In an interview with Christchurch newspaper The Press, Serious Fraud Office boss Julie Read has warned that the Christchurch rebuild is entering a dangerous phase where white collar criminals may siphon money from major building projects.
The Press approached Ms Read for an interview following the growing number of rebuild related firms going bust – more than 100 rebuild related firms have been placed into liquidation post-earthquake, collectively owing up to $35 million (to read more on funds lost in the rebuild, click here).
Ms Read considers that while residential construction has not lent itself to large scale fraud, the string of major government projects going live in Christchurch may pose a fraud risk. Specific fraud risks relating to the rebuild include price collusion, bribes, and false insurance claims.
To date, the SFO has had 29 complaints regarding ‘suspect dealings’ in the rebuild, primarily relating to ‘backhanders’ or exaggerated billing. 6 investigations have been launched, 3 of which were closed without further action.
While Ms Read is pleasantly surprised at the lack of corruption to date, police have said that the ‘target rich’ rebuild environment has prompted a spike in certain types of financial crime following the earthquake. Police have pinpointed employee fraud and theft as a particular financial strain on businesses (including other businesses within the supply chain) – examples of actual cases uncovered in the last four years include the issuing of company invoices with a personal bank account number for payments to be made to, or overpayments through the manipulation of time sheets.
In addition, some firms have reported being targeted by thieves stealing equipment, disguising that equipment, and selling it back into the rebuild.
Many of the firms now in liquidation are likely victims of poor management and over extension as opposed to financial crime. Nonetheless, the SFO’s warning serves as a timely reminder for both employers and consumers of the importance of due diligence in protecting the project and the bottom line.