Feature Corruption survey
What are your perceptions of the following practices? Bribery to obtain a contract
Bribery to obtain planning permission
Don’t know 8%
Not Corrupt 8%
Don’t know 5%
Not Corrupt 6%
Concealment of bribes
Don’t know 8%
Collusion and cartel activity
Not Corrupt 5%
Don’t know 8%
procedures to protect companies against fraud appear to be woefully lacking. Nearly half of the respondents were
Not Corrupt 5%
Corrupt 84%
Corrupt 89%
Corrupt 87%
Corrupt 87%
Cover pricing
Don’t know 13%
Leaking of information to a preferential bidder
Not Corrupt 20%
Don’t know 7%
Not Corrupt 8%
Billing for unperformed work
Don’t know 9%
Production of fraudulent invoices
Not Corrupt 8%
Don’t know 7%
Not Corrupt 6%
unaware whether their firm had a whistle blowing policy, for example. More than half (54%) were unable to estimate the annual cost of fraud or corruption to their organisation despite the fact that so many worked at senior level. “That’s certainly not good enough,” says Hand. “It’s not rocket science — it’s about good, efficient management.” Nearly 10% of respondents indicated an annual loss totalling £1m or more as a result of fraud and corruption. Respondents suggest that embedded
Corrupt 67%
Corrupt 85%
Corrupt 83%
Corrupt 87%
cultural practices and the economic climate are the main reasons for the prevalence of corruption, noting squeezed tender margins and reduced workloads have pressurised some professionals into corrupt practices as a means to survive. This certainly chimes with the
False or exaggerated claims to withhold or reduce payment
Don’t know 7%
Not Corrupt 7%
Inclusion of false extra cost to a contract claim
Don’t know 6%
Not Corrupt 8%
Employment of illegal workers
Don’t know 11%
Not Corrupt 12%
Corrupt 86%
Corrupt 86%
Corrupt 77%
experience of Jim Gee, director of counter fraud services at BDO and visiting professor and chair of the Centre for Counter Fraud Studies at the University of Portsmouth. Gee is one of the leading authorities in the world on forensic accounting and has researched into the cost of fraud across all industries. His new report, The Financial Cost of
corruption and a clear indication it is still common, prosecutions are few. That might be because companies choose not to prosecute if they find out it’s going on, or because the way the industry operates is hard for enforcement agencies to fathom. Graham Hand, coordinator of the
Anti-Corruption Forum, says the police authorities responsible for investigating corruption, such as the Serious Fraud Office, will certainly take note. The Forum is an informal industry pressure group set up to reduce wrongdoing across the construction and engineering spectrum in the UK and overseas, and comprises 30 organisations. Hand says: “There will be enormous interest in this report from the police because any research on corruption is rare.” The CIOB is due to present its findings to the Forum in a few weeks. But at first glance, Hand says he is
not surprised by the report’s overall finding about the frequency of corruption because the survey also shows that
16 | OCTOBER 2013 | CONSTRUCTION MANAGER Tips to deal with corruption
Jim Gee, director of counter fraud services at BDO, offers the following advice: ● Set a clear “tone from the top” that fraud and corruption are unacceptable and will involve disciplinary action/termination of contracts. ● Make sure that fraud and corruption are on your risk register and arrangements to mitigate it are regularly reviewed. ● Understand how well protected you are against fraud. There is a free online Self- Assessment Fraud Resilience (SAFR) tool which was developed by BDO and the University of Portsmouth at the request of the government’s National Fraud Authority. It only takes 5-10 minutes to complete and rates your organisation out of a maximum 50 points, ranks you by percentile against more than 700 other organisations and provides an indicative figure for the cost of fraud in your company (visit
www.pkfapps.co.uk/fraud/) ● Provide fraud awareness and detection training for your staff and contractors. This is a cost-effective way of strengthening your anti-fraud culture and usually results in some cases of potential fraud and corruption being brought to light.
Fraud Report 2013, calculates the cost of fraud globally at £7.2 trillion, with losses averaging 5.47% of expenditure. “The cost of fraud has increased over the last five years since the start of the recession from 4.57% to 5.47% (a near 20% increase),” he says. Turning to the UK specifically, a report by the National Fraud Authority (NFA) estimates that fraud costs the UK £73bn a year, with the construction industry losing £3bn. As Gee points out, the cost of fraud
always increases in a recession. But there is also potentially a problem when the economy comes out of recession — especially for construction firms which have to develop and grow business as rapidly as possible. “That’s when you need to be thorough,” says Gee. “Increasingly it’s all about being fraud
resilient. Fraud is like one of those medical viruses, continually mutating and changing. You have to put controls in place and then continually adapt them.” He says the biggest area of fraudulent activity tends to be payroll and subcontracting and involves high-volume,
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