Construction, other industries deal with fraud fallout

The construction industry has made great strides in pushing back the outdated perception that it’s rife with corruption. Even with that progress, contractors are still among the hardest hit by the effects of occupational fraud.

As defined by the Association of Certified Fraud Examiners (ACFE), occupational fraud is “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

The ACFE’s Occupational Fraud 2024: A Report to the Nations ranked construction No. 4 in the list of median losses by industry. With its median loss of $250,000, construction fared slightly better than mining, wholesale, and manufacturing, which ranked first, second, and third, respectively. The fifth spot was a tie between real estate and government/public administration.

Overall, the report indicated that the average loss for businesses across all industries was $1.7 million per case.

As business owners in any industry know, it’s difficult to stop fraud unless you know where to look. According to the ACFE report, these were most common occupational fraud schemes in the construction industry:

• 52% of cases involved corruption, such as bribery or conflicts of interest.
• 38% involved billing schemes, in which an employee submits invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases.
• 25% involved asset misappropriation, in which an employee steals or misuses noncash assets, such as inventory, equipment, or confidential customer information.
• 25% involved fraudulent expense reimbursements, such as submitting fake receipts or presenting documentation for the same expense more than once.
• 23% involved payroll schemes, in which an employee makes false claims for compensation, such as claiming overtime for hours not worked or adding ghost employees to the payroll.

Each of those scenarios pop up throughout every industry in any given year, so construction companies aren’t alone in the battle to minimize occupational fraud. As a business owner, consider each example and whether your existing antifraud measures would be strong enough to prevent a big financial loss.

Rely on internal controls

A strong internal control system is critical to preventing fraud. Common examples include background checks, segregation of duties, dual authorization of sizable payments, and management review of major processes. Per the ACFE report, nearly half of reported fraud cases occurred because of either a lack of internal controls (32%) or an override of existing controls (19%). Another 18% were attributable to a lack of management review.

Historically, the ACFE has recommended a variety of antifraud controls as particularly effective in detecting fraud early and minimizing losses. These include:

• Fraud hotlines (the most common detection method)
• Job rotation or mandatory vacations
• Unscheduled audits
• Proactive data monitoring and analysis
• Clear antifraud policies
• Formal fraud risk assessments
• Antifraud training
• Codes of conduct
• Dedicated fraud departments or functions

Interestingly, in the 2024 ACFE report, web-based reports were the common fraud-reporting mechanism, coming in at 40%. Email was next at 37%, and telephone hotlines came in last at 30%.

Don’t let your guard down

Every company’s risk of occupational fraud differs depending on its size, workforce, and other factors. However, one thing’s for sure: No business in construction, manufacturing, wholesale, or any other industry is immune. Staying vigilant to avoid a fraud situation is usually easier and less costly than dealing with one after it occurs.

© 2025 KraftCPAs PLLC