Tuesday, October 6, 2015

The Owner’s Project Audit: Critical Considerations for Success

Patrick A. McGeehin and Mark J. Malengo of FTI Consulting, Inc. recently gave an interesting presentation concerning project audits from the Owner's perspective, pointing out ways an Owner can reduce costs and improve the audit's effectiveness:

There are several important factors that an Owner should consider for its project-audit needs.  With proper planning and strategy, an Owner can reduce costs and improve the effectiveness of an audit.

First and foremost, an audit should be viewed as a key component that can contribute to the overall success of a project and the Owner.  In addition to identifying potential savings on a cost reimbursable contract, use of an auditor can improve the cost/pricing language of the Owner’s contracts and develop process procedures that can be used to benefit future projects.

An audit can also measure the success of the project compared to various metrics, identify non-compliance with Owner contract provisions, and determine amounts of asset purchases and any related salvage value.  This is true whether an audit is required to meet the Owner’s compliance requirements, to meet its fiduciary duty to other partners/investors, to determine a savings amount, or to improve selected processes. 

Selecting an auditor with the appropriate experience can assist the Owner in defining and achieving the agreed-upon audit objectives efficiently and effectively.  The “right” auditor should perform a focused-objective review.

Further, there are several actions that an Owner can take to improve the productivity of the audit with the help of the auditor. They include performing up-front procedures, such as developing contract definitions, establishing pre-determined Contractor rates, improving contract-review processes, and requiring the production of essential records.  In addition to improving the productivity of future audits, this pre-contract involvement can minimize misunderstandings between the Owner and Contractor.

In summary, an audit should be much more than a “ticking and tying” exercise, if the Owner engages an auditor with the appropriate expertise and develops a focused review plan.  This approach can lead to better project results, savings, and other process improvements.

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