Construction Auditing

Introduction to CONSTRUCTION AUDITING
Presented by Bob McDonald Jefferson Wells International
Our Purpose - an Overview

Terms Types of contracts Reasons for auditing construction projects Understand the construction project life cycle Management of construction projects Selecting projects for audit Audit steps and timing Contractor Billing Overview
JeffersonWells International
Ground Rules
None When you have a question ASK!

Terms

Architect & A&E AIA Asset Allocation Study Backcharges Change order, extra work & Claim Contractor, CM, GC Construction engineering

Consumables, Expendables & Small Tools Cost Crafts & Trades Design Builder Fast Track General Conditions Labor
Terms

Materials Owner OSHA Retainage Sales & Use Taxes Site Shared savings Subcontractor

Subsistence Tax abatement Turn Key Value Engineering More Terms See RS Means Company 800 334 3509 Dictionary
Types of Contracts
Lump Sum, Fixed Cost, Stipulated Sum Cost Plus

Cost Plus with Fixed or Percentage Fee Cost Plus with Guaranteed Max Cost Plus with GMAX & Shared Savings
Unit Price Time & Material

Why audit construction projects?

Top management is concerned and exposed Construction projects are costly Delays can result in lost market opportunity Provides monitoring not available elsewhere Provides a means of keeping projects on track, or gets them back on track quickly

Goals of a Construction Audit

Identify Cost Avoidance Opportunities Ensure Controls Are Developed & Maintained
Owner Contractor
Identify Overcharges/Undercharges Avoid Litigation

Construction Life Cycle

Planning
Conception Design
Contracting Construction Close-out Close
How are construction projects managed?

Inside or Outside Project Manager Company Officer Executive Committee Architect
Owners Project Management Team

Project Manager and/or Owners Representative Purchasing Legal Contract Administration Finance & Accounting Auditing Tax (consult) Risk Management (consult) - OCIP
External Organizations
Architect Engineering Construction Manager General Contractor Owners Representative Subcontractors Testing Survey

Typical Project Organization

OW ER N
ARCHITECT
GEN AL C TR TOR ER ON AC
SUBCO NTRACTO R
SUBCONTRACTOR
SUBCONTRACTOR
SUB-SUB CONTRACTOR
Alternate Project Organization

O NR WE
A C IT C RH ET
G N R LC N R C O E E A OTA T R
S B OT A T R U C NR CO
S B OT A T R U C NR CO
S B OTA T R U C NR CO
S B U C NR CO U -S B O T A T R
Onr we
A ite rch ct
G n ra C ln cto e e l o tra r
T&EF irm
Eg er n in e
S b n ctro S b n cto S b n cto u co tra u co tra r u co tra r


Onra GnraCn c r we s ee l otrato
Onr we
Ahet rcit c
Td Cn c r Td Cn c r Td Cn c r rae otrato rae otrato rae otrato
Tsn eti g
M ria a a l n te
Ds nEg er ei nine
Sbotrato ucn c r

Owner with full support Executive
Owner's Project Team Outside Counsel Outside Audit Owners Rep
Architect
Construction Manager
General Contractor
Design Engineer
Testing
Subcontractor
Material an
Sub-subcontractor
What is the best organization?

All types work Use the one that suits your organization

How should projects be selected for audit?

Size ($ value & physical size) Type of contract

Cost Plus & T&M versus Lump Sum Shared Savings Features
High profile or high risk projects Experience of Owners Representative Experience with the General Contractor

Contract Risk
Cost Plus

Labor
Rates & Fringes Subsistence Uncompensated overtime Not to exceed limits ignored Travel & reimbursable Union rates Ghosts
Contract Risk
Cost Plus

Materials
Trade & other discounts Excessive material Scrap & returns Sources Rework
Contract Risk
Cost Plus

Equipment
Rent to own Rental exceeds purchase price Excess damage costs Sweetheart deals Taxes on fuel Equipment not on job Rental rebates not credited
Contract Risk
Cost Plus

Insurance Performance bond Home office charges Permits & licenses Fines Mathematical errors
Contract Risk T & M

Use of incorrect labor costs Use of incorrect material mark ups See Cost Plus

Contract Risks
Stipulated Sum, Lump Sum or Fixed Fee

Materials outside specification Quantities not installed Improper construction methods Change orders in original bid Owner supplied material not credited Insurance not purchased Change orders not costed correctly
Contract Risks
Lump Sum or Fixed Fee
Front End or Top Loading Bonds not obtained Unauthorized subcontractors used Tax errors Contract work performed by owners employees Services not provided

Unit Price

Erroneous estimates
Mobilization/demobilization Improper measuring/quantity verification
Recommended Contract Type

Cost Plus Guaranteed Max Shared Savings Feature
Elements of a typical construction audit program

Bid Review (Optional) Contract Review Control Assessment Contractor Billing Tests - Progress Billings

Labor Materials Equipment (Contractor owned & rented) Subcontractor charges


Contractor Billing Tests (continued)

Permits and licenses Miscellaneous charges (small tools & consumables) Overhead charges Contractor fee Retainage calculation Performance bond & insurance Home office charges

Contractor Billing Tests (continued)

Physical inspection and review of engineering inspection reports Relocation & travel
Control Verification Financial Review

Lead schedules Receivables Payables


Financial Review (continued)

Construction in Process (CIP) Fixed Assets
Audit reports

Bid Review Contract Review Trip Reports Final Report
What should be contained in trip reports?

