Contractors: 5 Types of Construction Fraud

Written by: Categories: Business Insurance, Business Tips

Often people assume construction fraud is perpetrated by dishonest companies against the client, but construction fraud is a two-way street. Meaning, fraud of all kinds is prevalent across every type of construction project and according to BDO Canada, “studies show companies on average lose approximately 5% of their annual revenue to fraud, and this figure is twice as much in the construction industry”.

Despite how pervasive construction fraud is, the most reported cases are cases of construction companies defrauding their clients, meanwhile, it is the companies themselves that often lose money to fraud committed by employees, contractors and partners.

Unfortunately, many believe fraud is just part of the cost of doing business. And while yes, often you just have to eat the cost, there are some preventative measures companies can put in place to prevent fraud from occurring. First thing is to know the risks. To protect themselves, businesses should be aware of the following most common fraud schemes:

Preventing Construction Fraud

A company should first start with a Fraud Risk Assessment. A Fraud Risk Assessment helps management understand risks that are unique to its business activities, identifying gaps and finding weaknesses.

As part of a an organization’s governance structure, a fraud risk management program should be in place, including a written policy (or policies).  Further, it’s a good idea to implement a compliance and ethics program, set up an anonymous reporting system, properly define project scopes and ensure segregation of duties. When assessing and reviewing an organization’s anti-fraud regime, management should consider obtaining professional advice on effective compliance programs.


Roles & Responsibilities


Board of Directors


Employees / Staff

Internal Audit

This may all seem a little overwhelming but we are here to help, drop us a line to see how we can help protect you and your company.