Audit Guidelines for KU Capital Improvement Projects March 19, Capital Improvement Project Audit Guidelines Manual

Transcription

1 Capital Improvement Project Audit Guidelines Manual 0

2 Capital Improvement Project Audit Guidelines Manual Office of Design & Construction Management The University of Kansas Lawrence, Kansas Bernadette Gray-Little Chancellor Jeffrey S. Vitter Provost Diane Goddard Vice Provost for Administration & Finance Barry Swanson Associate Vice Provost for Operations James E. Modig Director, Office of Design & Construction Management University Architect 1

3 TABLE OF CONTENTS Executive Summary Process Outline Construction Manager at Risk Projects General Contractor Competitive Bid Projects Architect & Contractor Requirements DCM Project Manager Reconciliation Audit Software Tool Auditor Reconciliation Bonds and Insurance Reports Appendix 1. Sample Project Budget 2. Sample of Invoice Scanned to ImageNow 3. ImageNow Sample Search Terms 4. Pay Request Format Requirements 5. Frequently Asked Questions 2

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5 EXECUTIVE SUMMARY The Office of Design & Construction Management (DCM) has been assigned by The University of Kansas administration and the Kansas Secretary of Administration the responsibility for oversight of all design and construction projects under management authority of the Lawrence campus. In 2012, DCM began the process of developing and implementing a capital improvements project audit process. This process was designed to focus efforts on the projects, or aspects of projects, with the highest financial risks. The audit program will: Analyze labor, material, and rental costs Reconcile project expenditures Analyze bond and insurance expense Verify that expenditures meet contractual requirements Coordinate with DCM project managers to recoup expenditures After studying alternatives, the decision was made to develop an internal audit process using software currently in place at the university. The audit process will include the following: Project identification: Capital improvements projects over $1,000,000 will be audited. Projects under $1,000,000 may be audited as needed. Architect/Contractor Requirements: Architects and contractors will be required to submit all requests for payment in a standard format developed by DCM. The standard contract formats will be revised to include audit requirements. Project Manager Reconciliation: DCM project managers, working with project architects, will audit invoices, change orders, and requests for payment, checking for overcharges for labor and material, charges for non-allowable costs and re-work. ImageNow Software Tool: Using a process developed by KUIT, DCM auditors will utilize ImageNow Software to scan submittals for overcharges, non-allowable costs, and double-billed items in order to identify areas needing future investigation. Auditor Reconciliation: DCM auditors will audit invoices, change orders, requests for payment, and the project budget, checking for incorrect calculations, double billings, overcharges, and charges for non-allowable costs. Bonds and Insurance Review: Any amounts over 1% for bonds and 2% for insurance will be referred to Lockton for review. Reports: Monthly reports and project completion reports will be published that outline areas that were investigated and savings generated for each project. A report of annual savings will be submitted at the end of each fiscal year. 4

6 Capital Improvement Audit Program Reconcile project expenditures Analyze bond and insurance expense Analyze labor, material, and rental costs Recoup/avoid inappropriate expenditures Verify expenditures meet contractual requirements 5

7 Capital Improvement Audit Process Audit Project Identification Based on project size/complexity Experience with architect/contractor Submittal Requirements Standard format required Standard numbering system required DCM Project Manager Reconciliation Overcharges Non-allowable costs Rework charges ImageNow Software Tool Scan submittals Identify areas to investigate Auditor Reconciliation Bonds and Insurance Review Incorrect calculations Double billings Overcharges Non-allowable costs Lockton review Max 1% bonds Max 2% insurance Reporting Monthly reports Annual report 6

8 PROCESS OUTLINE Capital improvement projects are generally contracted as either a Construction Manager at Risk (CM at Risk) or a General Contractor (GC) managed project. Because of the different financial risks associated with the two processes, audits will be tailored to the unique needs of each process. Audit Process for CM at Risk (Guarantee Maximum Price) Projects: Audit Process for General Contractor (competitive bid) Projects 7

