Economic crime, including fraud and bribery, is on the rise in the global construction industry, according to a survey by Pricewaterhouse Coopers.
Forty-three per cent of the 168 engineering and construction companies contacted said that they had been victims of such crime in 2003/05, up from 33% in a report published two years ago. The companies, typically with a turnover of more than £50m, were drawn from 26 countries.
Jonathan Hook, PWC head of global construction and engineering, said that the type of crime had changed since the last study. There were nearly three times as many reports of financial misrepresentation, with 21% of those surveyed saying clients lied about having funding for projects and subcontractors exaggerated the strength of their balance sheets.
Hook said: “The message is that crime is getting more sophisticated, so the techniques to tackle the problems need to be a bit more sophisticated.”
Hook said that contractors needed to ensure that they had strong audit departments, so that they could assess subcontractors’ accounts and not take their financial promises at “face value”. This could include problems like not paying labour or going bust, leaving the contractor to pick up the tab.
Other problems included corruption and bribery, which affected 33%, up from 26%, of victims of crime, and counterfeiting, which occurred at 19% of the firms questioned.
Those that suffered economic crime had experienced an average of 7.4 incidents over the past two years. On average, these cost the firms £600,000 each, although this is heavily skewed by a few firms taking big hits.
The survey also revealed that more than half of economic crime was perpetrated by people inside the companies, with 40% of fraud carried out by middle management, such as project managers.
About 10% of the firms surveyed were from the UK. Hook said that their experiences reflected the global trends.
Victims of crime
- 43% of firms have experienced economic crime in the past two years
- 38% of fraud is discovered by chance
- 57% of victims have suffered theft of materials
- 53% of fraud is perpetrated by employees
- 42% of companies press charges