Fraud and integrity risks in property & construction: Why pressure in the market is increasing the risk profile

Australia’s property and construction sector is continuing to operate in a difficult environment. Developers, builders, contractors, and investors are managing elevated costs, constrained feasibility, tighter funding conditions, labour pressures, and changing demand across different parts of the market.

The pressure is not uniform. The housing supply challenge remains national, but the conditions differ across states. The National Housing Supply and Affordability Council Quarterly Report – March 2026 reported that, on a rolling 12-month basis, building approvals were up 8% in NSW, down 1% in Victoria, up 16% in Queensland, and up 13% in Western Australia. Building completions showed a different pattern, with NSW down 3%, Victoria down 12%, Queensland up 4%, and Western Australia up 16%.

For developers and construction businesses, this creates a sharper risk environment. Where projects are under margin pressure, approval pathways are slow, contractor capacity is stretched, or funding assumptions have shifted, the risk of fraud, misconduct, and control override can increase. This does not mean fraud is inevitable. It does mean Boards, executives, and project leaders need to be more alert to the points where commercial pressure can weaken discipline.

The issue is particularly important given the scale of financial distress in the sector. Analysis of ASIC insolvency data reported that 3,435 construction companies entered external administration for the first time in 2025–26, down from 3,596 in 2024–25, but still representing around 24.5% of all company insolvencies nationally. Construction therefore remains one of the most exposed sectors in the economy, even if the rate of insolvencies has started to ease.

For property developers, fund managers, builders, and project owners, the key question is not simply whether fraud has occurred. It is whether the organisation has the fraud risk framework, procurement controls, financial crime processes, and investigation capability to identify issues early and respond appropriately.

Procurement & contractor fraud are pressure points in major projects

Procurement remains one of the highest-risk areas in property and construction because it sits at the intersection of commercial urgency, significant spend, and complex third-party relationships.

Major projects commonly involve developers, builders, subcontractors, consultants, financiers, project managers, certifiers, planners, and suppliers. When timelines are tight and margins are under pressure, the risk of shortcuts increases. This can include inadequate due diligence on contractors, poor segregation of duties, weak review of variations, or insufficient scrutiny of supplier relationships.

The IBAC ‘procurement risks in major projects’ guidance identifies fraud, bribery, undue influence, and collusion as risks that can arise at every stage of major projects, from planning through to construction. It also identifies fraudulent invoicing, false timesheets, and overcharging as vulnerabilities in high-value and complex projects.

For private sector developers, the same risk logic applies. The highest-risk areas are often not the headline construction contracts, but the cumulative areas of spend: variations, subcontractor claims, professional services, site works, consultant fees, plant and equipment, remediation, defects rectification, and project management charges.

Common red flags include:

• repeated use of the same contractors without genuine market testing
• variation claims that lack supporting evidence or are approved under time pressure
• splitting contracts or purchase orders to stay below approval thresholds
• unusually high use of urgent or retrospective approvals
• duplicate invoices, inflated quantities, or vague descriptions of services
• conflicts between project staff and contractors
• weak documentation around tender evaluation and contractor selection.

This is where data analytics can be particularly effective. SW’s Fraud & Forensics capability includes fraud investigations, fraud risk assessments, integrity programs, data analytics, and procurement-related reviews, all of which are relevant to identifying unusual spending patterns and control gaps across complex contractor environments.

Bribery, conflicts & improper influence are not just a public sector issue

Bribery and corruption risks are often associated with public sector procurement, but the underlying behaviours can occur in private sector property and construction as well.

In a constrained market, access to opportunities, land, preferred contractors, project information, or approvals can become highly valuable. That creates risk around gifts and benefits, conflicts of interest, undisclosed relationships, side arrangements, and improper influence over procurement or commercial decisions.

The IBAC ‘corruption risks in major projects’ guidance highlights bid rigging, collusion, conflicts of interest, pressure to favour specific suppliers, fraudulent invoicing, and the involvement of multiple players as factors that can obscure oversight and facilitate corruption.

For developers and construction groups, this risk can arise in several places:

• tender processes where one bidder appears to have inside information
• employees recommending contractors with whom they have a personal relationship
• consultants influencing procurement decisions without transparent evaluation criteria
• gifts, hospitality, or informal benefits offered during tender or contract negotiation
• pressure to approve claims to preserve delivery timelines
• related-party arrangements that are poorly disclosed or documented.

A practical anti-bribery and corruption program should go beyond a policy. It should include targeted training, scenario-based awareness, conflict declarations, contractor due diligence, gifts and benefits monitoring, whistleblower pathways, and periodic testing of high-risk processes.

Project feasibility, cost pressure & reporting integrity

The economic environment is also increasing pressure around project reporting. Developers and builders are being asked to make decisions in a market where approvals, construction costs, sales rates, finance costs, and delivery timeframes can shift quickly.

The Australian Bureau of Statistics Building Approvals, Australia, May 2026 reported that total dwellings approved fell 1.1% in the month of May 2026 to 17,019, while private sector dwellings approvals, excluding houses fell 10.4% to 6,034. The same release reported that the value of total residential building approvals fell 5.7% to $10.24 billion, while non-residential building rose 41.0% to $10.83 billion.

That mix matters. Detached housing, apartments, mixed-use developments, and non-residential projects are not moving in the same way. For developers, the risk is that internal reporting does not keep pace with market reality.