9 Audit Process for General Contractor (GC) Projects: 8

10 PROJECT IDENTIFICATION All contractors managing capital improvement projects will be notified as part of the standard contract process that their project could be audited. In order to maximize efficiency, audits will normally be performed on capital improvement projects with a budget of at least $1,000,000. Projects with a budget of less than $1,000,000 may be chosen for audit based on the following criteria: Audit history of architect and/or contractor DCM project manager or KU leadership concerns Audit staff will be notified of new projects meeting the audit criteria by the DCM Deputy Director at least 30 days prior to the anticipated audit kick-off meeting. Information to be given to the auditor will include: Name of project Name of DCM projector manager Type of project (CM or GC) Name of contractor and architect Total project budget Project number 9

11 DCM PROJECT MANAGER RECONCILIATION: DCM project managers, working in conjunction with project architects, play a vital role in the audit process. These individuals are KU s capital improvement industry experts and are the first to evaluate change order requests, requests for payment for re-work, allowance requests, and to review standard requests for payment. DCM project manager responsibilities: Attend a kickoff meeting with the DCM auditor to review the project contract, project scope, and schedule of values. Describe unique contract requirements that could impact an audit. Coordinate a kickoff meeting with the general contractor, architect and/or construction manager to introduce the auditor and review the audit process and requirements. For Construction Manager at Risk projects, the DCM project manager will analyze requests for payment, change orders, allowances, and items charged to the contingency budget for: Appropriateness of charge based on project requirements Direct labor and materials quantity, quality and cost Equipment rental cost Contract compliance For General Contractor (Competitive Bid) projects, the DCM project manager will analyze change orders, allowances, and items charged to the contingency budget for: Appropriateness of charge based on project requirements Direct labor and materials quantity, quality and cost Equipment rental cost Contract compliance Prepare and maintain the project budget Notify DCM auditor of concerns Maintain a cost savings log due to project manager/architect actions Submit the cost savings log to the auditor at the end of the project Assist auditor in working with GC/CM as needed 10

12 ImageNow AUDIT SOFTWARE TOOL Using a process developed by KUIT, DCM auditors will utilize ImageNow Software to scan submittals for overcharges, non-allowable costs, and double-billed items in order to identify areas needing future investigation. DCM project managers and the auditor have been assigned login ID s to ImageNow. Payment Process: Payment requests will follow DCM s current protocol. Requests will first be received by the DCM project manager. After approval, the signed paperwork will be forwarded to the DCM accounting staff responsible to input it into the KU accounting system. When KU accounts payable staff route an invoice forward to AP-Complete, all invoices with AP Cost Center = or AP Cost Center is greater than or equal to will be sent to a AP-DCM Copy queue where the system will automatically copy invoices with DCM cost centers into the DCM workflow. Access the DCM-Copied Invoices workflow queue: Open the document by double-clicking on the row in the results grid. Rotate the pages as necessary. Use the Next Page icon to page through the document. For each page that needs rotated: Rotate, and Save Image Rotation to Server. 11

13 When all pages have been rotated, Route Forward. This will submit the copied document to Content Server. Once the Content Server process is complete, the document will be moved to the DCM-File Docs queue and will be available for use via the DCM Construction Audit view. If the Content Server process fails, the document will be routed to the DCM-Content Server Error queue and system administrators will be notified. ImageNow Search Function: Documents copied to the DCM Construction Audit File are accessible to the DCM auditor and project managers via the ImageNow CM Construction Audit View. Standard terms have been pre-programmed and grouped into categories called filers. On a monthly basis, the DCM auditor will run each filter for each active project by selecting the filter, entering the project number and clicking OK. Select the DCM Construction Audit view. Select the appropriate Filter(s) and enter the Search criteria and click OK. 12

