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Dishonest middle managers push fraud to new high

NEWS - Tracking devices help cut plant theft - Fraud on the rise

FIDDLING middle managers have pushed fraud levels at construction companies to record levels.

A survey by accountants at PricewaterhouseCoopers has revealed that 43 per cent of engineering and construction firms have been hit by economic crime during the past two years.

And the chief culprits are middle managers, who account for 40 per cent of the swindles.

The report says: 'The large percentage of fraud committed by middle managers in the industry is not surprising, as this category includes project managers with very widereaching discretion over capital projects.

'As project managers often have ultimate responsibility for bringing a project in on-time and on-budget, additional opportunities may arise to bypass controls.'

Experts at PwC quizzed 180 construction compan ies across 26 countries to prepare the Pricewaterhouse Coopers Global Economic Crime Survey.

Cooking the books was the fastest-growing crime. The number of cases of f inancial misrepresentation has nearly trebled since 2004.

Nearly one in five firms has been affected by counterfeiting and 33 per cent have had to bribe people to aid the smooth progress of a project.

Theft was still the biggest crime but cases in construction have dropped slightly to 57 per cent f rom 66 per cent.

The report says: 'This improvement may stem from a trend towards installing better tracking devices, which help deter theft of construction plant.

'Given that construction sites provide enterprising fraudsters with multitudes of options for misappropriating assets, from diverting a truckload of concrete to substituting inferior materials and pocketing the difference, the improvement in the rate of asset misappropriation should be taken as an encouraging sign.'

The survey found that only a handful of firms have internal audit departments geared up to catch fraudsters. Most such crimes are uncovered by luck or after a tip-off.

Jonathan Hook, global engineering and construction leader at PwC, said: 'In the past there was a tacit knowledge that a certain level of economic crime existed in the engineering and construction industry.

'Materials can go astray and in some countries local officials sometimes receive commissions as part of doing business.

However, specific instances of fraud can severely damage working morale, jeopardizing the critical trust relationship between parties such as subcontractors and suppliers, and thus negatively impact an entire project.

'More engineering and construction companies need to focus on improving fraud controls and detection processes to counteract fraud at all levels.'