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How to Combat Fraud in the Construction Industry

4 minute read

Fraud Financial Crime
fraud in construction
Last updated: September 10, 2025

Projects in the construction industry involve substantial financial investments and complex logistics, and the risk of fraud is a concern. We look at how to mitigate this risk.

Key takeaways

  • Fraud risks exist at every project stage – from bidding and contractor selection to invoicing, progress reporting, and warranty claims.
  • Fraud training and awareness are critical – regular, tailored training helps staff recognise red flags, understand procedures, and uphold an ethical culture.
  • Robust reporting mechanisms are essential – anonymous, safe channels encourage employees to report suspicions without fear of retaliation.
  • Random audits act as a deterrent – unscheduled checks uncover irregularities and signal that monitoring is continuous.

Understanding the nuances of construction fraud, recognising its various forms, and implementing effective training programmes are crucial steps in safeguarding all projects and ensuring integrity within an organisation.

See our Fraud Prevention Training Package

What is fraud in construction?

Fraud in construction encompasses a range of deceptive practices aimed at gaining an unfair advantage, financial or otherwise. It can occur at any stage of a project and can involve various stakeholders, including contractors, subcontractors, suppliers, and even employees.

The most common types of construction fraud include:

  • Bid rigging: Manipulating the bidding process to ensure a specific party wins the construction contract.
  • Invoice fraud: Submitting false or inflated invoices for payment.
  • Kickbacks: Offering or accepting bribes to secure contracts or influence decisions.
  • Substandard materials: Using inferior materials while charging for higher-quality ones.
  • Ghost employees: Paying wages to fictitious employees to gain more funds.

Where do you see fraud in construction projects?

Construction projects are particularly vulnerable to fraud due to their complexity and the number of parties involved. The nature of construction sites, coupled with high-value contracts, creates opportunities for fraudulent activities to go unnoticed.

Fraud can manifest in various ways throughout a construction project lifecycle:

Pre-construction phase

Fraudulent activities can begin even before ground is broken, with collusion during the bidding process or falsified qualifications of contractors and subcontractors.

Construction phase

During the actual building process, invoice fraud, theft of materials, and falsification of progress reports are common. Unauthorised changes to project specifications and overbilling are other prevalent issues.

Post-construction phase

After project completion, fraud can still occur through warranty claims for issues that were pre-existing or not covered by the terms of the contract.

How do you implement fraud training in the construction industry?

Proactive measures are essential in combating construction fraud, and one of the most effective strategies is comprehensive fraud training for all employees, along with refresher training throughout the year to help with knowledge retention.

Fraud in construction training programmes should focus on:

  1. Awareness: Educating employees about the different types of construction fraud and the potential red flags to watch for.
  2. Policies and procedures: Establishing clear, enforceable policies that define acceptable practices and the consequences of fraudulent behaviour.
  3. Reporting mechanisms: Creating anonymous reporting systems where employees can safely report suspicious activities without fear of retaliation.
  4. Regular audits: Conducting frequent, random audits to detect irregularities and ensure compliance with established protocols.
  5. Ethical culture: Promoting a culture of integrity and transparency within the organisation, where ethical behaviour is valued and rewarded.

Fraud in the construction industry poses significant risks, including excess payments and the hiring of unqualified teams for integral work. But, with vigilance and the right strategies, it can be effectively mitigated.

By understanding what constitutes fraud in construction, recognising how it can infiltrate projects, and implementing robust fraud training programmes, you can protect your organisation from financial loss, reputational damage, and legal consequences.

Fraud in construction FAQs

What are the most common types of fraud in construction?

  • Bid rigging and collusion during tendering
  • False invoicing and overbilling
  • Theft or misuse of materials and equipment
  • Manipulation of progress reports or timesheets
  • Warranty or insurance fraud after project completion

Why is the construction industry especially vulnerable to fraud?

The industry’s structure makes it a target. Projects often involve multiple subcontractors, large sums of money, and tight deadlines, all of which create opportunities for misconduct. Oversight can be challenging, particularly when work happens across several sites, making fraudulent activities harder to detect.

How can companies detect fraud early?

Early detection is about combining good oversight with smart tools. For example:

  • Monitoring financial records for irregular billing.
  • Using data analytics to flag suspicious payment patterns.
  • Carrying out site inspections and inventory checks.
  • Providing safe, anonymous channels for employees to raise concerns.
These steps make it much harder for fraud to go unnoticed.

What role does leadership play in fraud prevention?

Leaders set the tone. If executives and managers demonstrate a strong commitment to integrity, employees are far more likely to follow suit. This means:

  • Making anti-fraud policies clear and accessible.
  • Enforcing rules consistently — no exceptions for "star performers."
  • Rewarding ethical behaviour alongside project results.

Want to learn more about Fraud Prevention?

Our Essentials library contains e-learning content designed to help organisations meet fundamental compliance requirements and features courses that help your staff understand competition law compliance. If you are looking for focused training, our Fraud Prevention Training Package offers a complete solution for your compliance programme. Our courses include:

If you would like to access leading insights and compliance tips, you can browse our free resources by topic to find guides, modules, compliance bites and more.

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