What is a Construction Audit?
A construction audit is the process of reviewing the expenses incurred to construct an asset. The “audit” generally consists of several audits of general contractors, sub-contractors, and suppliers that are conducted on an interim basis throughout the project. Establishing a robust construction audit program can mitigate financial risks and result in cost recoveries.
How is a Construction Audit different from a Vendor Audit?
A vendor audit is a review of a single supplier’s transactions rather than the transactions of multiple vendors. The total value of a vendor’s transactions for a given period is often significantly less than that billed during the same period on a construction project. Also, the duration of the vendor relationship is usually longer since purchases are made in the ordinary course of business rather than for a specific project.
Why Conduct a Construction Audit?
Construction audits are conducted to help manage the risks associated with multimillion dollar capital investments. In today’s construction environment, it is vital to have processes in place to provide your company with the assurance that your primary contractor and subcontractors comply with your contracts.
The level of activity and number of contractor personnel performing concurrent tasks in a construction environment can quickly spiral out of control. A construction audit can help establish a level of control and assurance that project billings comply with the terms of the various construction contracts.
Contractors rarely invoice with 100% accuracy and the invoices submitted for payment often do not have all the information needed to validate the invoices’ accuracy. The examination needed to validate construction costs is detailed and laborious. Typical billing issues identified in a construction project include:
- Labor hours
- Craft labor rates
- Overtime calculations
- Cost mark-ups
- Idle equipment
- Overheads vs. direct
Implementing a construction audit program will provide relief to operational personnel, generate financial recoveries, and provide a level of assurance billings comply with existing contracts. When conducted on an interim or continuous basis, audits will establish a tone of compliance with contractors and suppliers, and can identify differences in contract interpretation, monitor actual to budgeted expenditures, and support interim payment / retainage release decisions.
Whether conducted on an interim basis or at the conclusion of a construction project, our post-construction reviews offer the opportunity to detect control weaknesses, close gaps on future contracts, and recover lost profits. AMS-PAR’s professional staff will carefully analyze payment processes, identify payment errors, and provide recommendations for contracting and payment process improvements.