Counting the cost of fraud

Fraud is costing western European engineering and construction companies more than £1.2m per incident, significantly higher than elsewhere in the world, with one-third of respondents describing the impact as serious or very serious, according to a recent report.

As a result, says the PricewaterhouseCooper report, four out of 10 engineering and construction companies worldwide need to tighten their controls to combat construction crime and recover their losses.

Worldwide, companies suffered from an average of seven incidents of economic crime in the past two years, while for one in five the cost exceeded £137,000.

One of the biggest increases was financial misreporting, which nearly trebled, up from 8% to 21%. These are cases where company accounts are altered or don't reflect the true value or financial activities of the company.

The good news was that plant theft appears to have fallen, although plant and material theft is still the most common type of economic crime. It was down to 57% of respondents from 66% two years ago.

More than half the perpetrators come from within the company, while four in 10 are middle managers such as project managers, or top management who are able to bypass controls.

Most firms said they were satisfied with their fraud detection measures, although one in 10 frauds are only detected by chance, through tip-offs or by accident.

[Contract Journal, 19 July 2006, p. 3]