Mafia, Hells Angels: Extreme Construction Fraud in Quebec

The construction industry is susceptible to corruption on many levels. Bid rigging, procurement fraud, overbilling, just to name a few of the types of schemes – with each different layer and a variety of contractors involved, the risk of fraud is high. While government regulations and industry best practices have evolved to help mitigate the risk of fraud, there are many opportunities to work outside of those guidelines to gain an unfair advantage.

In Quebec, fraud in the corruption industry has recently been revealed to be widespread and extreme. So widespread and extreme, in fact, that the Mafia and the Hells Angels are alleged to be deeply entrenched in the industry, according to Superior Court Justice France Charbonneau.

As reported in the Toronto Star:

“This investigation confirmed that there was a real problem in Quebec and that it was far more widespread than we originally believed,” Charbonneau said.

She said that the Mafia and Hells Angels worked their way deep into the industry, gaining access to public and private contracts and worker’s pension funds.

“A culture of impunity developed,” Charbonneau said, reading from a prepared statement.

The commission heard of bribes, kickbacks, assaults and even murder.

Charbonneau addressed the corruption problem during the release of her highly anticipated report on corruption in the province. Conclusions on the state of the problem were drawn from the testimony of 300 witnesses since the opening of an inquiry three years ago.

“Contractors revealed that they were the victims of threats, intimidation and assault,” she said. “Their testimony took us to the heart of our mandate.”

The problem is not limited to Quebec. Construction fraud is on the rise, experts say, fueled by economic pressures, tight credit, subpar controls and a lack of whistleblower protections. An article in Construction Business Owner offers the following tips for spotting irregularities:

  • Schedule out the subcontractor pay applications.
  • Compare actual to budget on a line-item basis.
  • Reconcile the payments to the pay applications.
  • Reconcile the pay applications to the underlying cost records.
  • Track changes in the SOV.
  • Track changes in the contingency account.
  • Compare change order signature dates to the actual time the work was completed.
  • Inventory the lien waivers.
  • Make a list of purchased equipment, and inventory the remainder.
  • Conduct supplier confirmations.
  • Prove reimbursable charges.
  • Tie subcontractor bills to the payment applications.
  • Compare drawing/spec material volumes to claimed actual volumes.
  • Review the subcontractor bid selection process and selection documentation.

Fraud and corruption in the construction industry isn’t going away any time soon. But companies at each level of process can reduce risk by implementing the proper controls. By following anti-fraud policies and being attuned to red flags of fraud, business leaders can help protect themselves, and their clients, from serious financial loss.