14 Double click to open a document in the results grid. Use the Content Search Results to select the pages with search results. The search criteria will be highlighted in yellow. Right click on the Rectangle Annotation icon and select Red Rectangle. Use your mouse to draw a Red Rectangle around the highlighted content that needs to be researched. Select the Sticky Note Annotation icon and drag onto the document. On the Sticky Note window, enter your message and Click Ok. Click Close. 13

15 Select File, Send To (or use Ctrl M) to open the window. Select DCM Profile as the Profile. Enter the address(es) here or enter the addresses on the Outlook that opens. Select the Pages to be sent. Use the Content Search Results to find the pages you need. Click OK to send the . 14

16 Your message will open in Outlook where you can type in the body if you want to. In the ImageNow Viewer, select Workflow, Add to Workflow. On the Add to Workflow window, Select DCM-Construction Audit from the dropdown and select the DCM-Pending Response queue. Click Add. When the Project Manager receives the and opens the attachment, they can see the Red Rectangle annotations (but not the yellow highlights). The Sticky Note contents will be at the end of the document. 15

17 The Project Manager can write their response directly in the and return to the auditor using the FORWARD function instead of using Reply. The attachment will not be returned when using Reply and you will need it to find the correct document. When the Auditor receives the response, go to the DCM-Pending Response workflow queue and locate the document they are responding to. Open the document and locate the page. Double click on the Sticky Note icon to open the Sticky Note content. Copy / Paste the response into the Sticky Note and 16

18 click Add. Click Close. Route the document forward to remove it from the DCM-Pending Response queue. Each item found during the search will be analyzed by the auditor. Ad hoc searches will be conducted as needed. Items of concern will be notated on the invoice and routed via ImageNow to the appropriate DCM project manager. After consultation with the DCM project manager, invoices will be ed to the appropriate architect or contractor for explanation. The DCM auditor will notify, via , the DCM project manager at the conclusion of the investigation. The DCM project manager will coordinate with DCM accounting and the vendor of the item in question if either an item will not be paid or the amount due has changed. The auditor will note the reason for the change, the date of the change, and the cost savings on the auditor s project cost savings log. At the end of each month, the auditor will submit the cost savings log to the DCM project manager, the assistant director of consultant services, and the director. At the end of each quarter, the auditor will submit an audit report to the Provost s Office. 17

19 AUDITOR RECONCILIATION DCM auditors will audit invoices, change orders, requests for payment, and the project budget, checking for incorrect calculations, double billings, overcharges, and charges for non-allowable costs. Auditor reconciliation responsibilities: For Construction Manager at Risk projects, on a monthly basis, the DCM auditor will analyze requests for payment, change orders, allowances, and items charged to the contingency budget. For General Contractor (Competitive Bid) projects, the DCM project manager will analyze change orders, allowances, and items charged to the contingency budget in order to: o Determine that calculations are correct o Determine that charges comply with contract requirements Items of concern will be notated on the corresponding invoice and routed via ImageNow to the appropriate DCM project manager. After consultation with the DCM project manager, invoices will be ed to the appropriate architect or contractor for explanation. The DCM auditor will notify, via , the DCM project manager at the conclusion of the investigation. The DCM project manager will coordinate with DCM accounting and the vendor of the item in question if either an item will not be paid or the amount due has changed. The DCM auditor will utilize ImageNow software to scan submittals. See ImageNow section for details. DCM Project Budget: On a monthly basis, the auditor will check all formulas and calculations within the project budget and meet with the appropriate DCM project manager to discuss any concerns. Cost Savings Log: The auditor will maintain a log of cost savings resulting from audit actions. At the end of each month, the auditor will submit the cost savings log to the DCM project manager, the assistant director of consultant services, and the director. 18

