Industry Scams Home Builders Should Be Aware Of
Canadian construction fraud alone creates annual costs of over $628,000,000 according to a report by Grant Thornton, a leading network of accounting and consulting firms. Construction fraud is on the rise – and not just when it comes to shady contractors trying to con customers out of money. The industry is ripe for fraud, largely because of how multiple suppliers and subcontractors tend to work on building projects simultaneously. Although it’s not always easy to know what all of them are doing and if any of them are fraudulent, there are ways your builder can protect you.
The same report by Grant Thornton highlights how construction fraud tends to be committed by employees, subcontractors, and suppliers. Here are some popular ones doing the rounds.
The manipulation of orders
The relationship between a contractor and subcontractor is important – it should be based on trust. However, sometimes fraud enters the relationship, causing problems. This can affect both parties. Your builder might notice change orders that are missing scope descriptions or have a higher charge. It’s important for him to scrutinize all changes that have been requested by you as the homeowner and request documentation so that fraud can be nipped in the bud. To prevent misunderstandings and problems, you and the contractor should always be wary of any costs from change orders as well as how they should be determined, as outlined by the Construction Law Canada website.
The fake request for payment
Sixteen percent of people who participated in a poll by Angus Reid Public Opinion said they’ve dealt with contractors who requested more money than what was originally quoted. But sometimes when this occurs, it’s a scam that not only cons you as a homeowner but also your builder. Here’s how it works: your builder has started on a project for you, then you receive an email containing an invoice that’s allegedly from your builder. It requests more money for materials or extra building costs. But your builder never sent it! Even though the email appears to have come from your builder’s email address, it’s got different bank details in it. The fraudster has compromised your builder’s email account and provided new bank account details for you in an attempt to con you out of money. It’s important to know about this so that if you do receive suspicious communication, you don’t immediately assume it’s from your builder. It’s also vital for builders to ensure that their hardware and security is regularly updated so that they prevent fraudulent activity from affecting you and their other clients.
Reverse mortgage fraud
When you hear about reverse mortgage fraud, you might think that the only one who can lose money from it is you – the homeowner who’s persuaded to take out a reverse mortgage by a conman. However, there are also losses that can be faced by the construction company. Sometimes, a reverse mortgage scam makes use of fraudulent contractors who persuade senior homeowners to pay for repairs or other home improvements. If you as the homeowner can’t afford these, the criminal will persuade you to take out a mortgage which enables the contractor to get paid. Since a reverse mortgage scam can involve a criminal contractor who’s connected to the fake reverse mortgage company that’s conning people out of their money, you should keep an eye on all money that your contractor requests. If the contractor you’re working with is charging thousands of dollars for renovations or repairs that don’t need to be done, that’s a red flag that fraudulent behavior is occurring in the company. By knowing about fraud targeting homeowners, such as reverse mortgage scams, your builder can protect you against such criminal activity.
The use of lower-grade building materials
If a supplier on a building project is committing fraud by using low-grade materials and charging for it, this can result in repairs being required for the unsatisfactory job at a later stage. The result is higher building costs, and sometimes more serious construction failures that can be dangerous. What the fraudulent supplier gets out of this is saving his or her higher-quality materials for another building project, while still getting money for less-worthy ones. As a builder using the materials supplied by a subcontractor or supplier, it’s important to be aware of any costs that don’t seem to match the quality of the materials provided. As a homeowner, you should also stay on top of supplies and costs so that you notice any discrepancies.
Lack of defined scope
The scope of the building project needs to be properly outlined before it goes ahead and the price is set. This might not seem like a very important thing but if it’s not done, corrupt workers in the construction company can take advantage of it. This can include fraudulent activity such as cost overruns and bill padding, which is when subcontractors or suppliers request payment for things they haven’t done. Whether this refers to materials they haven’t supplied or hours of labor they haven’t put into the building project, bill padding is anything that’s added to the bill which you as the customer haven’t received. The fraudulent supplier or subcontractor might promise to complete a job but then disappear after being paid, leaving you with an incomplete project. It’s vital to have building contracts written up from the start of a new project to safeguard you and everyone else involved in it.
Construction fraud targets homeowners, with a large amount of fraud occurring within the industry itself. If you’ve hired a builder, it’s important to know about the latest scams, such as those listed in this article. By being informed, fraud can be minimized for homeowners and construction companies alike.