How to spot fraud in construction sector
Fraud and corruption pose threat to global growth in the construction industry
Fraud and corruption in the construction industry is so commonplace that it is often accepted as a cost of doing business. So say a report published today by Grant Thornton following research carried out in Australia, Canada, India, the US and the UK. If action is not taken urgently then fraud and corruption will pose a significant threat to the reputation of the industry and, as the sector starts to bounce back from the downturn, and impact on growth.
As growth returns, the opportunities for fraud will increase and the real estate and construction industry risks being targeted as a weak link by fraudsters as levels of other crime fall. The report, Tine for a new direction: fighting fraud in Construction, argues that this does not have to be the case and makes recommendations to help companies avoid falling victim to fraud. One call is to make better use of information technology to fight fraud – an area where construction companies lag other sectors, such as finance. Vital lessons can be learned from policing, where technology has been instrumental in the reduction of crime and is increasingly used to identify, gather evidence, and even predict where crime will occur.
Clare Hartnell, Grant Thornton's global leader, Real Estate and Construction, said:
“More companies need to take their head out of the sand and recognise that fraud and corruption costs, not only in terms of profits, but also a company’s reputation. It’s a real threat to growth. Fraud is often seen as the cost of doing business. This does not have to be the case.
“Information technology and the internet offer both threats and opportunities. There are many data analytics tools that can help to identify and thereby prevent fraud.”
The report also recommends companies put aside reputational issues and speak more openly about the issue of fraud. This will foster a greater willingness by companies to prosecute the perpetrators.
Clare Hartnell says:
“Companies should consider a more open approach and prosecute perpetrators more often. This will send out a message that the construction industry is not open for fraud.”
The report highlights estimates that fraud could account for between 5% and 10% of revenues in the construction industry. If recent estimates that the global construction industry is worth US$8.6 trillion now, rising to US$15 trillion by 2025, are correct then fraud and corruption in the sector could be costing business globally almost US$1trillion now rising to US$1.5 trillion by 2025 if action is not taken.
Recent high profile cases in Australia and Canada illustrate the threat of fraud and corruption to the reputation of the real estate and construction sector. The Charbonneau Commission, investigating fraud and corruption in construction in Quebec, has been running for 18 months now and has seen allegations that up to 70% of the funding of political parties in the province is corrupt.
In Australia, one of the country’s largest construction companies, Leighton Holdings, has reportedly called in the police themselves after discovering evidence of corrupt payments on billion dollar construction projects in Iraq and Indonesia.
Notes to editors
Time for a new direction: fighting fraud in Real Estate and Construction is a report produced by Grant Thornton.
The Chartered Institute of Loss Adjusters produced a report in 2011 estimating that fraud in construction in the UK amounted to 10% of revenue, totalling £6.5 billion, or £40,000 per company. In 2012 the Association of Certified Fraud Examiners estimated that globally 5% of construction revenue is lost to fraud.
In July 2013 Global Construction Perspectives and Oxford Economics published a report entitled Global Construction 2025 in which they estimated that in 2012 the global construction market was worth US$8,663 billion in 2012 and with projected growth of 4.3% a year would rise to a value of US$15,030 billion by 2025.
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