Using construction audit and review techniques to evaluate and mitigate project risk

Whether or not your organization has an internal audit function, the use of construction audit and review techniques is critical in mitigating enterprise risk for large construction projects. Your efforts in assembling a construction compliance review team, no matter its size, may yield some project cost savings as well. The next time your organization undertakes the construction of a new school, wastewater treatment plant or public safety building, consider using some of the following techniques to help ensure yourself and management that effective spend and allocation of resources has been made. Establishing a robust internal control process over facility construction can offer risk mitigation and positive results no matter the size or spend of construction activities.

Building credibility

During a review of construction activities, it is important to create a collaborative environment among the internal audit or compliance professionals. In order to do so, it is necessary to build knowledge of the construction process. Your team needs to learn to speak the language of construction and contractors. Without this knowledge, your team will be unable to ask probing questions to senior leaders, construction project managers and personnel to determine proper application of controls or areas for further review.

Which approach is most effective?

Consider how your team will deploy their review. Will they be involved from the beginning of a construction project? Will the construction review be made an integral part of the construction activities? Or will the review be part of the project close prior to final payments or release of retainages? Each approach will provide value, however, having construction compliance professionals involved from project initiation will instill a spirit of “trust but verify” to the overall project. This may lead to more compliant behavior by contractors without impeding project progress. On the other hand, only involving your compliance team in the project close process may slow final pays to contractors due to the time investment of data gathering and review.

The discussion for the remainder of this article is from the perspective that your compliance team is part of the construction project from project initiation to completion.

Risk assessment and creating a collaborative environment

To ensure high-level risks are mitigated, the first step in the construction audit process is to perform a risk assessment of the common risk areas in a construction project. Confirm you are covered in these five common areas: