Construction projects were one of the first areas where formal project management principles were applied. Accountability, accounting and quality standards are all applied to construction projects today, given the amount of money and the serious liability such projects entail. One of the methods of ensuring the project is run correctly is holding regular construction project governance audits. But what is a construction project governance audit?
An Introduction to the Construction Project Governance Audit
Construction audit procedures are far more than reviewing expenses to make sure someone isn’t funneling cash bribes to officials for approval or over-paying for services as a form of kickback to politically connected firms. Nor are construction project governance audits only held while the project is underway. The full audit involves structured reviews from the pre-construction and planning phases through construction.
Construction project governance audits are far more than financial audits. For example, they include risk management planning. Have you identified the serious risks to the project? Are you defining potential solutions to each known risk and managing any new risks that may arise? For example, planning on using an expensive material that’s easily damaged could leave you unable to finish the lobby on time.
Whether you choose an equally attractive but less breakable decorative element or line up backup suppliers depends on you. Choosing suppliers and service providers who can handle shifts in the schedule or having backup options if they can’t is another form of risk management.
The project auditor simply verifies that you have backup plans like this that are workable. Managing risks is considered essential for project auditors, since mistakes or unplanned delays can cause costs to skyrocket. Investors and lenders want to know that you’re trying to prevent these problems and the related cost-overruns.
What Happens During Construction Project Auditors?
Auditors typically monitor billing and construction costs. They’re verifying that work is actually moving forward on schedule and on budget. They’ll flag unusual expenses and unusually high expenses. They should visit the work site to verify that work is done, that the materials being used are those that the project manager ordered, and that the work is done in compliance with local building codes. However, the auditor isn’t in charge, the construction project manager or building contractor is.
The project manager will need to answer the auditor’s questions, and they should work with the auditor when engineers or construction contractors suggest making changes to the design, the budget and the schedule. This includes changes that dramatically increase the cost and cost-saving measures that may result in safety risks or poor quality methods and materials being used.
The project governance audit may be done in conjunction with the cost segregation studies or separately from it. It may be done along with construction audits and building inspections to ensure that the contract is being upheld. After all, if you paid for a premium material and they use cheaper material, that’s a form of fraud and theft. And the very point of the audits is to fight construction fraud, though cost control and quality control are factors as well.