Labor Savings & Recoveries


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.





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



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






The contract called for craft labor to be billed at actual cost plus the actual costs of payroll taxes, insurance, fringe benefits, and percentage markups for tools.

The auditor conducted thorough reviews of the contractor's payroll registers, personnel records, tax remittances, insurance premiums, and fringe benefit costs.

The labor rates were found to be overstated. The contractor refunded the overcharge for the project and for other projects with that contractor and the owner.

$125,500 Recovery

$1.1 Million Savings Total


Source: AMG Archives

Labor burden included the cost of worker compensation insurance.

The auditor discovered that correct classification of craft labor would lower premiums and that there were discounts not being provided by the contractor.

The contractor agreed that the classifications were in error and refunded the discount amounts.

$818,850 Savings


Source: AMG Archives

A cost-plus contractor requested increases for small tools, testing, and insurance.

The internal auditor found that the contractor was self insured and that insurance cost data did not support the increase.

The rate increase was denied, saving the owner $115,000.

$115,000 Savings


Source: Internal Auditor, 6/93, p.70 (contributed by Baton Rouge Chapter of IIA)

Contractor reimbursements were based upon estimated payroll tax rates. Actual tax rates, to be used according to the contract, were lower.

The internal auditor found that the tax rates declined in the second year of the contract, yet the contractor had not passed the reduction through in its billings.

The construction company refunded the amount of the taxes overcharged.

$ Unknown Savings


Source: Internal Auditor, 4/98, p.95 (contributed by Central Iowa Chapter of IIA)

A subcontract contained provisions for training at cost of the course plus 15%. The subcontractor billed employee training time on site at regular hourly rates.

No hourly charges were billable per the contract. The auditor scheduled $125,000 in over-billings

Management negotiated a refund with the contractor.


Source: Internal Auditor, 8/98, p. 84 (contributed by Downeast Maine Chapter of IIA)

Project subcontractors were required to work a considerable amount of overtime on both scope work and change order work.

The auditor consultant evaluated the rates charged and reimbursed and found them to exceed subcontract terms and conditions.

The auditor's analysis indicated overpayments of more than $60,000.

$60,000 at issue


Source: CRW Archives

Engineers were billed at actual pay rates plus a contract multiplier.

The auditor compared billed rates to those indicated by the payroll register and personnel files, finding excessive rates billed in the amount of 7%.

The engineering firm agreed to refund the overcharges and correct its billing system.

$115,000 Savings


Source: AMG Archives

Per diem charges were billed by the electrical contractor.

The auditor discovered documentation that the labor billing rates already contained an allowance for per diem expenses.

The contractor refunded the overcharge.

$25,085 Recovery


Source: AMG Archives


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