The construction industry has worked hard to shed its outdated reputation for corruption. However, the reality remains that contractors lose substantial amounts of money each year to occupational fraud.
Understanding Occupational Fraud in Construction
According to the Association of Certified Fraud Examiners (ACFE), occupational fraud is defined as “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 fraud reports are widely recognized as key indicators of financial misconduct across industries. Let’s explore what their latest findings reveal about fraud risks in construction.
Key Fraud Risks in Construction
The ACFE’s latest report, Occupational Fraud 2024: A Report to the Nations, ranks construction as the fourth-highest industry for median fraud losses, with a median loss of $250,000. Only mining, wholesale trade, and manufacturing reported higher median losses. Across all industries, the average loss per fraud case was $1,662,000.
To combat fraud effectively, it’s crucial to understand where vulnerabilities lie. The most common types of occupational fraud in construction include:
- Corruption (52%) — Includes bribery, kickbacks, and conflicts of interest that benefit individuals at the company’s expense.
- Billing fraud (38%) — Employees submitting invoices for fictitious goods or services, inflating costs, or billing for personal purchases.
- Noncash asset misappropriation (25%) — Theft or misuse of company assets such as materials, tools, or confidential information.
- Fraudulent expense reimbursements (25%) — Employees submitting fake receipts or duplicating expense claims.
- Payroll fraud (23%) — Inflating work hours, claiming overtime not worked, or creating ghost employees on payroll.
Given these risks, construction businesses must ask: Do we have the right fraud prevention measures in place? Where are our weak points?
Strengthening Internal Controls
A robust internal control system is essential for reducing fraud risk. The ACFE report found that nearly half of all fraud cases were due to either a lack of internal controls (32%) or an override of existing controls (19%). Another 18% resulted from inadequate management review.
Key antifraud measures include:
- Fraud hotlines — Anonymous reporting mechanisms are the most common way fraud is detected.
- Mandatory job rotation and vacations — Prevents employees from covering up fraud over extended periods.
- Surprise audits — Unannounced reviews can deter fraudulent activity.
- Proactive data monitoring and analysis — Identifies unusual transactions and patterns.
- Formal fraud risk assessments — Helps businesses identify and mitigate vulnerabilities.
- Employee antifraud training — Educates staff on fraud risks and reporting procedures.
- Code of conduct enforcement — Establishes ethical guidelines and expectations.
- Dedicated fraud prevention teams — Increases oversight and enforcement.
Interestingly, the 2024 report found that web-based reporting (40%) is now the most common way fraud is reported, surpassing email (37%) and traditional phone hotlines (30%).
Stay Proactive in Preventing Fraud
The risk of occupational fraud varies based on company size, workforce composition, and operational complexity. However, no construction business is entirely immune. By implementing strong internal controls, conducting fraud risk assessments, and fostering a culture of transparency, construction companies can significantly reduce fraud risks.
Need help evaluating your fraud prevention strategy? We can assist in assessing your risk exposure, strengthening internal controls, and implementing effective fraud prevention measures. Contact us to learn more.
©2026