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 performance auditors.
Below, explore common questions related to these audits, how much could be available in cost-savings, and criteria you should look for in your auditor.
What Is a Construction Performance Audit?
Construction performance audits provide objective analysis to assist stakeholders with information they need to:
- Improve performance and operations
- Reduce costs
- Facilitate decision making
- Contribute to public accountability
Audit objectives should be clear and concise and address various performance aspects of the program.
Factors Assessed by a Construction Performance Audit
- 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-out
- Communication among stakeholders
The Government Accountability Office (GAO) issues the generally accepted government auditing standards (GAGAS)—also known as the Yellow Book—which provides performance auditors with standards and an understanding of how to apply them to complete audit objectives.
Why Is It Important to Hire a Construction Auditor?
Auditing projects in accordance with contract requirements is a unique capability provided by these auditors.
It’s important to engage qualified auditors who offer demonstrated proficiency to:
- Assess project risks
- Identify opportunities to strengthen controls
- Introduce best practices for efficient, effective, safe, and transparent projects
Stay Ahead of the Effects of COVID-19
As the COVID-19 pandemic continues to impact the construction industry, controlling budgets and properly managing projects is exponentially more difficult, for both owners and contractors. Projects are subject to constantly evolving work situations, which can translate into costly change orders and schedule increases.
Additionally, expertise in construction programs and the related controls aren’t typically core competencies for organizations such as public entities, which can lead to expensive errors and oversight.
A significant way to keep projects in check is to engage with an experienced construction audit team to help you develop and conduct tailored, value-added audits.
Broaden Your Audit Objectives
It’s important to note not all construction performance audits are designed to result in improved efficiency and a reduction of business risk.
Some performance audits are designed simply to validate that contract charges are within the total construction budget, or the scope or projects are included somewhere within the approved master plan.
This limited-scope approach doesn’t take advantage of a comprehensive construction performance audit’s power. Audit objectives need to be broad enough to provide information to help empower the organization to reduce risks, strengthen controls, and enhance overall performance.
Choose an 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 you review project processes, procedures for managing scope, prioritization of projects, quality, schedule, budget, or change-control methodologies and reporting.
- Criteria. The most appropriate criteria to evaluate results, controls, efficiency, and compliance may not be utilized. Setting appropriate criteria is a critical step and may 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, and provide reasonable assurance the evidence is satisfactory and appropriate to support the report’s conclusions.
What Are Common Financial Issues with Construction Projects?
Common program pitfalls 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 the work of the mechanical contractor or electrical contractor is completed for less than the maximum allowable subcontract cost, any savings—that weren’t negotiated as part of an incentive clause—become part of the risk contingency included in the general contractor or construction manager's maximum allowable construction cost.
If the general contractor or construction manager doesn’t utilize this contingency balance for project usages, the amount may be available to the owner and result 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 Performance Auditor?
Continuing Professional Education
Performance auditors are required to complete applicable continuing professional education (CPE), measured in required credits, and technical knowledge of specialized subject matter.
Paragraph 4.16 of GAGAS, Continuing Professional Education, states: “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 2-year period as follows.”
- 24 hours directly relating 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
Construction and Performance 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 in accordance with GAGAS,” according to paragraph 4.02 of GAGAS.