Fraud Detection and Prevention in Construction Flashcards

Which fraud scheme involves a construction contractor billing the owner for materials at inflated prices while receiving a secret kickback from the supplier?

Answer: Vendor kickback scheme

A vendor kickback scheme occurs when a contractor receives undisclosed financial benefits from a supplier in exchange for awarding business or approving inflated invoices.

In the context of the Fraud Triangle, which element describes a contractor's ability to commit fraud due to weak internal controls?

Answer: Opportunity

Opportunity is the element of the Fraud Triangle that refers to the circumstances—such as weak controls—that allow fraud to occur.

A construction auditor reviewing payroll records discovers several employees with identical bank account numbers. This is a red flag for:

Answer: Ghost employee scheme

Duplicate bank account numbers on payroll records suggest ghost employees—fictitious workers whose paychecks are deposited into an accomplice's account.

Which procurement fraud scheme involves competitors secretly agreeing on which company will win a bid while others submit intentionally losing bids?

Answer: Bid rotation (bid rigging)

Bid rotation is a form of bid rigging where competitors take turns winning contracts while the others submit cover bids to create the appearance of competition.

Which data analytics technique is most effective for identifying unusual patterns of round-dollar invoices in a construction project?

Answer: Benford's Law analysis

Benford's Law predicts natural digit distribution in large datasets; deviations—such as clusters of round numbers—can indicate fabricated invoices.

Material substitution fraud in construction occurs when:

Answer: A contractor uses lower-grade materials than specified and bills for the specified grade

Material substitution fraud involves installing inferior or cheaper materials while billing the owner for the specified higher-grade materials.