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Detecting and Preventing Fraud in Construction

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Fraud happens in every industry and has become more prevalent in the construction industry. At some point, every construction professional will likely encounter some form of fraud. Fraud is committed by employees, owners, partners, suppliers, and subcontractors. If you have not experienced fraudulent actions or are unaware of the types of fraud your company can fall victim to, you could unknowingly be a victim of fraud or worse, the guilty party. In this article, our Lakeland construction attorneys will discuss ways in which companies can detect and prevent fraud.

Detecting Fraud

Although fraud happens frequently, it can be difficult to detect. Some indicators of fraud are lack of checks and balance in place, unusual bid patterns, and unauthorized changes. The most common types of construction fraud include:

  • False application for payment
  • Billing for unperformed work
  • Manipulating change orders
  • Substituting or removing material
  • Collusion and conflicts of interest
  • False representations
  • Diverting funds

Preventing Fraud

Companies without internal controls in place can easily be oblivious to fraud. Construction business owners must take the necessary steps to ensure their employees or those they contract with are not engaging in illegal activity. This must be done through continuous monitoring and internal investigations. Following are ways to proactively thwart fraud:

  • Hire a compliance officer to establish compliance protocols
  • Train employees on compliance and ethics
  • Establish a system for reporting fraud
  • Implement a checks and balance system
  • Maintain a pay application checklist
  • Maintain receiving controls of materials
  • Conduct background checks on the people you do business with
  • Perform regular audits of payroll, contracts, etc

Ignorance is never an excuse when it comes to criminal activity within your company. Purposely not reporting fraud comes with severe consequences. If you want to remain in business, make fraud prevention a priority.

If you would like to speak with a Lakeland construction lawyer, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.