Example:

An excavation contractor is undertaking work for the project owner on a daywork basis.  The contract entitles the contractor to charge the project owner a specified price per day for each item of equipment which is actually working on site.  The contractor is required to submit daywork records which record the equipment which is working on site each day.

On Day 1, the contractor’s site manager submits a daywork record to the project owner which records that 12 items of equipment were working on site.  This was an honest mistake by the site manager.  There were only 10 items.  On Day 2, he realises that he had made a mistake, but he does not correct the site record for Day 1.  Therefore, the documentation submitted to the project owner continues to incorrectly show that 12 items of equipment were working on Day 1, when in fact only 10 were working.  The records submitted for Days 2 to 6 are correct.

On Day 7, the site manager is too busy to count the number of items of equipment working on site.  He estimates that 15 were working, but he is not sure, and does not check.  He submits a daywork record to the project owner listing 15 items of equipment as working.  He does not state in the record that this is an estimate, not a fact.  There were in fact only 12 items of equipment working that day.  He takes no steps at a later date to check and correct the figure. The records submitted for Days 8 to 19 are correct.

On Day 20, the site manager realises that the project owner is not checking the items of equipment on site, and is entirely relying on his record.  The contractor is starting to lose money on the contract due to under-pricing of equipment day rates.  The site manager therefore, from Day 20 until completion of the contract on Day 40, always adds two extra items of equipment to every day’s record.  These additional two items do not exist.  The purpose of doing so is to try to recoup some of the contractor’s lost money.

Explanation:

On Day 1, the site manager makes an honest error.  He was not deliberately or recklessly mis-stating the number of items of equipment.  Therefore, he has not committed fraud.  However, as soon as he realises his mistake, he must as soon as possible correct it.  He fails to do so.  Therefore, he now knows that his previous statement is incorrect, and he knows that the project owner will pay based on his incorrect statement.  He is therefore now committing fraud by knowingly allowing the incorrect statement to stand uncorrected.  To avoid fraud in these circumstances, you must always correct an error as soon as possible after you discover it.

On Day 7, the site manager makes a reckless error (when you are aware that a fact may be incorrect, but take no reasonable steps to verify it).  He took no steps to verify.  Nor did he state in the record that it was an estimate.  It was presented as a statement of fact.  Recklessness is normally sufficient to constitute fraud.  To avoid fraud, you must always state if you are unsure of the accuracy of a record which could have financial consequences.  

From Day 20 until completion of the contract on Day 40, the site manager is deliberately claiming an additional two items of equipment each day.  He knows that this is incorrect.  This is therefore fraud in that he is deliberately making a false representation.

So as to constitute fraud, it is normally necessary that the purpose of the false statement is to make a gain or avoid a loss (i.e. there must be intention of some financial impact).  The purpose of submitting the day works records is to enable the contractor to receive payment in relation to its actual or alleged equipment supply.  Therefore, this requirement is satisfied in all of the above cases. 

For fraud to have been committed, it does not matter whether or not the project owner identifies the incorrect statement, and therefore does not actually pay for the equipment which was not provided.  The mere fact of deliberately or recklessly making the false claim with a view to making a gain is sufficient to result in the maker of the statement committing fraud. 

This type of fraud involving deliberate or reckless submission of falsely inflated claims for supply of equipment, labour or materials is common on infrastructure projects.  The false claim could be submitted by sub-contractors or suppliers to the contractor, and/or could be submitted by the contractor to the project owner.  A considerable amount of money can be made by a corrupt party if it can charge for equipment, labour or materials which were not provided or were not working.  On a site where there are numerous items of plant, a large volume of materials, or a large number of personnel, or where the site is very large, it can be difficult for the party which is the victim of such fraud to verify the actual number of items of equipment, the volume of materials, or the number of personnel on site, and the actual hours of working.