Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Corruption in construction: 3 ways to defend your business

Erik Skoglund

Fraud is an evolving threat to all businesses and represents a critical risk for the construction industry.

So how should companies look to defend themselves and avoid becoming a victim?

EY’s 2017 EMEIA Fraud Survey found that 26 per cent of the 118 respondents from the real estate industry believe it to be justifiable to offer cash payments to win or retain business, while 22 per cent are willing to book revenues early to meet financial targets. Both statistics are high compared with all other industries in the EY survey.

Based on these results, our industry seems to have a heightened risk of corruption. However, to address this challenge, it is important to understand the main drivers – specifically:

  • Demand side: Public sector clients are responsible for a significant proportion of construction projects. With decision-making control concentrated in the hands of a relatively small number of people, there are potential opportunities for solicitation by public officials.
  • Supply side: Most projects involve multiple subcontractors, consultants and agents who may be willing to pay bribes or offer gifts to win contracts.
  • Third-party fraud: There are opportunities for companies at all stages of the project to commit fraudulent behaviour. Complex projects often involve changes to specifications and cost overruns, as well as involving thousands of people and vendors.
  • Employee fraud: There is a significant disparity between the large sums at stake for projects and the remuneration of employees. This temptation can heighten the risk of fraudulent behaviour by individuals against their employers. There is also a high potential for conflicts of interest during projects.

No lost cause

There are several steps that can be taken to combat corruption.

  • Be proactive: Organisations need to implement a robust framework of policies and procedures. This framework should be based on a comprehensive risk assessment which establishes bribery and corruption risks. This should be an ongoing exercise with training provided regularly to all employees. Solid controls also help ensure organisations know all parties with whom they are doing business. A due diligence review can give firms a 360-degree view of their business partners, including the subcontractors of their own subcontractors.
  • Be open and transparent: Whistleblowing channels should be open for anonymous reporting, with a non-biased panel in place to assess any concerns. By creating a culture of trust, organisations can help instil confidence in their employees and third parties that their anonymity will be preserved.
  • Be analytical: Major construction projects result in very large volumes of documents and thus data. Through use of forensic data analytics technology, organisations will be better equipped to prevent, detect, monitor or investigate potentially improper transactions, events or patterns of unethical behaviour.

Construction companies that are seen to clamp down on corruption may gain a competitive advantage, which can help enable them to win contracts and attract the best talent.

When it comes to corruption, it is not a question of whether or not it is worth fighting, but how best to fight it.

Erik Skoglund is a partner at EY, Fraud Investigation & Dispute Services

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.