20 BONDS AND INSURANCE Any amounts over 1% for bonds and 2% for insurance will be referred to Lockton for review and advice. REPORTS Four reports will be used to monitor and report on project expenses and audit results. DCM Project Budget DCM will continue to use the current project budget process to monitor projects. This budget will be reviewed by the auditor on a monthly basis. Any errors found will be reported to the appropriate DCM project manager. Auditor s Monthly Cost Savings Log The auditor will maintain a log of cost savings resulting from audit actions. At the end of each month, the auditor will submit the cost savings log to the DCM project manager, the assistant director of consultant services, the director of business operations and the director of DCM. DCM Project Manager s Cost Savings Log The DCM project manager will maintain a log of cost savings resulting from audit actions,. At the end of the project, the project manager will submit the cost savings log to the auditor for inclusion in the annual report. Auditor s Annual Report The auditor will submit an annual savings report to the DCM Director at the end of each fiscal year. The report will detail the savings, by project, which were a result of the actions of that year s audits. 19

21 APPENDIX 20

22 Appendix 1 - Sample Project Budget 21

23 Appendix 2 - Sample of Invoice Scanned to ImageNow 22

24 Appendix 3 - ImageNow Sample Search Terms (This is not a complete list.) Travel Commute Vehicle Auto Car Truck Fuel Gas Gasoline Mileage Rental Copy/copying Fax Entertainment Meal Lunch Breakfast Dinner Change Order Item s number not equal to allowed item number Misc Miscellaneous 23

25 Appendix 4 - Pay Request Format Requirements CAPITAL IMPROVEMENT PROJECT AUDITS PAY REQUEST FORMAT REQUIREMENTS Contractors shall use the following pay request line item numbers and work description names on the Schedule of Values for each project cost which is included in the scope of Work, without deviation or modification, for consistent cost identification and to support KU s project cost audits. For items not listed in the following table, Contractors shall use the 6-digit specification section number from the project manual, or they shall use a standard CSI MasterFormat 6-digit identifier as the item number, as approved by KU. Line item numbers on pay requests can be nonsequential, if a line item indicated below is not applicable to a particular project. A - Item Number B Description of Work Construction Manager Expenses Management Personnel CM Project Supervision Personnel CM Cost Estimating Personnel CM Administrative & Accounting Personnel CM Project/Jobsite Office, Furnishings & Equipment CM Telephone Equipment & Service Charges CM Printing of Bid Packages CM Shipping & Postage CM Project-Related Travel CM Project-Related Meals, Food & Drink CM Project Management Website CM GC (Comp. Bid) or CM At-Risk (GMP) 24

26 A - Item Number B Description of Work Building Information Modeling (BIM) CM Record/As-Built Documents CM Contractor s Fee / Overhead & Profit Construction Manager s Fee CM General Contractor s Overhead & Profit GC Insurance & Bonds GC (Comp. Bid) or CM At-Risk (GMP) General Liability Insurance GC & CM Builder s Risk Property Insurance GC & CM Performance Bond GC & CM Public Works / Material & Labor Payment Bonds GC & CM Allowances Allowance #1 brief description GC & CM Allowance #2 brief description GC & CM Change Orders Change Order #1 GC & CM Change Order #2 GC & CM GMP Contingency Construction Manager s GMP Contingency CM General Requirements & Temporary Provisions Temporary Utilities GC & CM Jobsite / Project Office GC & CM Temporary Toilets GC & CM Hoisting & Cranes GC & CM Temporary Roads & Parking GC & CM Temporary Dust Barriers GC & CM Construction Fencing & Gates GC & CM Protective Walkways GC & CM Erosion Control GC & CM Jobsite Signs GC & CM Field Layout & Surveying GC & CM Dumpsters & Waste Management GC & CM Jobsite Cleaning GC & CM Pest Control GC & CM 25

27 A - Item Number B Description of Work GC (Comp. Bid) or CM At-Risk (GMP) Operation & Maintenance Manuals GC & CM Performance Mockups, Testing & Inspections GC & CM Commissioning GC & CM Cost of the Work 02xxxx Division 2 work GC & CM 03xxxx Division 3 work GC & CM xxxxxx Other line items by the primary specification section number, broken into material and labor where applicable or as required by Architect/Engineer or Owner GC & CM 26

