On January 28-29, 2020, IACRC conducted training for the Office of the Inspector General for a major US city on:
Fraud, Waste and Abuse in Construction Projects: How to Detect and Prevent it from the Bidding Stage through Completion of the Project.
The instructors were Peter Copplestone and Timothy Van Noy. Mr. Copplestone is a world- renowned construction expert who has investigated construction fraud schemes in many countries. Mr. Van Noy, a CPA, forensic accountant, and integrity oversight monitor, also is a highly regarded expert who began acquiring his expertise on the subject as an electrician working on construction projects.
As the instructors pointed out, the problem addressed by the training is immense. Throughout the world, construction has been recognized as the industry most susceptible to fraud and corruption, with public works projects being especially vulnerable. Enormous sums are drained from public coffers, but immediate and long-term financial losses are only part—and not necessarily the most important part—of the damage caused by corrupt construction projects. Fraudulent diversions financed by using substandard materials, cheating on quantities, or both, create health and safety risks that may be discovered only when a building collapses and buries schoolchildren, as has happened in the recent past.
Among the factors that make construction projects vulnerable are the numerous ways fraud and cheating on materials can be buried, both literally and figuratively. Concrete, when poured over substandard or missing rebar in building support columns, can mask the fraud until the building collapses in an earthquake with tragic results. Asphalt poured over substandard lower levels of a road may look fine until the road begins to fall apart long before its projected lifespan. Excessive costs and fraudulent invoices can be hidden in the voluminous documentation of a major project. Even if evidence of fraud and corruption is uncovered after it occurs, proving it and obtaining adequate redress can be difficult and expensive.
Copplestone and Van Noy emphasized that to prevent fraud and corruption, overseers must first gain a thorough understanding concerning all phases of the project: planning, bidding, evaluation and contract award, and building. They must know how frauds and other abuses can occur at each stage, and how to spot and investigate red flags. Contracts should be structured to require construction managers and their subcontractors to have appropriate anti-corruption standards and to cooperate with the project owner’s oversight personnel.
Much depends on the diligence and professionalism of the project’s inspectors, engineers, and other monitors. They need to be persistent without being arrogant in probing for explanations to seeming anomalies; they also must know what documents to review and where to find them. Acquiring the knowledge and expertise to be credible as a construction site overseer is difficult, but not impossible, and it is essential to preventing fraud and corruption from taking over a project.