Construction and Public Works
Governments spend tens of millions of dollars on public works and infrastructure programs. They build roads, bridges, dams, schools, hospitals, subways and other projects. They buy buses, subway cars, trolleys, street cars and other vehicles. Given the large sums of money involved in purchasing, acquiring and maintaining these assets, transportation, construction and public works projects warrant a great deal of scrutiny.
Construction fraud may involve aspects of procurement fraud, contract fraud, grant fraud, or accounts payable and disbursement fraud. Large sums of money, complex specifications, frequent change orders and numerous contractors and subcontractors make construction and public works projects attractive targets for fraud.
Specifications might be prepared in such a way as to favor a particular contractor. Bid Rigging, bid rotation and kickbacks—all difficult to detect—may occur during the solicitation. The construction phase might be plagued by the overcharging of time or the delivery of materials of a quality less than that specified. Excessive change orders might be evidence of contract unbalancing.
Contract, bidding, payroll and payment fraud are discussed more fully within other pages of this website. You can also refer to the Glossary for specific term definitions.
Bribery
A public official or employee has a lifestyle that exceeds his or her salary.
Oversight officials socialize with, or have business relationships with, contractors or their families.
Involvement of an unnecessary middleman or broker.
A contracting employee declines a promotion to a non-procurement position.
A contracting employee insists contractors use a certain sub-contractor or broker.
A contracting employee shows a keen interest in the award of a contract or purchase order to a particular contractor or vendor.
A contract change order lacks sufficient justification.
Other inspectors at the job site notice a pattern of preferential contractor treatment.
A code of conduct should be established prohibiting fraternization between government workers and contractors.
A hotline should be established so that violations of the code of conduct and other matters can be reported to the appropriate officials.
Changes in lifestyle or refusals of transfers or promotions should be justified.
Collusive Bidding, Price Fixing or Bid Rigging
Apparent connections between bidders: common addresses, personnel, or telephone numbers.
Different contractors make identical errors on bids.
Losing bidders hired as subcontractors.
Joint venture bids by firms that usually bid alone.
Losing bids do not comply with bid specifications or only one bid is complete and other bids are poorly prepared.
Tailored specifications - Specific or restrictive requirements to restrict eligibility.
Unusual bid patterns - Bids that are too close, too high, in round numbers, or that contain identical winning margins or percentages.
Commodities, Materials, Equipment and Supplies Overcharging
Discrepancies are present between contractor-provided quantity documentation and amounts required.
A refusal or inability to provide supporting documentation.
Photocopies of documentation are submitted when originals are expected.
The contractor resists inspection during the job or delivery process.
Packing lists, bills of lading, other shipping and receipt records have altered or missing information.
Irregularities in standard stationery or other contractor documents that are used to calculate payments.
An unusually high volume of purchases from one vendor.
Invoiced goods cannot be located in inventory or accounted for.
Not taking advantage of contracted discounts or volume purchasing.
The acquisition price is not easily discernable.
Utilization rates should be considered in light of budgeted or originally contracted amounts. Large, unexplained variances should be investigated.
Irregularities of documentation should be examined.
Amounts charged for materials and labor should be checked against the prices offered by other vendors in the area.
Conflict of Interest
Apparent connections between employees and vendors. Common addresses, phone numbers, Tax IDs, ownership interest, etc.
Employee declines promotion from a procurement/contracting position.
Public official discussing employment with current/prospective contractor.
Favoritism shown to a particular contractor or consultant.
Employee socialization with a contractor
Employee acceptance of gifts or travel from a contractor.
Sole source justification.
Falsified Wages
Large or unusual overtime payments to selected employees.
Large or unusual hours worked in a given pay cycle.
Time card hours differ from job order hours.
Hours on payroll reports differ from time-card hours or job order.
Number of days worked and amount of salary are inconsistent with occupation.
Review of supporting documents.
Adequate time tracking mechanisms.
Authorization and approval of hours worked.
Multiple sources of information.
Fraudulent Billing
Mischaracterized expenses (personal vs. business).
Inflated billing.
Double billing.
No proof of delivery.
Equipment/people not on jobsite.
Fraudulent invoices.
Ghost Employees
No evaluations, raises, or promotion over an extended period.
Terminated employee still on payroll.
Payments to employees not on employee master file.
Employees with duplicate addresses, checking accounts, or social security numbers.
