Construction projects are exciting opportunities for growth and prosperity, but they can also present significant challenges—particularly around managing budgets, cost compliance, schedules, quality, and key stakeholder expectations. A construction audit, which can be conducted at any stage of the capital-improvement program process, can help identify, mitigate, and resolve these challenges.
Here are some key questions and answers about which types of projects are the best fit for a construction audit.
What does a construction audit focus on?
A construction audit generally focuses on three key areas:
- Validating contract compliance
- Assessing performance against key performance indicators, objectives, and requirements
- Identifying improvement opportunities to better align construction practices with industry best practices
Ultimately, construction auditors are trained to conduct project assessments and validate compliance with contract, schedule, and entity requirements as well as other terms to verify the money being spent is allowable and appropriate.
What size construction project is a good candidate for an audit?
The average power or utility company can spend anywhere from a few million dollars to billions of dollars on a single construction project. Each project may encounter significant change orders, introducing risks, such as:
- Noncompliant and duplicate charges
- Schedule delays
- Budget overruns
Change orders may also provide opportunities for fraud, waste, or abuse to be introduced into your organization. These common pitfalls could result from:
- Inadequate policies and procedures
- Poor oversight and monitoring controls
- Inexperienced personnel
- Project management control override
Due to the size, scope, cost, and complexity of construction projects, your company should perform ongoing assessments to identify, mitigate, and resolve these costly risk areas.
Our team of certified construction auditors have audited numerous construction projects, including large-scale infrastructure projects. In doing so, we’ve helped support successful outcomes for owners, general contractors, and construction managers on issues arising from schedule delays, construction quality, change orders, excess charges, and project progress.
When does it make sense to have a construction audit performed?
Typically, earlier is better. If an audit takes place during the planning phase, construction auditors will have the opportunity to identify and help resolve problems that may cause future schedule delays, cost overruns, or misalignment with key stakeholders expectations. For example, construction auditors may uncover and help management address poor procurement procedures or unfavorable contract terms before they take place and result in key stakeholders receiving inaccurate reporting.
Once construction starts, there are opportunities for internal controls and reporting 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. To learn more about when to audit your project, read our article.
How does a construction audit provide value beyond what a project-management firm can offer?
Many power and utility entities hire third-party, project-management firms for big picture insight, delivery, and guidance on how to complete a successful project. These groups often represent the company and make decisions on behalf of, or in conjunction with, power and utility officials.
While project-management firms can provide significant value, these services shouldn’t substitute a construction audit. Unlike a project-management firm, an internal auditor provides a holistic assessment of a company’s strengths and weakness, analyzing additional areas of the company that are vital to the project’s success, such as:
- Internal controls
- Policies and procedures
- Contracts and other legal agreements
An external construction auditor can also provide an independent assessment of your power or utility company’s capital program risk. Because auditors also understand the construction industry, they can provide insight into the reasonableness of costs and alignment of program controls with best practices.
What are some deliverables that a power or utility company might expect from a construction audit?
A comprehensive report is generally issued at the end of each audit. It identifies internal-control recommendations as well as opportunities for improvements and cost savings. An important part of a construction audit involves sitting down and discussing these findings with clients.
To avoid any surprises, all audit issues and draft reports are also discussed with key stakeholders prior to preparing the final report.
Can a construction audit help a power or utility company 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 can help clients implement new internal controls or improve existing internal controls to mitigate ongoing risks and realize future cost efficiencies.
We’re Here to Help
Our skilled professionals and performance auditors have completed multiple construction-program audits and are familiar with different types of construction contracts and project-delivery methodologies.
For more information about whether a construction audit makes sense for your power or utility company, or to learn how to get started, contact your Moss Adams professional.