Construction Today - December 2017 - 7

Knowing The Risks
Contractors owe it to themselves to be
cautious about fraud. Broadly speaking,
such caution has two components. The first
component is recognizing where fraud risk
is emerging. Threats are both external and
internal. Vendors and sub-contractors pose
the most likely external risk. These groups
will most commonly attempt to defraud
contractors by overbilling for goods and
services, falsifying payment applications,
billing for unperformed work or ghost employees and billing improperly for overtime.
Perhaps less obvious, but no less important,
is being the "odd contractor out" in situations where bid rigging occurs. A contractor
who enters a bidding scenario in good faith
can be victimized by competitors in any of
the following scenarios:
* Complementary bidding: Some bidders
agree to submit bids that are intended to
be unsuccessful so that another conspirator can win the contract.
* Bid rotation: Bidders take turns being
the designated successful bidder.
* Phantom bidding: Creating false bids
for the purpose of tricking a legitimate
bidder into bidding more than is needed.

in the form of over-reporting time, entering into kickback relationships with vendors, filing false travel and expense reports and
diverting customer payments. The second way to exercise caution
regarding fraud is to ensure you have a strong control environment
in place.
Contractors can protect themselves from external fraud by performing due diligence and background checks on vendors, subcontractors
and employees. Additionally, construction agreements should include
proper safeguards that protect your company. Contractual provisions
such as access to books and records, detailed audit rights and the
ability to interview individuals like the construction manager and
subcontractors can help minimize these risks.
Implementing a system of internal controls is your best tool for
preventing fraud carried out by employees. Contractors that are
victims of internal fraud often fail to segregate duties. Segregation
of duties involves reducing a single employee's control over a major
business function and implementing multiple channels of review.
In addition to minimizing the risk of fraud, segregation of duties
minimizes the risk of unintended errors.
Other effective internal controls include creating a well-defined
ethics policy, training employees, maintaining rigorous financial
processes and establishing a hotline for employees and vendors for
reporting fraud and abuse.

Scott Shaffer is the
co-leader of Grant Thornton's construction advisory services practice. He
has extensive experience
in dealing with the
complexities pertaining
to revenue recognition
under long-term con-

LEGAL ISSUES

counts of mail fraud, wire fraud and money laundering.
Diversity Misrepresented: Fraudulent bidding does not necessarily require co-conspirators. Consider the case of a Chicago
company whose owner falsely represented
the company as a minority business enterprise to win public contracts. In reality,
the company was just a shell company,
designed to secure public contracts. As a
result, legitimate minority contractors were
cheated out of millions of dollar of work
that this fraudulent minority contractor
won. In connection with this fraud, the
owners were charged with lying to the FBI
and mail fraud.

struction accounting. He
can be reached at 414277-1560 or at Scott.
Shaffer@us.gt.com.
Seth Snyder is an
experienced manager in
Grant Thornton's forensic
advisory services practice. He has more than
13 years of experience
providing solutions to
clients including internal
audit, business process
consulting and remediation, contract compli-

Responses to Suspected Fraud
If fraud is suspected there are a few steps to be taken. First, consult
general counsel for guidance. A contractor may also want to retain
an outside forensic consultant to investigate. Finally, be diligent
about gathering and saving any relevant electronic or hard copy
files, documents or other evidence that fraudsters may attempt to
conceal or destroy.

ance, forensic investigation and construction
advisory services. He can
be reached at 312-6028338 or at Seth.Snyder@
us.gt.com.

Contractors should have
anti-fraud controls in place
throughout their operations.

«

Internal threats will emerge from contractors' employees. These fraud risks can come

7

DECEMBER 2017 CONSTRUCTION-TODAY.COM


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Table of Contents for the Digital Edition of Construction Today - December 2017

Contents
Construction Today - December 2017 - Cover1
Construction Today - December 2017 - Cover2
Construction Today - December 2017 - 1
Construction Today - December 2017 - Contents
Construction Today - December 2017 - 3
Construction Today - December 2017 - 4
Construction Today - December 2017 - 5
Construction Today - December 2017 - 6
Construction Today - December 2017 - 7
Construction Today - December 2017 - 8
Construction Today - December 2017 - 9
Construction Today - December 2017 - 10
Construction Today - December 2017 - 11
Construction Today - December 2017 - 12
Construction Today - December 2017 - 13
Construction Today - December 2017 - 14
Construction Today - December 2017 - 15
Construction Today - December 2017 - 16
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Construction Today - December 2017 - Cover3
Construction Today - December 2017 - Cover4
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