A. L. M. Ameer - Irregularities, Frauds and the Necessity of Technical Auditing in Construction Industry

Irregularities, Frauds and The Necessity of Technical Auditing in
Construction Industry

A.L.M.Ameer MRICS, AAIQS, ACIArb.
Chartered Quantity Surveyor & Arbitrator

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2013 by A.L.M. Ameer MRICS, AAIQS, ACIArb. All rights reserved.

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Published by AuthorHouse 07/10/2013

ISBN: 978-1-4817-9975-1 (sc)

ISBN: 978-1-4817-9974-4 (hc)

ISBN: 978-1-4817-9976-8 (e)

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Contents

Construction Industry is huge and is growing practically in every country in the world. Professionals who are involved in the construction industry have a professional responsibility to give the necessary confidence the industry needs.

Like in any other works, there are lot of irregularities taking place in construction. These irregularities do cost money and time to the owners, be it an individual Client, who is building up a house to himself to that of a multi-million dollar investor doing a mega project. The only difference is the amounts which are lost in construction. There is no definition for irregularities, but what is not regular is considered to be irregular. There is a thin line between irregularities and frauds. A professional has to do a job, for which he is paid for. If you ask a layman about his construction of a small house, he will give you a lecture on the problems, the losses and other difficulties he had. The case is same, if it is a major project. The only difference is the amount of loss which is small for a small Contract, and much bigger running into millions of Dollars for a major project.

Some recent findings are given below to indicate the level of irregularities in the construction field that are happening worldwide on a regular basis.

China has investigated and handled more than 21,000 cases of irregularities in construction projects in 2009.Among the 21,766 cases, 3,305 or 15.2%, is occurring during the bidding process. The result indicated corruption in this sector includes interfering with the bidding process, insider trading and cheating. The report urged all relevant departments to carry out further investigation to crack down on irregularities in accordance with the relevant laws and cadres who misuse authority and interfere with the bidding process should be severely dealt with.

Another report by a central office in charge of the cleanup said more than 15,000 Chinese officials have been punished for graft or dereliction of duty over the two years (2009-2011) during a nationwide check against irregularities in the construction sectors, The situation to say the least is frightening as according to certain reports, China will be the leading construction market by 2018.By 2020, the construction market in China is worth around US $ 2.5 trillion which is about 19% of the global construction output.

A private newspaper in Bhutan-the Bhutanese says at least 50%of Nu.435 million that was spent on the construction of the three domestic airports in the country have been lost in illegal overpayment or have been wasted through avoidable expenditure.

A report indicated that the European Union has frozen Euro 890 million in aids earmarked for building Polish roads because of suspected frauds by contractors, according to the commission appointed for same. The suspension, which is likely to be only temporary, comes at an awkward time for the Polish government, which is already dealing with a sharp economic slowdown and thousands of layoffs in the construction industry.

Polish officials said they were doing everything they could to root out the suspected fraud.

The commission said it acted after Poland launched a criminal investigation into allegations that there was a price-fixing cartel involving companies bidding for road building contracts.

African countries are full of construction irregularities. Even developed countries such as the United Kingdom and the United States are not immune to irregularities in construction.

One fails to understand how such things are possible in government funded construction projects, where there is an Auditing Department with wide powers for the Auditor General. It should be also noted that, there are double auditing (internal & external) for government funded projects. Sad to say, it is happening and continues to happen. The author feels that Technical Auditing with proper guide lines and by competent Engineer Technical Auditors may solve this problem to a great extent.

The Construction professionals should be aware of their job regarding all aspects of construction. They should treat every case separately as everyone is unique and important to the Employer, not just another case in their long career. There should be a continuous learning process for the Engineers. We hear cases, where construction started without proper understanding of the scope leading to changes, which cost time and money, The Government Service Authority regulations shall be the reasons for delay and eventual late completion. All construction professionals to have check lists, a basic of which is given under sub heading 1.5 Check List, to make the project reasonably good and finished within time and budget.

It is a necessity for the contractors to remember the importance of documentation such as contracts, pricing, backups, correspondence etc. as at the end of the day contractors shall be in a position to lose lot of money as they are unable to claim owing to the lack of proper documentations, for the work, which were completed

The construction irregularities often remind me, the proverb It is play for the cat where as it is death for the Rat as cat always play with the rat before killing it. These irregularities do cost dearly for the Employers. Just, Ill quote a few simple cases to illustrate the point.

1.1.1 Case One: Project over RunTime

An Engineering Consultant supervised project of 7 million with a Contract period of 10 months took another 14 months to complete. The Consultant Fees for supervision amounted to 1,500,000/=.The Employer terminated the Contract of the Consultant one month after Taking over Certificate. The Employer continued to give work in patches during Defects Liability Period. The Contractor has submitted the Draft Final Account, which included all final measurements and additional works. The Employer is in a difficult position as he is unable to finalize the account of the project, as the Consultants have been demobilized and most of the Contractor staff who was involved in this particular job has already left.

1.1.2 Case TwoProject over run both Cost & Time

The common irregularity in most if not all construction projects are the project over run both in terms of time and money. Often Employers are reluctant to pay the additional money but much more accommodating to give extension of time without associated costs. The Employer actually loses in the event of delay as he is unable to get the return on the investment and that is the reason for the contractual provision of liquidated damages for delay on the part of the Contractor. While European courts are reluctant to enforce Penalty for delay as it is some form of deterent, but courts always enforced the liquidated damages if the same is found to be reasonable.