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Here are some examples of savings arising from capital project Auditing Activities. The examples include those encountered by internal auditors, CRW president Al Gray during his tenure as a corporate auditor, and CRW/ConstructionAudits.com.

 

Recoveries

 

Savings

Defined as immediate monetary resolutions of audit issues by means of a cash refund, discount, credit memo, offset against a concurrent calim from the other party, or receipt of materials or services as compensation.

Appear in Green in the examples table

 

Defined as immediate monetary resolutuions of issues plus quantifiable, monetary savings arising from satisfactory resolution of the issue. Long term savings are generally reduced to net present value.

Appear in Blue in the examples table

 

 

 

Potential Savings

 

Losses

Issues for which savings likely occurred, or will occur, for which the ultimate resolution is undetermined or unsettled.

Appear in Black in the examples table

 

Issues for which avoidable losses were incurred.

Appear in Red in the examples table

     

FREIGHT SAVINGS & RECOVERY

Issue

Finding

Result

Large fabricated equipment was shipped by a fabricator to the owner's sites. The fabricator's shop foreman arranged the shipments, with the freight charges added to the owner's invoice. The owner did not verify that the freight charges were reasonable.

Noticing that the freight charges were averaging $25,000 per shipment, the auditor sought alternative freight rates and made a recommendation that the owner arrange for the pickup, loading and shipment of the equipment.

The freight charges dropped from $25,000 per shipment to less than $10,000 per shipment. Based upon the owner's requirements for the equipment, more than $60,000 per year in savings was achieved.


$60,000 Savings

 

Source: CRW Archives

.

SYSTEMS DEVELOPMENT & INTEGRATION SAVINGS

Issue

Finding

Result

A company engaged a systems implementation contractor at a fixed price of $1MM, then approved enhancements at T&M rates.

The internal auditor noted, during a review of the contractor’s time charges, that some work billed as enhancements were within the original, fixed price scope of work.

The company attorney pursued recovery of $110,000 in duplicated services.

$110,000 Recovery

 

Source: IInternal Auditor, 12/93, p.73 (contributed by San Francisco Chapter of IIA)

A software vendor had bid $4.6 million for software and $3.2 for maintenance for the company’s 1000-user system.

The internal auditor researched the vendor’s marketing materials and found that the vendor offered 50% discounts to smaller users and discounted maintenance to 15% of the purchase price. These discounts were larger than those offered to the company.

 

The company renegotiated the contract, producing a $1.7 MM savings.

 

$1.7 Million Savings

 

 

Source: IInternal Auditor, 4/98, p.98 (contributed by East Tennessee Chapter of IIA)

A systems integration contractor was allowed to purchase third party software on a "Time and Materials" basis. However, any supporting invoices for such services bore no pricing.

Upon questioning from the auditor the contractor asserted that the purchases were part of the fixed price portion of the contract. The auditor obtained the invoice copies from the third party supplier and discovered that an unauthorized 17% markup had been applied.

 

The contractor attributed the $200,000 overcharge to a billing error.

 

$200,000 Recovery

 

 

 

Source: IInternal Auditor, 8/98, p. 84 (contributed by Anonymous Contributor)

.

ACCOUNTING ERRORS

Issue

Finding

Result

The general contractors cost-plus billings to the owner were manually prepared.

Testing by the auditor indicated the absence of controls over duplicate invoicing for subcontract payments, paid vendor invoices, and other billed costs.

Thorough review by the auditor proved multiple instances of duplicate invoicing that the contractor agreed to reimburse.

 

$175,060 Recovery

 

Source: AMG archives

Unknown to the contractor, one of its employees was generating fictitious invoices for materials and was collecting from the owner.

Owner engineering and internal auditing collaborated to uncover the fraud.

The fraud was determined to involve about $12,000.

 

$12,000 Loss

 

Source: IInternal Auditor, 2/94, p.70 (contributed by Illiana Chapter of IIA)

The project accounting department overpaid accrued sales taxes to the state.

The auditor discovered that credit entries were not posted to tax accrual schedules.

The contractor acknowledged the error and refunded the excess charges.

 

$7,050 Recovery

 

Source: AMG archives

A subcontractor billing was incorrectly totaled.

The auditor detected the error while testing invoice extensions and footing.

The subcontractor agreed to a billing credit to eliminate the overcharge.

 

$10,000 Recovery

 

Source: AMG archives

 

PLANT OPERATIONS CONTRACTS

Issue

Finding

Result

A plant waste removal contractor was using the rated capacity of refuse bins to calculate billings rather than the actual volume hauled away.

The internal auditor found that actual volumes were ¼ of the amount billed and that billing rates were also in error.

The company recovered $227,500 in overcharges and presumably saved the cost of future overcharges.

 

$227,500 Recoveries

 

Source: Internal Auditor, 2/94, p.71 (contributed by Illiana Chapter of IIA)

Technician service agreements allowed supervisors periodic trips home, with the owner reimbursing the costs.

The internal auditor checked plant sign-in sheets and found that 9 supervisors worked during times in which trips home were billed and that airline tickets were redeemed for cash.

Reimbursements to the owner totaled $18,000.

 

$18,000 Recovery

 

Source: Internal Auditor, 12/95, p.69 (contributed by Central Virginia Chapter of IIA)

 

MANUFACTURING PROCESS EQUIPMENT

Issue

Finding

Result

A portion of a fabrication contract was paid for, but was not delivered.

The auditor discovered the non delivery in a review of invoices.

The delivery was secured.

 

$12,760 Recovery

 

Source: AMG archives

 

PROJECT FINANCING

Issue

Finding

Result

The company had secured more than $50 million of Industrial Revenue Bond financing at a substantial rate savings for designated systems. Due to a number of factors the company was faced with the need to relinquish unused financing.

The auditor evaluated the requirements of the financing by reviewing the Code of Federal Regulations, consulting with Treasury and Law departments, and considering other portions of the project that might qualify. Qualifying systems were found in a number of areas, principally the coal fired boiler.

An amended project application was submitted allowing the company to retain the otherwise unused funds.

 

$2.1 Million Savings

(at NPV)

> $5 Million Total Savings

 

Source: AMG archives

 

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