Areas of concern include:

• overly optimistic feasibility assumptions
• delayed recognition of cost overruns
• understated contingency risk
• pressure to maintain forecast margins
• unsupported claims about project progress
• failure to escalate contractor distress
• insufficient challenge of sales, leasing, or funding assumptions.

These issues may not always involve deliberate misconduct. However, weak project reporting can mask problems until losses become significant. In a distressed environment, there is also greater risk of management override, selective disclosure, or pressure on finance and project teams to ‘make the numbers work’.

For Boards and executives, the focus should be on whether reporting is sufficiently independent, whether assumptions are challenged, and whether project governance provides early visibility of emerging issues.

Financial crime exposure for developers & property transactions

Financial crime is becoming more relevant to property and construction, particularly for developers involved in the sale or transfer of property.

AI is increasingly being used for identity fabrication and impersonation, false documents, and laundering scam proceeds. This is particularly relevant where developers, agents, or advisers are relying on identity documents, purchaser information, beneficial ownership declarations, or source of funds material.

Controls that should be considered include:

• customer and investor due diligence
• beneficial ownership checks
• source of funds and source of wealth enquiries
• monitoring for unusual transaction structures
• escalation pathways for suspicious matters
• staff training on red flags and reporting obligations.

SW’s Fraud & Forensics capability includes financial crime and risk assessments, transaction monitoring frameworks, financial crime controls, and regulatory compliance support.

Subcontractor failure & misconduct risk

The continuing pressure in construction creates a further integrity risk for developers and head contractors.

When contractors or subcontractors are financially distressed, several behaviours can emerge:

• inflated progress claims
• accelerated billing before work is complete
• substitution of lower-quality materials
• underpayment or non-payment of subcontractors
• phoenix activity or related-party transfers
• pressure to approve unsupported variations
• misrepresentation of capacity to complete works.

The reported ASIC-based analysis showing construction remained around 24.5% of all company insolvencies in 2025–26 indicates that sector distress remains material, notwithstanding a fall in construction insolvencies from the prior year.

For developers, this means contractor financial health should be treated as an active risk management issue, not a once-off prequalification exercise. Due diligence at appointment is important, but ongoing monitoring is equally important throughout the project lifecycle.

Practical steps include:

• financial health checks on key contractors
• review of subcontractor payment practices
• tighter approval of variations and claims
• site-based verification of work completed
• exception reporting for unusual payment patterns
• early-warning indicators for contractor distress
• independent review of high-risk claims.

This is where forensic and commercial disciplines intersect. The objective is not simply to investigate after a failure, but to identify patterns early enough to prevent loss, disruption, and reputational damage.

Cyber-enabled payment fraud & impersonation

Property and construction businesses remain attractive targets for cyber-enabled fraud because they regularly process large payments to multiple third parties.

The risk is heightened where project teams are dealing with urgent payment requests, changing bank account details, new suppliers, settlement flows, or multiple approval layers. Fraudsters do not need to compromise every control. They often only need to create enough urgency or credibility to bypass one step.

Typical scenarios include:

• false bank account change requests
• impersonation of executives, project managers, or suppliers
• compromised contractor email accounts
• fraudulent invoices inserted into real payment chains
• fake settlement or deposit payment instructions
• AI-enabled identity or document fraud.

AUSTRAC’s 2026 update specifically notes that AI is increasing the efficiency and sophistication of identity fraud, realistic fake documents, and impersonation used to access financial and non-financial systems.

For property and construction businesses, the response should include dual authorisation, independent call-back controls, payment change verification, supplier master file reviews, fraud awareness training, and incident response protocols.

SW’s capability in cyber and digital forensics, digital evidence collection, eDiscovery, cyber incident response, and data analytics is relevant where organisations need to investigate incidents, preserve evidence, understand what occurred, and strengthen controls.

What this means for property developers

For property developers, the key risk is not one single event. It is the accumulation of commercial pressure across the lifecycle of a project.

A development may begin with optimistic feasibility assumptions, move into a pressured approval or funding environment, face contractor cost escalation, absorb variation claims, encounter purchaser complexity, and then manage settlement, defects, and stakeholder scrutiny. Each stage creates different fraud and integrity risks.

Boards and executives should be asking:

• Have we updated our fraud risk assessment to reflect current market conditions?
• Are our procurement, contractor, and variation controls operating effectively?
• Do we have clear anti-bribery and corruption expectations for staff and third parties?
• Are conflicts of interest being actively managed rather than passively declared?
• Can we identify unusual payment patterns, supplier behaviour, or project cost anomalies?
• Are whistleblower and speak-up channels trusted and well understood?

The organisations best positioned to manage these risks will be those that treat fraud risk management as part of project governance, not as a reactive investigation process.

How SW can help

SW’s Fraud & Forensics team assists organisations to prevent, detect, and respond to fraud, misconduct, and financial crime risks through:

• fraud risk assessments and fraud control framework reviews
• fraud and corruption investigations
• anti-bribery and corruption risk assessments
• anti-bribery and corruption training and awareness programs
• procurement and supplier fraud reviews
• conflict of interest reviews and investigations
• whistleblower and speak-up program assessments
• governance and integrity reviews
• data analytics to identify unusual transactions, claims, and payment patterns.

Anthony Hodgkinson has more than 30 years’ experience in fraud and corruption risk management, forensic investigations, and governance advisory services. SW’s forensic capabilities span fraud and corruption investigations, workplace misconduct investigations, financial crime, cyber and digital forensics, fraud control frameworks, whistleblower programs, ethics and integrity reviews, risk assessments, and awareness training.