Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
In today's challenging economic environment, fraud is on the rise, driven by economic pressures and tight credit, among other factors. Construction contracts can be particularly vulnerable to fraud, given their many cost inputs, multiple suppliers and subcontractors. Now more than ever, construction business owners- as well as their project managers, foremen and superintendentsneed to vigilantly watch for fraud and employee theft. Fraud can be committed by a wide range of people, most of whom do not fit a typical criminal profile. These individuals could be your employees or the employees of joint venture partners. They could also be subcontractors, suppliers or consultants. Many people assume the economic pressures in unsuccessful projects lead to increased fraud, but successful projects and profitable relationships can be equally susceptible.
Subcontractor Collusion
Another area to watch out for is bid rigging and price fixing. It is important to prequalify and pre-approve subcontractors, give them the full scope of work to bid on, and then pick the lowestpriced, most qualified and responsive subcontractor. To avoid bid rigging, you must have rules in the contract that guide the subcontractor selection process. Schemes such as bid rotation, bribes and kickbacks, false or inflated change orders, undervalued deductive change orders or phantom subcontractors that consume the buyout savings all fall under this category.
Make sure the tools and equipment you pay for are actually used on your jobsites and not for a subcontractor's own project or an employee's or subcontractor's personal use. Watch out for items purchased and shipped to a different project site or project purchases such as equipment or tools that appear to be in excess of project specifications.
False Representations
Many contracts require specific terms about the subcontractor's employees, insurance, purchases, etc. For example, a contract may require that all subcontractors have a percentage of minority workers or city residents. Watch out for subcontractors who falsify these representations. Frequently, the contractor will be held responsible for false representations by his or her subcontractors, particularly as it relates to minority content or quality. False representations might include using undocumented workers, violating "Buy American" requirements or falsifying minority content reports, test results or insurance certificates. Noncompliance with environmental regulations or misrepresentation of small business status can also be false representations. To minimize this risk, maintain copies of documentation confirming (or related to) the subcontractors' representations. Understanding and recognizing the most common types of construction fraud and establishing internal controls are the first steps in preventing, deterring and detecting fraud. These steps will help prevent your company from falling victim to fraud.
Try This
We have reviewed and tested many companies' internal controls, and as a result, have identified several potential issues that companies can remediate. Perform these basic tasks to spot irregularities:
Schedule out the subcontractor pay applications. Compare actual to budget on a line-item basis. Reconcile the payments to the pay applications. Reconcile the pay applications to the underlying cost records. Track changes in the SOV. Track changes in the contingency account. Compare change order signature dates to the actual time the work was completed. Inventory the lien waivers. Make a list of purchased equipment, and inventory the remainder. Conduct supplier confirmations. Prove reimbursable charges. Tie subcontractor bills to the payment applications. Compare drawing/spec material volumes to claimed actual volumes. Review the subcontractor bid selection process and selection documentation