Construction project audits

Construction project audits
• Executing construction audits. Where
the construction audit plan includes
testing of interim applications for
payment, executed and pending change
orders, and final payment, the focus will
be on identifying vendor charges that
are not supported by cost records or
that are not in compliance with contract
requirements. Where possible, we’ll use
data analytic tools for a deeper analysis
of costs. The following areas are often
included for analysis:
— Prime contractor labor charges,
including verification of head
count; regular and overtime hours
worked; job classification pay rate;
and burdens including vacation/
dues, government insurance (FICA,
FUI, SUI), workers’ compensation,
safety, administrative, and union
fringe benefits.
In today’s dynamic business
environment, companies
undertaking capital projects
recognize that market volatility and
complexity, along with political and
regulatory change, have become a
normal part of doing business. Yet
in this high risk environment, many
organizations face a major challenge
in devising an effective strategy for
realizing the maximum value from
their capital investments.
A robust construction contract is
typically an organization’s first line
of financial defense. As contracts
have become increasingly complex,
however, the already difficult process
of administering vendor oversight
has become even more challenging
for operational and internal audit
functions alike.
By executing a comprehensive audit
plan, companies will be
well-positioned to identify risk,and
to uncover opportunities to improve
performance, recover costs, and
mitigate future claims and disputes.
The evaluation process
Effective project evaluation requires robust
data gathering, fact finding,cost review,
schedule analysis, and risk assessment.
Issue. Organizations undertaking capital
projects often do not have in-house
staff with the deep contracting and
project delivery experience necessary to
identify project risks, evaluate controls,
determine project trends, and assess
compliance with contract terms and project
delivery processes.
Action. PwC can assist your organization
with developing and implementing a
comprehensive audit plan focused on
improving your capital project performance
and reducing risk. Specifically, we support
the following activities:
Developing and planning construction
audits. An effective audit plan will focus
on identifying risks to project success and
opportunities to improve performance.
The plan should include an assessment
of compliance with high impact vendor
contract terms, and with owner processes
and procedures for project delivery. It
also should include an assessment of
cost and schedule performance against
baseline goals.
— Other vendor costs and
compliance, including verification
of signed lien waivers and proofof-payment receipt from prime
contractor; design and professional
services charges that comply with
subcontractor contracts; and
administrative costs that do not
include disallow able charges.
— Materials, equipment and
overhead charge verification,
including finance review and
approval of purchase orders;
match between schedule of values,
installations, and amounts billed;
material receipt match to purchase
order (PO) and invoice prior to
payment; complete recording of
materials transactions on project
records and the general ledger/
job cost report; materials receipt,
safeguarding, and issuance
compliance; material used on the
correct job site; and permissible
administrative overhead charges.
— Construction insurance, including
bid, performance, and payment
surety bonds; subcontractor
default insurance; and controlled
insurance programs.
— Billings and payments, including
confirmation of tax-exempt status;
billing review and approval process;
PO/contract and invoice match prior
to payment; application of computer
aided auditing tools to detect billing
anomalies and/or excessive charges;
and independent assessment of
cost reasonableness.
— Change orders, including
evaluation of entitlement and cost
support; compliance with contract
requirements and limitations;
duplication of original contract
cost amounts; processes to backcharge professional service vendors;
and reasonableness of claimed
delay impacts.
— Final payment compliance,
including validation of work
completion and clearing of
punch-list items; documentation
of required permits, certificates,
licenses, inspections, and approvals;
facility and equipment operability
including warranties; verification
of lien releases and resolution
of outstanding claims; and
delivery of “as built” drawings,
handbooks, maintenance plans, and
warranty materials.
• Communicating audit results. Based
on the scope of the audit plan, we will
report findings regarding project risk
and trends, recommend strategies
for improving performance and
achieving project goals, and identify
opportunities for cost reduction,
avoidance, or recovery.
• Assisting with cost recovery. Where
cost recovery opportunities are
identified, we will develop a roadmap of
recommended actions. If the recovery
work involves claims or disputes, our
team can support development of
strategy, negotiation and alternative
dispute resolution, and litigation,
including expert and testimony services.
Owners often assume that once the contracts
are in place the project can be executed without
oversight, and simply rely on their contractors to
deliver the project. This approach to project delivery
jeopardizes the ability to achieve project schedule,
cost, safety, and quality objectives.
Impact. Benefits of designing and
performing construction project audits may
include the following:
Contact us to discuss the complexities of your
project and co-develop a custom approach for
your organization.
• Identification of risks to capital project
success, and recommendation of
strategies to improve performance and
achieve project goals
• Identification and recommendation
of cost reduction, avoidance, or
recovery opportunities
• Identification and recommendation of
enhancements to vendor contracts and
project delivery strategies
• Drive adherence to contract terms and
related project delivery processes
• Create a framework for a scalable and
repeatable construction audit plan
• Lessons learned and actionable
recommendations for
continuous improvement
Contacts
PwC offers a number of other key project
solutions for consideration:
• Capital Planning and Portfolio
Management/Optimization
• Capital Project Management
• Capital Project Regulatory Support
• Capital Project Technology
• Capital Project Infrastructure Deals
• Capital Project Governance
and Controls
• Real Estate Advisory
• Tax Diligence and Structuring
• Troubled Project Turnaround
and Forensics
Peter Raymond
Capital Projects & Infrastructure, US Leader
McLean, Virginia
+1 703 918 1580
[email protected]
Daryl Walcroft
Capital Projects & Infrastructure
San Francisco, California
+1 415 498 6512
[email protected]
Stephen Lechner
Capital Projects & Infrastructure
San Francisco, California
+1 415 498 6596
[email protected]
Ralph Roam
Capital Projects & Infrastructure
Philadelphia, Pennsylvania
+1 267 330 2241
[email protected]
Anthony Caletka
Capital Projects & Infrastructure
Houston, Texas
+1 713 356 5871
[email protected]
Combining engineering, project controls, and business acumen PwC’s capital
projects and infrastructure professionals serve the entire life cycle of acquiring,
financing, investing in, planning, designing, procuring, constructing/implementing,
commissioning, operating and maintaining complex greenfield or brown field capital
assets, programs or portfolios. Our professionals have industry experience as project
managers, designers, engineers (civil, environmental, structural, mechanical, electrical, industrial, and nuclear), construction managers, critical path method (CPM)
schedules, cost analysts, construction attorneys and accountants.
www.pwc.com/us/capitalprojects
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