fraud in construction

Fraudemic: 1 in 4 UK Construction Companies Have Been Defrauded This Year 

On top of a global pandemic that has threatened to shut down the industry for good, construction workers now have another headache to contend with: the rise in fraudulent activities across the whole industry. 

Herts Tools, the plant hire company based in Hertfordshire, has conducted a survey with 39 construction companies and their findings have us all scratching our heads for a solution. 

With a quarter of construction companies suffering from fraud in the last year, the data highlights that three in five businesses have found the quality of materials unlawfully reduced. A third of firms have also fallen victim to invoice fraud, which is especially harmful at a time when rising costs are eating into profit margins everywhere. 

Further highlighting the scale and range of construction fraud, one in every five companies have been affected by falsified expense reimbursements, false billing, contractors lying about qualifications, purchase fraud or stealing tools for other projects. One in five have also encountered bid-rigging, bribery or another form of corruption

The findings, collated in May 2022, have allowed us to conclude that, although a quarter of these companies have experienced fraud in the last year, two in five didn’t report it to the police, meaning fraud is more common than the authorities believe

Just for the UK government’s ‘levelling up’ construction projects alone, it’s estimated that up to £10bn a year could be lost to fraud, exposing shortfalls in regulation and fraud protections across the sector. 

“As many other businesses will have experienced, we have been victims of fraud. Fraudulent hires negatively impact our business, our staff and our customers. We feel there has been a noticeable increase in attempted fraud since the start of the pandemic. We have implemented more stringent checks and with our compliance team, we work hard to ensure we communicate with other members of the hire association, our customers and the police and report, share and try to prevent fraud in our industry”.

Stefano Lobba, Director at Herts Tools 

How to recognise the signs of fraud 

  • Scrutinise any last-minute changes to invoices or materials 
  • Examine the details of expensive purchases 
  • Supervise workers to make sure they have the skills and health & safety knowledge required 
  • Watch out for unusual working practices, such as someone taking on a duty they wouldn’t normally perform 
  • Ask your accountant to inspect your accounts 
  • Beware of resistance to anti-fraud measures 

Declan Rate, CEO and Partner at Forensic Procurement Partnership Ltd, says: 

The construction industry has always been vulnerable to the threat of fraud and cybercrime, particularly account diversion. This is where a company receives a notification of a change of bank account email purporting to be from a legitimate construction company, when in fact, it is from someone attempting to defraud them.  

“Due to the current economic crisis, fraudsters are taking more desperate measures. The substitution, removal, or simple exaggeration of materials used on a project is becoming a frequent type of construction fraud. Contractors, subcontractors and tradesmen may utilise a particular grade or brand of material, or a specific piece of equipment, only to replace it with a less expensive one and keep the difference.  

“We recommend “taking 5” prior to answering any emails or entering into any transaction to ensure it’s a genuine transaction. Lack of vetting and screening could potentially cause long-term financial and reputational harm. We’d also suggest doing your due diligence when hiring anyone on a project. Check work history, and confirm qualifications and certifications. Ask yourself: Can you perform more background checks? Do they have recent references you can request?” 

After the last couple of years, more issues piling up is exactly what the construction industry doesn’t need but with unprecedented inflation levels and the non-stop rise in the cost of living, fraud may soon become part and parcel of our workers’ day-to-day

Has your business been affected? How can we change things around? Get in touch in the comments below and let us know what your experiences have been. 

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