28 Appendix 5 Frequently Asked Questions The following guidelines apply to all project expenses that were not competitively bid. Q1: Can food and beverage expenses be charged to projects? A1: Food and beverage purchases, paid with University funds, must follow KU policy in order to be charged to and paid by a project. This expense should be budgeted as part of the construction manager s fee. The KU Hospitality Policy is located at: Q2: What food and beverage expenses are allowable? A2: This expense should be budgeted as part of the construction manager s fee. Refer to the policy referenced in Q1. Food/beverages supporting official business (workshop, training session) As evidenced by a formal program agenda, statement of purpose, listing of participants; Food/beverages must serve as an essential ingredient for success, not merely a hospitality enhancement; Provision of food/beverages must serve a clear University of Kansas business purpose. Food/beverages supported by collected event fees (typically within a conference registration fee, banquet fee, etc.) As evidenced by a formal program/agenda, statement of purpose, listing of participants. Q3: What food and beverage expenses are not allowable? A3: Refer to the policy referenced in Q1. Food/beverage provided in a largely social setting, such as receptions, parties, gatherings which do not serve a clear official business purpose. Food/beverages provided as incidental to normal meetings, typically involving predominantly employees (staff meetings, committee meetings, etc.) on which the success of the meeting does not depend on food/beverages being served. Therefore, the costs of food or beverage should not be borne by state funds. Example: Staff meetings throughout the business day (e.g., a staff meeting that lasts 1-2 hours & occurs during the morning or afternoon). (Note: In comparison to a meeting over the meal 27

29 hour, food or beverage for this type of meeting is a nice to have but not a necessity in order to have a successful meeting.) Q4: What are examples of allowable food and beverage costs that can be charged to a project? A4: This expense should be budgeted as part of the construction manager s fee. Refer to the policy referenced in Q1. Below are two examples of allowable expenses. Contact KU if you have any questions concerning if an expense is allowable. All-day or half-day workshops or training sessions Staff meetings scheduled over a meal hour due to limited schedule availability. (Note: Business purpose is justified in that the meeting would not have occurred if staff were not provided the opportunity to eat lunch and not all staff have the ability to bring a sack lunch). Q5: May employee transportation expenses, from home to work and back home, be charged as a project expense? A5: Employee transportation expenses may be charged to a project in a manner consistent with the construction manager s corporate policies. This expense should be budgeted as part of the construction manager s fee. Q6: May expenses for vehicles provided to employees be charged as a project expense? A6: Construction managers may cover vehicle/transportation expenses for project employees in a manner consistent with the construction manager s corporate policies. This expense should be budgeted as part of the construction manager s fee. Construction equipment stationed at the job site should be budgeted as a general conditions expense. Q7: May employee mileage and or vehicle expenses be reimbursed for trips to/from the project location and the company s offices? A7: Mileage and/or vehicle expenses may be charged for trips whose purpose is 100% tied to the KU project being charged. These expenses should be budgeted as part of the construction manager s fee. Q8: May project funds be spent to place non-ku logos on items? A8: In general, project funds may not be spent to place a non-ku logo on any item. It is recommended that you check with the KU project manager or auditor prior to spending project funds to place a non-ku logo on any item. a. Safety Equipment, including vests and hard hats No 28

30 b. Marketing materials, such as pens, paper pads, etc. No c. Signage on trailers, fencing, or vehicles No d. Official KU project signage that includes the names of the A/E, CM, KU and client group - Yes Q9: May employee vacation, holiday, sick days, etc. be charged to a project? A9: In accordance with the signed contract, employee benefits may be charged to a project. The cost of these benefits should be included in the hourly rate charged per employee/job classification. Only actual hours worked should be charged to a project. Q10: May late charges from subcontractors or suppliers be passed on to KU? A10: No 29