What to Consider When Facing a Construction Cost Audit

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Victoria Parrish
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3 What to Consider When Facing a Construction Cost Audit Scott P. Fitzsimmons Partner Watt, Tieder, Hoffar & Fitzgerald, LLP Paul S. Ficca Senior Managing Director FTI Consulting, Inc.

4 Session Purpose: Contract Audits Understand construction audit process, types of audits, the parties rights and obligations, government regulations, contract audit provisions and best practices Preparing for and navigating through a construction cost audit

5 Presentation Overview: Contractor Audit Rights Public vs. Private Contract Audits Regulations on Government Audits Private Contract Audits Key Audit Do s and Don ts

6 How Your Records Should NOT Look During an Audit!! * Actual Project records as provided to Watt Tieder

7 How your Records SHOULD Look During an Audit!! * Actual DCAA Audit Preparation by Watt Tieder same Project

8 Contractor Audit Rights: Know your Contract: Audit provision language Record keeping Specificity regarding purpose and scope of audit Entrance conference Exit conference Contractor s audit report input What happens if Contractor disagrees with audit findings?

9 Public vs. Private Contract Audits: Public and private audits can vary substantially Less uniformity in commercial audits versus government contract audits Common goal is to ensure owner is not overcharged and is billed correctly, i.e. only for allowable costs

10 Public Contract Audits: Federal, state and local contracts are generally subject to audit with process determined by government regulations Federal funds utilized? => FAR applies DCAA follows CAM which follows GAGAS => all governed by the FAR

11 Federal Audit Regulations FAR (b) - Audit and Records-Negotiation FAR Determining Allowability FAR Determining Reasonableness False Claims Act DCAA Audit Manual

12 Public Contract Audits: Contract > $750K - Certification requirements re data is accurate, complete and current Additional CAS requirements may apply Pre award and Post award audits => Pre award audits more often focused on fixed-price contracts and post award audits more often on cost reimbursable contracts

13 Public Contract Audits: Owner s Rights FAR (b) Audit & Records Negotiation: Contractor shall maintain all records and other evidence sufficient to reflect properly all costs claimed to have been incurred or anticipated to be incurred Contracting Officer shall have the right to examine and audit Examination includes inspection of Contractor s plants, or parts of them, engaged in performing the contract.

14 Public Contract Audits: Allowable FAR Determining Allowability: Factors considered to determining allowable cost: (i) reasonableness, (ii) allocability, (iii) Cost Accounting Standards (iv) terms of the contract, and (v) any limitations set forth in FAR.

15 Public Contract Audits: Reasonableness FAR Determining Reasonableness: Defines reasonable cost Does not exceed that which would be incurred by a prudent person in the conduct of competitive business. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. Burden of proof shall be upon the contractor to establish that such cost is reasonable.

16 Public Contract Audits: Penalties False Claims Act: - 18 U.S.C (1) falsifies, conceals or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry; Fined under this title or imprisoned not more than five years, or both.

17 Private Contract Audits: Contract language defines the rules of the audit Standard audit provision language exists, e.g. AIA, FIDIC but is usually tailored project-by-project Cost reimbursable contracts

18 Private Contract Audits: Similar audit process logistics Formal notice from owner Entrance meeting with auditor Interim meetings held with auditor Audit close out meeting Contractors given opportunity to formally respond to auditor s findings If unallowable costs have been incurred and billed then those costs will most likely result in adjustments to contractor s billings or refunds to owner

19 Key Audit Do s Take audit request seriously be responsive Establish an audit response team and meet internally PRIOR to audit entrance conference Designate one person as only point of communication for all information flow Ensure an audit entrance conference occurs Have a post entrance conference meeting with internal audit response team Request and ensure a closing conference be held

20 Key Audit Don ts DON T minimize importance of an owner s notice to audit, regardless of how benign it sounds or how well you think job is going DON T wait until last minute to prepare for an audit entrance conference DON T leave an auditor unattended to wander wherever he/she wants to go DON T provide auditor with information that hasn t been properly reviewed

21 Key Audit Don ts DON T provide auditor information in excess of what was requested DON T intentionally stall audit DON T have auditor conduct interviews alone and without properly preparing interviewee DON T feel obligated to provide the auditor with everything requested ask legal counsel DON T ignore contract terms or agree to contract terms that are vague and ambiguous

22 Scott Fitzsimmons Paul Ficca Scott P. Fitzsimmons Partner Watt, Tieder, Hoffar & Fitzgerald, LLP Paul S. Ficca Senior Managing Director FTI Consulting, Inc

23 Thank You Questions?

FIRE OFFICER III. STUDENT Task Book. Agency:

FIRE OFFICER III. STUDENT Task Book. Agency: FIRE OFFICER III STUDENT Task Book Agency: Bring this completed PTB to test location to have it reviewed by GFSTC s test proctor, along with a signed test prerequisite form. FAILURE TO DO THIS WILL RESULT