Fighting corruption and bribery in the construction industry

Everyone talks about, most admit that it exists but isn’t an issue and others simply have learned to live with the issue – economic crime is growing in the construction industry.

Well you simply cannot open a newspaper without hearing the word – “fraud”, it has become less taboo to admit to it and we certainly are sharing more about it. In a recent PwC survey 33% of respondents admitted to having suffered an economic crime (2009: 24%). Now you may think this figure is low, but consider that the construction industry is dominated by less regulated entities, where reporting matters is more stringent, and privately owned businesses means it is actually fairly high compared to other industries. Surprised? I’m not.

The key headlines from the survey are below:

·         49% of those reporting economic crime say it includes bribery and corruption. That’s the highest level of any industry;

·         Asset misappropriation tops the list of economic crime with 76% experiencing;

·         Insiders committed 70% of the most serious economic crimes.

Now be honest, do any of these facts surprise you? The nature of the industry means that bribery and corruption would be a fairly high percentage of reported crime (though I’m not condoning it). Asset misappropriation with sites containing large quantities of material often with little control/security in place to protect it, could be higher in certain situations. The below infographic demonstrates the results:

So compared to the overall sample, the construction industry has a higher than average type of fraud across the board with the exception of cybercrime; however the industry has lower than average levels of data to be stolen.

It may surprise people that the construction industry has the highest rate of bribery and corruption but think more widely than this risk. A business that is susceptible to bribery will undoubtedly have more underlying issues, for example accounting for the bribe will be interesting.

But despite all this should the construction industry simply accept that these risks are present? Are material losses just part of doing business? Think of it a different way, you may not be losing materials but even worse accepting materials that are inferior which can then impact reputation.

So where to next with standard operating processes in the industry outdated and therefore susceptible to manipulation, is it hopeless? Well think about these:

·         Implemented a policy in respect of bribery and incorporate into staff training.

·         Perform additional due diligence on projects, for example inspecting quality not simply quantity of materials.

·         Implement an internal audit function or if too costly an independent (not necessarily external) review.

Yes the industry is susceptible but that doesn’t mean we should accept it, many in the sector are fighting back and this is certainly something every business should consider.

Free feel to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.
Enjoy the weekend,

Lee

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