Construction projects often encounter various obstacles in the field of financial management. One of the obstacles that often arise and are quite difficult to remove is a fraud. Do you know the various types of construction fraud?

Fraud is an act of cheating that causes losses without the victim realizing it and provides benefits to the perpetrator. External and internal environmental, also economic pressures increase the opportunities for fraud to occur.

Construction projects are one of the fields that are vulnerable to fraud. This is due to the large flow of funds and agreements between suppliers and sub-contractors in a construction project. In a construction project, fraud can be carried out by various parties. Starting from staff, suppliers, consultants, contractors, and even the project manager who becomes the head of the project itself.

For this reason, it is important to be observant in mapping the types of fraud that can occur in a construction project. So, we summarize 7 types of construction fraud for you below!

7 Types of Construction Fraud

1. Bill for a fictional work unit

In this case, the subcontractor may act to exaggerate the number of work units or requirements in a project. For example, the number of workers, equipment, raw materials, and so on. This can be called a fictional claims. The danger, if the contractor is not observant about the fictional claims made by the subcontractor, he could just hand it over to the project owner. If this happens, then both the contractor and the subcontractor must be held responsible for this fraud. 

2. Fictional vendors

Why can the existence of a vendor be faked? This is usually done to fake bill payments. Where the budget given to this ‘fictional vendor’ is diverted to cover purchases of personal items and allocating it to ‘fictional companies’.

3. Changing or reducing the quality of materials

Besides, another fraud is the activity of replacing or reducing the quality of materials. Yes, this incident has happened very often in construction project activities. Usually, players will buy materials of lower quality than the standard operating procedures. This is done by the actors to make a profit from the price gap of these materials.

4. Diverting Lump-Sum Cost to Time and Material Cost

Do your project tied to a lump sump contract? In that case, you should be careful if you get a mysterious bill that is claimed to be outside your project lump sump budget. If you don’t make sure this carefully, the bill may turn out to have been calculated in the lump sump budget that has been made. If it happens, you can be detrimental because you are just making two payments for this one bill that has been covered by lump sump cost. 

5. Bid Rigging

Based on The Prohibition of Monopolistic Practices and Unfair Business Competition (1999:5:22) Bid-Rigging is regulated as: “Business actors are prohibited from conspiring with other parties to regulate and determine tender winners so that it may result in unfair business competition. “

In a simple, Bid Rigging occurs when a tender participant or prospective tender participant agrees to refrain from the tender process, makes an unreasonable bid, not to make an offer in the hope that the determined parties can win the tender.

6. Personal use of project equipment

Another fraud is the diversion and theft of project equipment. It is important to ensure the project tools and equipment that you pay for were shipped and used on the field, not for the worker’s personal benefit. The theft of materials also often occurs in a construction project. Where this material is taken for personal gain. Such as personal use or resale.

7. Money laundering or tax evasion

The last, there is fraud like money laundering to avoid tax obligations. This money laundry is carried out with the aim of making illegal or illegitimate assets difficult to trace by law enforcement officials. So, the perpetrator can freely use these illegal assets with legal status.

There are 7 types of fraud in construction projects that you should be aware of.