Construction projects are exciting opportunities for growth and prosperity, but they can also present significant challenges—particularly around managing budgeted costs and cost overruns. A construction audit, which can be implemented at any stage of the capital-improvement process, can help identify, mitigate, and resolve these challenges.
To answer some key questions about what types of projects are the best fit for a construction audit, I spoke with Stephen Bacchetti, a CPA and senior manager at Moss Adams who specializes in construction audits.
What size of construction project is a good candidate for an audit?
Typically, the projects we work with are valued at $15 million or greater.
When does it make sense to have a construction audit performed?
During the planning phase, construction auditors can identify and resolve problems that could cause future delays and cost overruns.
Once construction starts, there are opportunities for internal controls to be evaluated and improved. Perhaps most critically, contractor payment applications and change-order submissions can be reviewed in detail to identify potential overcharges and to validate contractor compliance.
How does a construction audit provide value beyond what a project-management firm can offer?
Many tribal entities hire third-party, project-management firms to act as an owner’s representative. These firms focus on the big picture and completing a successful project. They also often make decisions on behalf of or in conjunction with tribal officials.
While a project-management firm adds a layer of expertise that a tribe may not have internally, it isn’t a substitute for a construction audit. An external construction auditor can provide an independent assessment of a construction project’s risks. Because an auditor also understands the construction industry, he or she can provide insight into the reasonableness of costs and the internal and contract controls that have been implemented.
What does a construction audit focus on?
A construction audit focuses on three key items:
- Assessing performance
- Determining the extent to which established goals and objectives are being achieved
- Identifying improvement opportunities available to better align construction practices with project goals
Ultimately, construction auditors are trained to conduct project risk assessments and determine compliance with contract cost and schedule as well as other terms to verify the money being spent is allowable and necessary.
What are some examples of deliverables that a tribal entity might expect from a construction audit?
We generally issue a comprehensive report at the end of each audit that identifies internal-control recommendations as well as opportunities for cost savings. All audit issues and draft reports are discussed with project owners prior to preparing the final report to help ensure there are no surprises. An important part of our construction audit also involves actually sitting down and discussing the findings with our clients.
Can a construction audit help a tribal entity save money?
Yes, our clients frequently pursue, negotiate, and secure significant cost savings based on audit report findings. Additionally, the internal-control observations and recommendations included in an audit report help clients implement new internal controls or improve existing internal controls to mitigate ongoing risks and realize future cost efficiencies.
What qualifications and experience do the consultants who perform construction audits typically have?
Our team has significant experience performing construction-cost and compliance audits, ranging from full program reviews to close-out audits, giving us a strong knowledge of the construction industry. Team members are all skilled professionals and performance auditors who have completed multiple construction-program audits and are familiar with different types of construction contracts and project-delivery methodologies.
We’ve audited numerous large-scale public and private construction projects valued between $2 million and $3.5 billion, including many projects in the tribal-gaming industry. In doing so, we’ve worked directly with general contractors and construction managers on issues arising from schedule delays, construction quality, change orders, excess charges, and project-progress reporting.
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For more information about whether a construction audit makes sense for your tribe or gaming entity, contact your Moss Adams professional.