Remodelers are at more risk of fraud in the troubled economy. False or inflated change orders, erroneous invoice totals, inflated labor rates, false or manipulated receipts for out-of-pocket purchases, and other types of fraud have increased from 6% of construction industry revenue two years ago to 10% today, according to the Construction Advisory Services practice of Grant Thornton.
Surprisingly, your biggest threats may be trusted trade partners or staff. Nearly a third of fraud perpetrators are female; they also tend to be older, have higher self-esteem, and be more religious than non-perpetrators.
Be on the lookout for fraud “red flags,” Grant Thornton advises. These include missing or disorganized billing backup, subcontractor requests for faster payments, and unauthorized changes in time records.
Establish controls to prevent fraud. Start at the top; demand high ethical standards of owners and top management. Develop a stern compliance and ethics program. Establish whistle-blower procedures. Screen all suppliers, trade contractors, and staff.
And, act quickly if you suspect fraud. Contact your attorney, fully and discretely debrief whistle-blowers, and secure all project documentation.
To learn more, visit www.grantthornton.com/constructionfraud.
