracts: What to Know Before You Sign

Defending Your Walls: How to Help Prevent Construction Fraud

Kessler's Corner:
What to do if You Suspect Fraud

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Q & A with Fraud Specialist Ronald Goldstock

The Kessler Report spoke with fraud specialist Ronald Goldstock, former director of the New York State Organized Crime Task Force, and now a professor of law and independent consultant.  Our discussion covered some of the problems inherent with fighting construction fraud:

KR:  What issues might be a catalyst for corruption in, for example, inspectional services?

RG:  Inspectors always have the ability to slow down a project, costing builders a huge amount of money.  Discretion and cost is a recipe for bribery or extortion.  Depending on how archaic and convoluted the relevant code is, inspectors will have even more discretion and opportunities to cause delay.  Sometimes, building codes are so overprotective that, for example, if a 2-inch nail might have worked, the code might call for a three-inch nail.  If the contractor uses a 2½-inch nail, which would have been perfectly safe, it would not comply with the code and the inspector will have to tell the contractor to remove and replace each and every nail.  That can create huge opportunities for bribery.

KR:  What efforts have been made to crack down on corruption, and have they been effective?

RG:  It depends largely on whether the efforts are aimed at the causes of corruption or at the symptoms.  If the latter, attempts at reform might be counterproductive.  As in our previous example, increasing layers of inspection and adding to the complexity of codes might create even more opportunities for payoffs and the use of expediters as the locus of illicit behavior.  Unfortunately, there has been the history of this type of response in the industry -- a reaction to a scandal produces a non-thoughtful response which appears to satisfy the electorate, but in fact creates more problems.  On the other hand, a thoughtful analysis of corruption susceptibility and potential might lead to something like the Independent Private Sector Inspector General (IPSIG) program, which has had an enormous impact on the issue -- as shown, for example, in the World Trade Center cleanup.

KR:  Are there any steps that can be taken on a widespread level to fight against fraud and corruption?

RG:  The mistake is to assume that all problems are solvable the same way.  There are so many factors to consider... the geographical area, the particular setting, the rules and codes that are in place, the inspection process, the degree of privatization, prevailing wage laws, public versus private, horizontal versus vertical... each problem has to be looked at separately, and solutions that are specifically directed toward those particular problems have to be worked out.  Of course, one of the great advantages in having a decentralized system like in the United States is that various possibilities can be tried in different places and those that work can be copied.  Remember that if you set one standard then you have no innovation, and if there is a flaw that can be exploited in one place, then it can be exploited everywhere.

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