Construction Fraud Is Down in Rough Times

If it makes contractors feel better, with a shrinking construction industry also comes a shrinking market for industry-related crime. According to the 2009 Kroll Annual Global Fraud Report, released to the public in October, the global economic crisis has hit some industries harder than others. The construction industry was among those sectors in which fraud activity fell significantly over the past year — the survey results showing this year’s losses adding up to less than half of last year’s amount.

“Traditionally, every downturn brings about a rise in fraud, but what we are seeing in 2009 is something far more complex,” said Blake Coppotelli, senior managing director in Kroll’s Business Intelligence and Investigations unit. “Companies are seeing greater vulnerability due to reduction in internal controls, pay cuts and reduced revenue across the board, but counteracting this increased risk are the realities of today’s constrained business environment, where factors such as high staff turnover, entry into new markets and inter-firm collaboration are far less common than in years past. In short, the current economic crisis has increased the motive for fraud, but decreased the opportunity.”

The global construction, engineering and infrastructure industry saw a significant decline in fraud activity with companies losing an average of $6.4 million over the last three years, according to the report. This new figure represents less than half of last year’s amount of $14.2 million. Construction, engineering and infrastructure companies registered a below average loss compared to other sectors, with the financial services industry being hit hardest by fraud over the past 12 months. The findings are the result of a survey Kroll commissioned from the Economist Intelligence Unit of more than 700 senior executives worldwide.

While the construction industry experienced a slowdown in fraud, this was not the case in every industry. In fact, despite the most challenging global economic conditions in recent history, the latest edition of the Kroll Annual Global Fraud Report revealed that across 10 industries, fraud activity worldwide remained steady in 2009. On average, companies lost $8.8 million to fraud over the past three years, up just seven percent on last year’s figure of $8.2 million.

Although fraud losses are down in this year’s survey for construction companies, the prevalence of the problem is not declining at nearly the same rate. More than nine out of 10 (91 percent) companies reported being hit by some form of fraud over the past three years, down slightly from last year’s figure (95 percent) but still well above the survey average (85 percent). To read the full release of the Kroll Annual Fraud report, surf over to www.kroll.com/fraud.