INSIGHTS: Articles

"Defunding Fraud," Constructor Magazine

In an article published in the November / December issue of Constructor Magazine, Judah Lifschitz discusses fraud in the construction industry. He divides the fraud into two buckets.

"One type of fraud is for someone’s personal benefit," Lifschitz states. "An employee charges for materials on a project that were really used to build an extension on their house. The funds would come from either their employer or the owner of the project, but either way, they are endangering their employer."

The second bucket of fraud occurs when employees defraud an owner of a project as a result of executive direction or “an act of stupidity," he explains. "Say hypothetically, a project manager worried about losing his job because the job is not going well, he may then submit fake invoices that make a $10 change really a $1,000 change."

To reduce the potential for fraud, general contractors should review auditing, compliance and employment procedures. "When you’re hiring people who have the ability to either spend your money or a project owner’s money, action needs to be taken with respect to employee background checks and interviews," Lifschitz explains. "As a first line of defense, hire people who appear to have integrity and who don’t have issues in their employment history that may be cause for concern." 

Additionally, employee training is critical. Lifschitz shares that in many instances  employees didn’t realize that what they are doing is wrong. "For example, we had a client whose project manager submitted claims on jobs even though they didn’t incur the cost. The employee included line items for the project manager’s time, yet the project manager was salaried and therefore should not have been reported as an additional cost to the project.” 

The full article may be viewed here.