Tuesday 27 May 2014

The Importance of Auditing in an Anti-Fraud World Construction Fraud: Detecting, Controlling, & Audting

Fraud is alive and well within the construction industry and permeates virtually all levels of construction activity for both domestic and international projects. This session will provide an understanding of fraud’s impact on the industry with a focus on the three primary elements of construction costs where fraud occurs: labor, materials, and equipment.

Louis A. Urso has worked in the Construction Industry for more than 35 years in various key management roles, including Project Controls, Construction Auditing, and International Project Development. While with his former employer, Air Products and Chemicals, Inc., Mr. Urso provided instruction and training in Project Controls, Construction Systems, and Construction Audit techniques to engineering and financial professionals in the United States, China, Taiwan Singapore, South Korea, Hong Kong, Indonesia, Malaysia, Thailand, Brazil, and the UK. He also spent three years in Saudi Arabia and two years in Venezuela managing the project controls and finance on several major heavy industrial projects.

Mr. Urso is currently an independent consultant providing clients who undertake major construction projects with Controls Review and Analysis, Cost Recovery Auditing, Cost Systems Development, Frauds Investigations, and Construction Audit and Fraud training seminars. He has handled investigations regarding bidding irregularities, employee fraud, and contract fraud.

“Association of Certified Fraud Examiners,” “Certified Fraud Examiner,” “CFE,” “ACFE,” and the ACFE Logo are trademarks owned by the Association of Certified Fraud Examiners, Inc. The contents of this paper may not be transmitted, re-published, modified, reproduced, distributed, copied, or sold without the prior consent of the author.


Status of Fraud in the United States
Statistics on incidents of fraud consistently rank the Construction Industry in the top tier of industries experiencing fraudulent practices. The U.S. Census Bureau has reported 2011 construction at $816 billion. Statistics suggest that construction fraud might be as high as 10 percent of total construction activity.

Who Commits Fraud
Perpetrators of fraud do not fit the stereotype of deep dark sinister individuals who consistently appear on police wanted posters or crime alerts. Fraud is typically committed by average individuals. They are generally married, educated, long-term employees with no prior arrests and attend church or synagogue. Fraud, at least construction fraud, often is condoned by management
within contracting firms and their subcontractors. Fraud by contractor management can manifest itself in the form of various fraudulent billings, or manipulation of scheduled values. Overzealous contractor personnel seeking to maximize their employers profitability in an effort to gain favoritism, or for personal gain, are very often perpetrators of construction fraud.

Where fraud is detected, very often owner personnel are involved in the fraud scheme. They might be involved in bid rigging, change order manipulation, sole source contract awards, or cover-ups of fraudulent billing. When owner personnel are involved, it is almost always for monetary personal gain in the form of kickbacks or gifts.

Organized Crime
No discussion on construction fraud would be complete without mentioning Organized Crime and their activities within the Construction Industry. Everyone has seen

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