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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Defending Your Walls:
How to Help Prevent Construction Fraud

Construction fraud can affect anyone -- public corporations, private businesses and even and even government agencies -- and usually scams are only discovered long after the project is finished.  So what can you do to prevent construction fraud in your organization?  Avoid becoming a victim by heeding these tips:

•  Hold a public hearing to get the community and concerned entities involved in the construction process from the beginning.  The main objective of such a hearing is to allow individuals and officials to publicly discuss elements of the costly project, which may help ensure that the purchasing entity is proceeding with as much information as possible, as well as creating publicity that may dissuade crooked contractors from taking any chances.

•  Procure bids in the most visible manner possible, and actively seek as many bids as possible.  Limiting your options to only a few select contractors can result in collusion between contractors and bid rigging.  By inviting as much competition as possible, the potential for bid rigging or other duplicitous activities is decreased dramatically.

•  Conduct serious due diligence when considering bids.  Ask potential contractors for references, identification and license information, verify licenses with authorities, obtain information regarding previous projects completed by bidders, or contact an investigator to conduct a background inquiry.  Even though the law often requires that contracts be awarded the lowest bidder for public jobs, evidence of irresponsibility, incompetence or criminal behavior can disqualify potentially risky contractors.

•  Create a flexible schedule for construction, but do not allow unnecessary stalling.  A great deal of bribery and corruption occurs solely because jobs are rushed due to deadline restraints, such as a school opening or an outdoor public works project.  When construction hits a snag or lags behind, illegal payoffs are frequently made to move the project forward, or contractors may do substandard work to finish on time.  Basically, if there is ample time to finish the project, it is less likely that bribes and slipshod construction will occur.

•  Strongly consider hiring a third-party construction inspector to supervise your project from start to finish.  Public inspectors are often easily corrupted or may be inclined (whether by pressure or not) to let things slide to reduce further headaches and red tape.  An independent inspector will take an objective approach to the project, will keep close tabs on expenditures and build quality, and will help keep the jobsite operating smoothly.  Remember that a few extra dollars early on could prevent major headaches and very costly legal fees down the road.

•  Insist on total accountability from contractors.  Every box of nails, every spool of wire, every hour of employee time should be carefully recorded and dutifully organized.  Keeping accurate records can help dissuade potential crooks and help track down thieves if fraud does take place.

•  Closely examine invoices for services rendered, change orders, and other notable expenditures.  While it may not be reasonable (or cost-effective) for a customer to scrutinize every single receipt, tracking large and isolated charges can unveil fraudulent spending that you were probably expected to overlook.

•  Most importantly, never assume that you are in the clear.  Even the most powerful companies and government agencies can be cheated by dishonest contractors, and just because you can't see fraud in action doesn't mean it isn't there.

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