Construction audits from a certified construction auditor can help protect your capital investment from unjustified costs and overcharges. A certified construction auditor will review your contracts, purchase orders and payments for adherence to the standards you have set.

1. Why Construction Audits
are Important to Organizations
Matt Gardner,
CCA, CICA
HK Partner,
Construction Audit
Practice Leader

2. Construction Projects Incur Risk
 Construction projects are often a business’s greatest expense, so
they naturally incur risk.
 Lack of resources, sound processes and oversight by the project
management teams can hinder the proper management of:
• time
• cost
• quality
• safety
• environmental sustainability
 The consequences of unmanaged risk can be:
• loss of capital funds
• loss of management or committee trust for future expenditures
and litigation

3. Auditor’s Role
 Improve internal controls around key and high-risk processes
 Mitigate the risk associated with construction projects
 Provide assurance the organization’s money is handled
appropriately
 Set a tone of governing oversight, resulting
in fewer cost overruns, overcharges and
billing errors

4. ROI of Construction Audits
 Typical recoveries are 1-3% of the total project cost.
 In some organizations, cost recoveries exceed the entire annual
budget for the internal audit department.

5. Importance of Collaboration
 The intent of the audit is to recoup
funds billed by the contractors
secured on the project.
 However, a relationship is at stake.
It could cost your organization more
money if not approached in a
professional manner.
 Construction audits are an effective
cost management tool that promotes
consistency and transparency in
contractor billings.

6.  Construction auditors must understand the importance of
collaboration on any given construction project.
 An auditor’s focus should be to ensure costs charged are in line
with the contract/agreed-upon requirements.
 Getting involved early in the process ensures expectations are
discussed to limit potential conflicts.
 The auditor’s goal is to engrain him/herself into the process and be
a part of the collaborative team effort to ensure owners are charged
fairly and accurately.
 Best practice is to establish the overall process on the front end to
limit any misunderstandings or delays during peak construction,
when costs are often more likely to be charged in error.
Importance of Collaboration

7. Fraud is Not the Only Risk
 Some mistakes, such as mathematical errors, may be innocent,
but costly nonetheless.
 Projects involve a tremendous
amount of paperwork, which
is often handled by project
management systems outside
the organization or other forms
of project cost tracking software.

8. Fraud is Not the Only Risk
 Oftentimes contractors bill in accordance with
their standard billing practices, which do not
take into consideration a specific contract or
the cost containment language built into it.
 The contract negotiation period is often
months, and sometimes years, prior to
construction even occurring.
 As so much time has passed, at times, neither
party goes back to review the contract
requirements once payment applications are
being received by the owner.

9. Fraud is Not the Only Risk
 Unexpected issues arise with any project and must be handled
accordingly.
 A construction auditor helps:
• Recognize whether a change order is
legitimate or just a hidden profit center
for the contractor.
• Create a contract that anticipates and
dissolves potential disputes.
• Consistently monitor and set expectations
with contractors ensuring any issues identified
are supported by sound financial analysis of
proposed changes.

10. Under Budget, Overcharged
 Many projects may be under budget while still including erroneous or
inappropriate charges.
 Auditors ensure that the original budget is a sound figure, which
requires solid bidding and budget policies and procedures.
• Contractors may neglect details outlined in the scope of work or use
materials of lower quality without issuing the proper credit for reduction in
cost.
 Auditors establish aggressive general contractor savings goals to
provide an incentive to come in under budget.

11. Value in Vigilance
 Expensive pitfalls and hidden costs are rampant in capital expenditures.
 Construction auditors prevent contractors from cutting corners by
staying involved in every phase of the project lifecycle.
 Construction audits maximize the value of an organization’s
construction project.

12. Questions?
Matt Gardner, CCA, CICA
HK Partner, Construction Audit
Practice Leader
mgardner@honkamp.com
888.556.0123
If you think your organization could
benefit from a construction audit,
consider a complimentary
construction cost review of your
project (upcoming, current or past)
or contract language.
Call 888-556-0123 to learn more.