Winter 08 - In Construction Fraud, Greed Meets Creativity

Our new series on fraud in the construction business leads off with a sampling of recent
schemes. Unlike recent high-profile corporate frauds, in which misleading financial statements
deceived investors, most construction frauds target contractors themselves.

Over-purchasing — The spike in copper prices led a project manager and a bookkeeper to
order more tubing than was needed. They sold half to a scrap yard for cash, and the
bookkeeper made sure the vendor’s invoice was paid without fuss. The two felons later moved
into steel, paint and even topsoil.

Kickback schemes — Price hikes can tempt suppliers to offer kickbacks or other incentives.
When a clerk put out request for quotations for cement, one vendor offered her not only a
percentage of every order she sent his way, but also a better paying job at his own company if
she could swing a long-term contract.

Diversion — Some fraudsters steal by the hour. The excavator didn’t know its D9 bulldozer was
moonlighting four nights a week, rented out by a foreman. When the bulldozer ripped a gas
main on the second site, the explosion destroyed the machine and left the excavator facing a
lawsuit.

Credit card scams — When a project manager gave himself a raise by using the company credit
card for his own retail purchases, neither he nor the company knew two other project managers
were doing the same thing.

Rigged bids — In an old-fashioned conspiracy, four big HVAC contractors were dividing a
market among themselves. On each new project, three would quote high and one low. Of
course, the general contractor would hire the designated “low” bidder, thinking he had leveraged
free-market competition.

In our series, we’ll look at the types of errors that permit such schemes to succeed — and show
you how contractors can protect their assets.

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The Construction Advisor is produced quarterly by Bober Markey Fedorovich's Construction Services
Team. If you would like more information about the services we can provide, please contact Dale A. Ruther, CPA, CIT, CDS at 330.762.9785 or by email.

 

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