Employees with no withholding taxes, insurance, or other normal deductions.
Employees with P.O. box, drop box address, organization's address, prison address or no home address.
UUnusual work location or no work phone.
No annual/sick leave used over a reasonable period.
Data analysis: payroll reports, data analytics for vendor/employee matches on name/address/TIN/bank account.
Verification of payroll distribution.
Site visits.
Confirmation of employees' identities.
Data analytics run on employee file for matches.
Segregation of hiring and time and attendance duties.
Written management approval for all hires.
Pre-hire background checks required.
Kickbacks or Unlawful "Pay to Play"
Unexplained or unreasonable limitations on the number of potential sub-contractors contracted for bid or offer.
Continuing awards to subcontractors with poor performance records.
"No value-added" technical specifications that dictate contract awards to particular companies.
Non-qualified and/or unlicensed sub-contractors working on prime contracts.
Poor or no established contractor procedures for awarding of subcontracts through competition.
Lack of separation of duties between purchasing, receiving, and storing.
Purchasing/contract employees maintaining a standard of living exceeding their income.
Contract awards over time should be analyzed to determine whether the patterns outlined in the red flags occur.
The specifications and requirements of contracts and RFPs should be examined by a knowledgeable third party to identify the potential existence of intentional omissions.
Procedures should be examined to ensure they provide for fair bidding.
MBE/DBE/WBE Enterprise Fraud
A business owner lacking background, expertise, or equipment to perform sub-contract work.
A situation where employees are shuttling back and forth between prime contractor and a MBE/WBE/DBE business’ payrolls.
Business names on equipment and vehicles have temporary signage covering the legal owner which is not a certified MBE/WBE/DBE.
Orders and payment for necessary supplies made by individuals who are not employed by MBE/WBE/DBE owned business.
A prime contractor facilitated purchase of MBE/WBE/DBE business.
A MBE/WBE/DBE business owner is never present at the job site.
A prime contractor always uses the same MBE/WBE/DBE.
Financial ownership agreements between prime and MBE/WBE/DBE contractors exist beyond the contractual relationship.
Joint bank accounts exist between prime contractor and MBE/WBE/DBE subcontractors.
An absence of written contracts between prime and sub-contractors.
The business registrations of all vendors and contractors should be reviewed.
Patterns of repetitive subcontractor use should be investigated and justified.
Visits to the worksite should be conducted to determine whether any of the red flags are in evidence.
Prevailing Wage Violations
Employee works more hours than specified on certified payroll reports.
Discrepancies between payroll payments and certified payroll.
Inconsistencies in employee job classification.
Discrepancies between union remittances and certified payroll records.
Product Substitution
Complaints about quality.
A high rate of rejections, returns, or failures.
Lack of inspection/falsified reports.
A contractor that restricts or avoids inspection of goods upon delivery.
Mismarking or mislabeling of products and materials.
A contractor offers to select samples for testing programs.
A contractor refuses to provide supporting documentation regarding production or manufacturing.
Vendor fails to supply warranty information.
Vendor fails to apply manufacturers’ rebates/discounts toward final costs.
Photocopies of necessary certification, delivery, and production records exist where originals are expected.
Irregularities in signatures, dates, or quantities on delivery documents.
Certifications required in the contract are not signed.
Allegations of bribery of inspectors.
A supplier entertains or provides gratuities to procurement personnel.
Adequate project monitoring and oversight.
Agency verification of inspection reports.
Independent testing program.
Whistleblower mechanism.
Time Overcharging
Unauthorized alterations to timecards and other source records.
Hours and dollars consistently at or near budgeted amounts.
Timecards are filled out by supervisors, not by employees.
Photocopies of timecards submitted where originals are expected.
Inconsistencies between consultants'; labor records and a their employees' timecards.
Frequent payroll adjustment entries with descriptions such as “charged wrong accounts,” etc.
Labor charges with contracts are inconsistent with contract progress.
Personnel files cannot be found or are “found” after a delay.
Lack of a clear audit trail to verify propriety of labor charges.
Job misclassification – apprentice workers billed out at higher rates.
All contracts should allow audits of vendor and supplier books of account.
Audits should be periodically conducted.
Litle or no warning of the audit should be given to the contractor.
Vendor employees should be queried (at the job site, if possible) about the time they actually work.