Construction sector ‘most vulnerable’ to fraud – while corruption rife

The construction industry was found to be the sector most vulnerable to fraud and corruption in an extensive investigation – with the majority of financial losses happening via unsecure online banking. 

Significant failings to guard against fraud and corruption in the construction sector were unearthed by the Home Office in the three years to 2020. 

The Economic Crime Survey (ECS) was conducted by IFF Research with 5,000 firms across seven sectors (around 20% of all industry in the UK): 

• Construction 
• Real Estate 
• Financial and Insurance Services 
• Legal Services 
• Mining and Quarrying 
• Wholesale and Retail 
• Information and Communication 

The study was published in May this year, despite being written in 2020, coinciding with a new strategy to crackdown on fraud in the UK. A follow up survey covering all sectors is expected over the coming year. 

Fraud 

The survey found construction saw 18% of firms defrauded in the three years to 2020, not far behind Finance, Mining and Retail. 

There were 583 incidents of fraud in construction, per 1,000 businesses surveyed. 

And, alarmingly, the sector was found to be the least likely (88%) to have preventative measures in place to guard against fraud victimisation (and corruption). These include:  

• IT security 
• Internal and external audits 
• Surveillance 
• Anti-fraud/anti-corruption policies  
• Countermeasure training for staff 
• Extra vetting/screening of staff  
• Whistleblowing policies  

The poll also found construction firms were “more likely” to experience fraud victimisation via online banking, possibly reflecting “vulnerabilities associated with the use of payment systems”. 

However, businesses in the sector were also more likely to report offences to a bank (73%). 

Offences were often identified through accounting, routine internal checks, bank notifications, client notifications, vetting and screening, and alerts from suppliers. 

The average annual cost to a construction business was in the region of £14,000. 

Annual losses to fraud in the UK were up to £190 billion, as of a 2017 annual fraud indicator report. £140 billion was via payroll and procurement in the private sector. 

Perpetrators with the highest crime rate: 

• Clients 
• Customers  
• Competitors 
• Existing and previous employees  

“Less is known about the scale of fraud against businesses,” said the Home Office. “Frauds that are reported to Action Fraud and/or the police provide some information about the scale of fraud committed against businesses. However, as fraud is known to be under reported these provide only a partial picture of the threat of fraud against businesses.” 

Corruption 

While investigating incidents of corruption, the survey found construction businesses were “more likely” to see people being “unfairly favoured” in business dealings (72%).  

Businesses were also the “most likely to perceive corruption as common or very common” (25%).  

The average annual cost of corruption per construction business was £58,000. 

ECS – wider findings 

• One in five UK companies was defrauded between 2018-2020 but failed to report it to the authorities. 
• Incidence of fraud ranged from one per business (across all sectors) to as many as 5,000 (in Wholesale and Retail). 
• In the three years to 2020, the incidence rate across all sectors was around 3,917 per 1,000 companies, which was ‘suggestive of repeat attacks’. 
• Between 2018 and 2023, research suggests there were more than 4.5 million incidents across all sectors. 
• Just over 30% of firms reported recent defrauding to authorities – 25% to Action Fraud. 

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