Why is it important to hire a construction auditor?

Construction auditing projects, in accordance with contract or legal requirements, requires an auditor with a unique skill set and the ability to: Assess project risks Identify opportunities to strengthen controls Introduce best practices for efficient, effective, safe, and transparent projects

Is it important to choose a construction auditor with a technical construction background?

If an auditor doesn’t have a technical background in construction, then the following components of the audit could be at risk: Project objectives. The most appropriate objectives to address the various performance aspects of your capital program may not be selected. Your project could experience cost overruns, gaps in funding availability, or schedule delays. Identifying the appropriate audit objectives could help with reviewing project processes, procedures for managing scope, prioritization of projects, quality, schedule, budget, or change-control methodologies and reporting. Criteria. The most appropriate criteria for evaluating results, controls, efficiency, and compliance may not be utilized. Setting appropriate criteria is a crucial step and could include purposes or goals prescribed by law, regulations, or the audited entity’s officials, policies and procedures, and technically developed standards or norms. Methodology and scope. The methodology and scope selected may not result in sufficient and appropriate evidence to support meaningful audit conclusions. Scope and methodology should be designed to obtain evidence that addresses the program’s objectives while providing reasonable assurance of satisfactory evidence to support the report’s conclusions.

What are common financial issues with construction projects?

Some common program pitfalls with construction projects can include: Cost overruns resulting from ineffective procurement practices Schedule delays that impact operations Penalties for noncompliance with state or federal regulations

How much cost savings is potentially available through a construction audit?

If a mechanical or electrical contractor’s work is completed for less than the maximum allowable subcontract cost, any savings not negotiated as part of an incentive clause could become part of the risk contingency included in their allowed construction costs. If the general contractor or construction manager doesn’t apply this contingency balance to project usages, the amount could end up available to the owner, resulting in overall project savings. With program costs ranging from a few million to several billion dollars, stakeholders want to know where and how funds are being spent. High-profile, high-dollar projects — such as new schools and infrastructure upgrades — typically receive extra scrutiny from the owner, media, and public.

What are the qualifications for a construction auditor?

The value provided by the construction auditor correlates with the level of qualifications they bring to the project. A construction auditor with the following qualifications can provide a more streamlined experience for your project. Continuing professional education When a construction audit is conducted as a performance audit, performance auditors are required to complete applicable continuing professional education (CPE), measured in required credits, and technical knowledge of specialized subject matter. GAGAS requires a level of continuing education, stating “Auditors who plan, direct, perform engagement procedures for, or report on an engagement conducted in accordance with GAGAS should develop and maintain their professional competence by completing at least 80 hours of CPE in every two-year period.” This includes: Twenty-four hours directly related to government auditing, the government environment, or the specific or unique industry in which the audited entity operates An additional 56 hours that enhances the auditor’s professional proficiency to perform audits Performance and construction audit expertise In addition to CPE, “The audit organization’s management must assign auditors to conduct the engagement who, before beginning work on the engagement, collectively possess the competence needed to address the engagement objectives and perform their work.” Construction auditors need to bring to each engagement expertise in construction and performance audit methodologies and analysis techniques as well as their specialized construction knowledge. With this expertise, auditors can better identify risks based on the audit objectives.

Do any states require construction audits?

A construction audit can be beneficial for projects in every state, but especially Washington where they’re required. Washington State Legislature, RCW 39.10.300, allows public bodies to utilize design-build procedures, including progressive-design, for public-works projects if: Total project cost is over $2 million Construction activities are highly specialized with a critical design-build approach Design-build approach is critical in developing the construction methodology or meet other specific requirements As an alternative to the subcontractor selection process outlined in RCW 39.10.380, a general contractor or construction manager could — with the approval of the public body — select the mechanical and electrical subcontractors by following the outlined requirements in RCW 39.10.300. Expertise in construction and related controls aren’t typically core competencies for educational and other governmental entities and the individual departments within them. As a result, owners should contract for performance audits to help programs and projects stay on track, within budget, and in compliance with contract requirements.

Article

Hire a construction auditor to reduce project risk and control budget

Feb. 25, 2021 · Updated June 29, 2022 · Authored by Tammy Lohr, Stephen Bacchetti, Jordan Wahl

Construction projects can be risky, but organizations could recoup investments of time and money by leveraging knowledge and objective feedback provided by qualified, experienced construction auditors.

Below, explore common questions related to these audits, potential cost-savings, and what criteria to look for in an auditor.

What is a construction contract audit?

Construction contract audits provide objective analysis to assist stakeholders and contractors with information they need to:

Improve performance and operations
Reduce noncompliance costs
Facilitate decision-making
Contribute to public accountability

Construction audit objectives should be clear and concise and address various performance aspects of the program.

Factors assessed by a construction contract audit

Factors that could come under consideration during a construction contract audit include:

Contractor and subcontractor charges
Schedule, scope, and quality management
Project funding and plan alignment
Project controls, including contract administration and procurement
Compliance with regulatory requirements
Budgetary management and financial reporting
Program staffing gaps and redundancies
Master plan development and scope prioritization
Change-order controls
Project close-outs
Communication among stakeholders

The Government Accountability Office (GAO) issues the generally accepted government auditing standards (GAGAS) — also known as the

Tammy Lohr

Director

Stephen Bacchetti

Principal

Related sections

Construction

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Hire a construction auditor to reduce project risk and control budget

What is a construction contract audit?

Factors assessed by a construction contract audit

Tammy Lohr

Stephen Bacchetti

Related sections

Why is it important to hire a construction auditor?

Stay ahead of the effects of COVID-19

Broaden your construction audit quality objectives

Three contracting strategies for construction audit projects

1. Competitive bidding procedures

2. Selecting the right contract

3. Strong cost-of-work definitions

Is it important to choose a construction auditor with a technical construction background?

What are common financial issues with construction projects?

Potential construction audit risks

How much cost savings is potentially available through a construction audit?

What are the qualifications for a construction auditor?

Continuing professional education

Performance and construction audit expertise

Do any states require construction audits?

Have questions? Baker Tilly can help.