Tailor to the organization Typical trip report

Summary Comments Issues Requiring Follow-up & Party FollowResponsible Visit Schedule
Auditor Selection

Internal

Train Your Own Hire an Experienced Auditor Public Accounting Firms Construction Auditing Firms
External

Change Orders
Change Orders Extra Work Claims

Change Order Template

Contract: Scope of Change: Drawing Sheet # Description Change Order # Material Quantity Unit Price Bulletin # Line Item # Labor Hrs/Unit Unit
U/M
Total material NIC Sales & Use Tax
Cost -
Total Labor Hours
Hours -

LABOR & BURDEN COSTS Labor Cost per Hour - Ave Labor Hours Estimated Estimated Field Labor Cost Supervision Percentage of Field Labor Subtotal for Field Labor Add for Payroll Taxes Add for Insurance Add for benefits Project Manager @ (No. Hours) x Hourly Rate Engineering @ (No. Hours) x Hourly Rate Total Direct Labor Costs Add (%) for Fee Total Labor Costs

MATERIAL COSTS FROM DETAIL Material Costs from Detail Sundry Material @ % Material Cost Subtotal Material Costs Small Tools @ % of Materials Freight on Material @ % of Materials Sales & Use Tax on Materials @ % Fuel for Rental Equipment Rental Equipment Total Other Direct Costs Add % for Fee Total Material & Equipment 0% 0% 0% 0%
SUBCONTRA COSTS CT Subcontractor Net Subcontractor Costs Fee @ % of Subcontractor Costs Total Subcontractor Costs -

Total Labor Costs -
Total Material & Equipment

Total Subcontractor Costs
RECAP OF TOTAL COSTS Labor & Burden Costs Material & Equipment Costs Subcontract Costs Total Change Order Proposal
Typical Findings

Defective Pricing in COs Unauthorized Items Billed

Home office charges Other
Labor Overcharges
Workers Comp Rates FUI/SUI

Materials Not Used on Job General Conditions G/L Insurance Experience Modifiers
Typical Findings
Duplicate Charges Equipment Billed Not in Use Bonds not purchased Backcharges not accomplished Scrap not Credited Unauthorized Substitution of Materials Unapproved Methods

Which Types of Contracts and Projects Should be Audited?

All Types
When Should Construction Projects be Audited?

Begin at Planning Concurrently Throughout the Project Closeout

Jefferson Wells Approach

1. 2. 3. 4. 5.
Contract Analysis Blueprint the project organization Determine the risks Develop the Work Plan Initial Report
contract analysis, recommend improvements project management, recommend controls
6.
Conduct the engagement

Verify charges Monitor controls
7. 8. 9.
Update meetings Complete the planned work and add other tests deemed necessary Final Report
Contract Analysis

What to look for

Type of contract Complete?
Executed? All exhibits & attachments?
Financial Terms and Conditions Right-to-audit Right-to Change order/extra work/claims General Conditions
Work Plan
Select tests from Master Audit Program Add other tests based on analysis of this project

What does a contractor billing look like?

See Sample G702 and G703 Certification by Contractor & by Architect

Construction Auditing

Questions and Answers Call Bob McDonald @ Jefferson Wells International 216 664 5600 Fax 216 664 5606 or email bob_mcdonald@jeffersonwells.com

Construction Auditing

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Construction Auditing

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Verfügbare Formate

Introduction to CONSTRUCTION AUDITING

Presented by Bob McDonald Jefferson Wells International

Our Purpose - an Overview

Unit Price  Time & Material

Why audit construction projects?

Goals of a Construction Audit

Identify Overcharges/Undercharges  Avoid Litigation

Construction Life Cycle

Contracting  Construction  Close-out Close

How are construction projects managed?

Inside or Outside Project Manager  Company Officer  Executive Committee  Architect

Owners Project Management Team

Typical Project Organization

Alternate Project Organization

Alternate Project Organization

S b n ctro S b n cto S b n cto u co tra u co tra r u co tra r

Alternate Project Organization

Td Cn c r Td Cn c r Td Cn c r rae otrato rae otrato rae otrato

Alternate Project Organization

Owner's Project Team Outside Counsel Outside Audit Owners Rep

What is the best organization?

How should projects be selected for audit?

Contract Risk T & M

Recommended Contract Type

Cost Plus  Guaranteed Max  Shared Savings Feature

Elements of a typical construction audit program

Labor Materials Equipment (Contractor owned & rented) Subcontractor charges

Elements of a typical construction audit program

Contractor Billing Tests (continued)

Elements of a typical construction audit program

Contractor Billing Tests (continued)

Control Verification  Financial Review

Lead schedules Receivables Payables

Elements of a typical construction audit program

Financial Review (continued)

Construction in Process (CIP) Fixed Assets

Bid Review  Contract Review  Trip Reports  Final Report

What should be contained in trip reports?

Tailor to the organization  Typical trip report

Change Order Template

Total material NIC Sales & Use Tax

Total Labor Hours

Change Order Template

Change Order Template

Change Order Template

Total Material & Equipment

Defective Pricing in COs Unauthorized Items Billed

Which Types of Contracts and Projects Should be Audited?

When Should Construction Projects be Audited?

Jefferson Wells Approach

Conduct the engagement

What to look for

What does a contractor billing look like?

Das könnte Ihnen auch gefallen

Unit Price Time & Material

Identify Overcharges/Undercharges Avoid Litigation

Contracting Construction Close-out Close

Inside or Outside Project Manager Company Officer Executive Committee Architect

Cost Plus Guaranteed Max Shared Savings Feature

Control Verification Financial Review

Bid Review Contract Review Trip Reports Final Report

Tailor to the organization Typical trip report