๐‚๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐œ๐ญ๐ข๐จ๐ง ๐Ÿ๐ซ๐š๐ฎ๐ ๐œ๐š๐ง ๐›๐ž ๐œ๐จ๐ฆ๐ฆ๐ข๐ญ๐ญ๐ž๐ ๐›๐ฒ ๐š๐ง๐ฒ๐จ๐ง๐ž ๐ญ๐ก๐š๐ญ ๐ก๐š๐ฌ ๐š ๐๐ข๐ซ๐ž๐œ๐ญ ๐ซ๐ž๐ฅ๐š๐ญ๐ข๐จ๐ง๐ฌ๐ก๐ข๐ฉ ๐ญ๐จ ๐ญ๐ก๐ž ๐ฉ๐ซ๐จ๐Ÿ๐ข๐ญ๐ฌ ๐จ๐ซ ๐ญ๐ก๐ž ๐ฅ๐จ๐ฌ๐ฌ ๐จ๐ง ๐ญ๐ก๐ž ๐ฉ๐ซ๐จ๐ฃ๐ž๐œ๐ญ.

๐‘ช๐’๐’๐’”๐’•๐’“๐’–๐’„๐’•๐’Š๐’๐’ ๐’‘๐’“๐’๐’‹๐’†๐’„๐’•๐’” ๐’‚๐’“๐’† ๐’‚๐’• ๐’‚๐’ ๐’‚๐’๐’ ๐’•๐’Š๐’Ž๐’† ๐’‰๐’Š๐’ˆ๐’‰ ๐’˜๐’Š๐’•๐’‰ ๐’Š๐’๐’—๐’†๐’๐’•๐’๐’“๐’š ๐’๐’๐’˜ ๐’‚๐’๐’… ๐’…๐’†๐’Ž๐’‚๐’๐’… ๐’‰๐’Š๐’ˆ๐’‰. ๐‘ป๐’‰๐’†๐’“๐’† ๐’Š๐’” ๐’‚ ๐’”๐’–๐’‘๐’‘๐’๐’š ๐’„๐’‰๐’‚๐’Š๐’ ๐’‘๐’“๐’๐’ƒ๐’๐’†๐’Ž, ๐’‚ ๐’๐’‚๐’ƒ๐’๐’“๐’†๐’“ ๐’”๐’‰๐’๐’“๐’•๐’‚๐’ˆ๐’† ๐’‚๐’๐’… ๐’‘๐’“๐’†๐’Ž๐’Š๐’–๐’Ž ๐’‘๐’“๐’Š๐’„๐’†๐’” ๐’‘๐’‚๐’Š๐’… ๐’‡๐’๐’“ ๐’†๐’‚๐’“๐’๐’š ๐’„๐’๐’Ž๐’‘๐’๐’†๐’•๐’Š๐’๐’. ๐‘ป๐’‰๐’†๐’”๐’† ๐’‚๐’“๐’† ๐’”๐’๐’Ž๐’† ๐’‡๐’‚๐’„๐’•๐’๐’“๐’” ๐’•๐’‰๐’‚๐’• ๐’„๐’‚๐’ ๐’Š๐’๐’„๐’“๐’†๐’‚๐’”๐’† ๐’•๐’‰๐’† ๐’๐’Š๐’Œ๐’†๐’๐’Š๐’‰๐’๐’๐’… ๐’๐’‡ ๐’‡๐’“๐’‚๐’–๐’….


Most frauds start small and get bigger until someone notices unusual changes. Construction fraud has red flags that can be detected when you have the right controls in place or outsource to a consultant that maintains a neutral position.

๐‚๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐œ๐ญ๐ข๐จ๐ง ๐Ÿ๐ซ๐š๐ฎ๐ ๐œ๐š๐ง ๐›๐ž ๐œ๐จ๐ฆ๐ฆ๐ข๐ญ๐ญ๐ž๐ ๐›๐ฒ ๐š๐ง๐ฒ๐จ๐ง๐ž ๐ญ๐ก๐š๐ญ ๐ก๐š๐ฌ ๐š ๐๐ข๐ซ๐ž๐œ๐ญ ๐ซ๐ž๐ฅ๐š๐ญ๐ข๐จ๐ง๐ฌ๐ก๐ข๐ฉ ๐ญ๐จ ๐ญ๐ก๐ž ๐ฉ๐ซ๐จ๐Ÿ๐ข๐ญ๐ฌ ๐จ๐ซ ๐ญ๐ก๐ž ๐ฅ๐จ๐ฌ๐ฌ ๐จ๐ง ๐ญ๐ก๐ž ๐ฉ๐ซ๐จ๐ฃ๐ž๐œ๐ญ.

Some flags to look out for are:
1. Missing subcontractor lien releases
2. Unauthorized changes or change orders
3. Missing supporting pay app documentation
4. Changes to the SOV (Schedule of Values)
5. Using float or contingency funds without explanation
6. Submission of a Pay Application that doesnโ€™t tie or make sense
7. Use of subcontractors not previously approved
8. Subcontractors complaining about payment delays

Mitigating the risk of being defrauded can begin with placing some basic controls on the project; controls begin with the initial input of the project into the accounting software all the way through the creation of a pay application checklist before any check payments leave the office.


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