Construction audit - protection from financial risks

Large-scale construction is becoming more complex and technological. Information modeling is being introduced, processes are becoming more complex and automated, and various organizations are involved in construction. In such a situation, the customer or the investor is faced with quite legitimate questions: how to implement the project in accordance with the documentation, meet the deadlines and meet the planned budget?

An independent construction audit is only possible for companies that have their own building control resources. Those who do not have an internal audit service should involve outside organizations. Especially when it comes to the construction of large objects. Incompetence of the customer in matters of construction control often leads to constant additional work and cost overruns. That is why customers and investors are increasingly turning to independent expert organizations engaged in construction audit.

What is a construction audit and what is it for?

Construction audit is a type of expertise, which is a comprehensive assessment of all aspects of construction work. The audit analyzes the financial and technical components of construction work, as well as project documentation. Each customer is interested in the targeted expenditure of funds, therefore, primarily the construction audit is aimed at determining the real cost of construction. In addition, experts identify violations committed during construction, determine their quality and compliance with the deadlines.

Practice shows that it is best to attend to an audit at the initial stage of construction - the stage of drawing up design and estimate documentation. Experts will evaluate the accuracy of paperwork and the adequacy of the pledged budget. As a rule, the cost of these works does not exceed 2-3% of the total construction cost. At the same time, professional audit will protect the customer from excessive costs, which are often provoked by unscrupulous contractors.

Construction audit is best done at the stage of drawing up design and estimate documentation.

It is necessary to distinguish the concepts of construction expertise and construction audit, which are often confused. Expertise is the verification of completed objects. An audit analyzes construction at all stages: from design and preparation to maintenance. This is its fundamental difference and advantage: the ability to test at almost any time at each stage of construction.

Who needs construction auditing and when?

Construction audit is needed primarily for investors, customers and banks. Each of these organizations is interested in a quality facility that will be built on time and at no additional cost. Therefore, before concluding a contract, the investor and the customer must be confident in the quality of the materials and the need for the planned works that are offered by the contracting organization.

With the help of a construction audit of design and estimate documentation, experts will identify unreasonable work, inappropriate use of resources, artificially overestimation of the cost of construction and materials, which sometimes exceeds real by 25% or more. Such situations arise when an unfair contracting organization is an affiliate and acts in its own interests. In these cases, various fraudulent schemes can be implemented, for example, suppliers of low-quality materials or low-skilled labor are involved in construction.

The investor is the most interested in obtaining accurate information on construction costs. In order for the project to be successfully implemented and bring benefits, the investor needs control over the targeted use of their investments. Construction audit helps to identify violations by the contracting organization and minimize financial risks.

In addition to investors and construction companies, banks are also audit clients. Investors involved in construction, often use loans. Naturally, the sudden additional costs pose a serious risk for the investor, and, as a result, for the banking organization.

The investor’s bank receives reports on the implementation of construction works. However, the information in them is insufficient, and often simply unreliable. In such cases, a construction audit comes to the rescue, as the only means of controlling the transparency of expenditures. That is why banking organizations attract independent expert organizations.

Audit is required and contractors. Experts will help justify the increase in the cost of additional work in cases where it is really necessary.

There are a number of typical situations where the need arises to conduct a construction audit. The most common is the unsatisfactory quality of construction work and materials. Unscrupulous contractors use low-quality materials and equipment to save money, which leads to both financial consequences and serious deviations from safety standards. In addition, the contractor can do the work only formally. With the help of fictitious certificates of quality of materials or acts of allegedly performed work, fraudulent schemes are implemented and funds are withdrawn from accounts.

Often there is a situation where the documentation, which is prepared by the contractor, or does not comply with the law or is not prepared at all. Such an attitude entails serious legal consequences and affects the timing of commissioning of the object.

Thus, the construction audit mostly targets the financial component of the construction. However, due to the fact that the quality of building materials is being checked, the documentation for building and assembly works also increases the safety level of the object. Audit is becoming a universal instrument of control over every aspect of construction activities, especially important in the construction of capital structures requiring mandatory state inspection.

Stages of construction audit

Construction audit is a rather complicated procedure, which is carried out in several main stages:

• study of the construction project, technical and permits;
• budget analysis and comparison of actual and declared construction costs;
• analysis of the reasons that influenced the price change for the entire object;
• identification and analysis of defects in documentation or in the quality of construction work;
• preparation of an audit report with recommendations to minimize financial risks.

Specialists of the most diverse profile are involved in the construction audit. Each case is individual, and depending on the customer's request, engineers, accountants, communications specialists, and fire safety are involved in the verification. Each expert performs its function. As a result, the customer of the audit receives a statement containing comprehensive information regarding the expenditure documentation for the purchase of materials, the compliance of the budget with the established standards.

Thus, construction audit is necessary for any developer. It is thanks to the construction audit that it is possible to determine whether it was expedient to spend the funds allocated for a particular construction object. All identified violations and inconsistencies are recorded in the conclusion along with recommendations for their elimination.

Trust the professionals

In construction, audit plays an important role. With the help of this tool, you can assess the adequacy of the planned budget, the correctness of the work of the construction company, prevent overstating costs, monitor quality of materials used and much more.
In addition, the construction audit is indispensable for those cases where the customer and the contractor are in the process of litigation. In such situations, the controversial object is investigated by experts, who, based on the results of the inspection, issue an expert opinion that is legally binding.

Third-party audit organizations conduct an audit directly at the facility

Some large construction companies conduct an audit on their own, involving their own estimated departments. Often, however, internal services do not have sufficient resources and experience that would allow a full, thorough check to be performed. That is why the vast majority of developers prefer to entrust the conduct of a construction audit to outside organizations. It should be remembered that the audit report is legally valid only if it was issued by licensed specialists.

Investors, developers, banking organizations are increasingly involved in the construction process personally or with the help of independent expert companies. Investors find out whether the funds are properly spent on the objects, banks control the observance of credit agreements, developers get protection from financial and legal risks.

Construction audit effectively protects the interests of all those involved in construction. And if you carry out an inspection prior to construction, at the stage of concluding contracts with contractors, the customer will identify all possible risks and will be able to prevent negative consequences. Audit ensures that the object will be delivered within the prescribed period and will meet all necessary standards.

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