The average loss for all fraud cases was higher than the global average, and this held true in construction, where it was $628,500 (Grant Thornton 2013).
The case for construction fraud provides much needed insight into the current Canadian construction industry. The Grant Thornton white paper explicitly discusses how construction fraud in Canada comes not from the Construction companies towards individuals, but rather construction fraud is felt from within the organization (Grant Thornton 2013). Due to the normally quite large supply chains and difficulties in tracking spending accounts, construction fraud remains one of the most pervasive forms of fraud in the Canadian economy.
Construction remains as one of Canada’s largest industries, with over 100 new dwellings, residential towers, and condos in development; Vancouver’s construction industry is booming. Toronto alone has more than “148 skyscrapers and high-rises under construction, far more than any other city in North America” (Grant Thornton 2013).
As a result it is imperative for Canadian construction companies to reel in any possible damages that could result from fraudulent activity within the company. A great way of doing this is increasing oversight regarding spending accounts and creating a highly transparent paper trail. The traditional method of printing off invoices and requisition forms, then faxing it between individuals and departments can be problematic. However there are e-procurement solutions that attempt to develop a transparent spending analysis.
One significant fraudulent activity to watch out for includes falsifying bills for either unperformed work or unnecessary materials. Other fraudulent activity as listed by the Grant Thornton white paper include:
“Non-payment of subcontractors and material suppliers; manipulating the schedule of values and contingency accounts; diverting lump-sum cost to time and material cost; substituting or removing material by using lower grade material that will require subsequent repairs; change order manipulation including altering work scope and removing scope descriptions; falsifying payment applications; subcontractor collusion including bribes and bid rigging; diverting purchases and stealing equipment/tools; and false representation of workforce by lying about workforce size or falsifying certificates and documents.” (Grant Thornton 2013)
However a big lesson to take away is how easy it is to get hustled by employees, contractors, subcontractors, partners, suppliers, and consultants. If fraudulent activity is rampantly happening in the construction industry and there is substantive proof backing this claim up, imagine how easy it might be in any other company.
Grant Thornton. Construction fraud in Canada – Understand it, prevent it, detect it. GT/2013.