𝐂𝐨𝐧𝐬𝐭𝐫𝐮𝐜𝐭𝐢𝐨𝐧 𝐟𝐫𝐚𝐮𝐝 𝐜𝐚𝐧 𝐛𝐞 𝐜𝐨𝐦𝐦𝐢𝐭𝐭𝐞𝐝 𝐛𝐲 𝐚𝐧𝐲𝐨𝐧𝐞 𝐭𝐡𝐚𝐭 𝐡𝐚𝐬 𝐚 𝐝𝐢𝐫𝐞𝐜𝐭 𝐫𝐞𝐥𝐚𝐭𝐢𝐨𝐧𝐬𝐡𝐢𝐩 𝐭𝐨 𝐭𝐡𝐞 𝐩𝐫𝐨𝐟𝐢𝐭𝐬 𝐨𝐫 𝐭𝐡𝐞 𝐥𝐨𝐬𝐬 𝐨𝐧 𝐭𝐡𝐞 𝐩𝐫𝐨𝐣𝐞𝐜𝐭.

𝑪𝒐𝒏𝒔𝒕𝒓𝒖𝒄𝒕𝒊𝒐𝒏 𝒑𝒓𝒐𝒋𝒆𝒄𝒕𝒔 𝒂𝒓𝒆 𝒂𝒕 𝒂𝒏 𝒂𝒍𝒍 𝒕𝒊𝒎𝒆 𝒉𝒊𝒈𝒉 𝒘𝒊𝒕𝒉 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒍𝒐𝒘 𝒂𝒏𝒅 𝒅𝒆𝒎𝒂𝒏𝒅 𝒉𝒊𝒈𝒉. 𝑻𝒉𝒆𝒓𝒆 𝒊𝒔 𝒂 𝒔𝒖𝒑𝒑𝒍𝒚 𝒄𝒉𝒂𝒊𝒏 𝒑𝒓𝒐𝒃𝒍𝒆𝒎, 𝒂 𝒍𝒂𝒃𝒐𝒓𝒆𝒓 𝒔𝒉𝒐𝒓𝒕𝒂𝒈𝒆 𝒂𝒏𝒅 𝒑𝒓𝒆𝒎𝒊𝒖𝒎 𝒑𝒓𝒊𝒄𝒆𝒔 𝒑𝒂𝒊𝒅 𝒇𝒐𝒓 𝒆𝒂𝒓𝒍𝒚 𝒄𝒐𝒎𝒑𝒍𝒆𝒕𝒊𝒐𝒏. 𝑻𝒉𝒆𝒔𝒆 𝒂𝒓𝒆 𝒔𝒐𝒎𝒆 𝒇𝒂𝒄𝒕𝒐𝒓𝒔 𝒕𝒉𝒂𝒕 𝒄𝒂𝒏 𝒊𝒏𝒄𝒓𝒆𝒂𝒔𝒆 𝒕𝒉𝒆 𝒍𝒊𝒌𝒆𝒍𝒊𝒉𝒐𝒐𝒅 𝒐𝒇 𝒇𝒓𝒂𝒖𝒅.

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.

𝐂𝐨𝐧𝐬𝐭𝐫𝐮𝐜𝐭𝐢𝐨𝐧 𝐟𝐫𝐚𝐮𝐝 𝐜𝐚𝐧 𝐛𝐞 𝐜𝐨𝐦𝐦𝐢𝐭𝐭𝐞𝐝 𝐛𝐲 𝐚𝐧𝐲𝐨𝐧𝐞 𝐭𝐡𝐚𝐭 𝐡𝐚𝐬 𝐚 𝐝𝐢𝐫𝐞𝐜𝐭 𝐫𝐞𝐥𝐚𝐭𝐢𝐨𝐧𝐬𝐡𝐢𝐩 𝐭𝐨 𝐭𝐡𝐞 𝐩𝐫𝐨𝐟𝐢𝐭𝐬 𝐨𝐫 𝐭𝐡𝐞 𝐥𝐨𝐬𝐬 𝐨𝐧 𝐭𝐡𝐞 𝐩𝐫𝐨𝐣𝐞𝐜𝐭.

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 doesn’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.