ROUND ROCK INDEPENDENT SCHOOL DISTRICT

CONSTRUCTION
AUDIT PROGRAM
AUDIT PROGRAM AUDIT PROCEDURES 1) General a) Analyze prior audit reports, both internal and external, for previously identified deficiencies. Review responses. If responses sufficiently address correction of the problem and clearly indicate managements plans to prevent recurrence, test to ensure that stated changes were, in fact, made. If responses do not resolve the weakness, consider re-issuance of the criticism and/or further discussion with management to identify alternative solutions. W/P REF AUDITOR INITIALS

b) Prepare a lead schedule of all accounts affected and indicate the balance as of the audit date. Prior to completion of the audit, ensure that all accounts have been verified by reconciliation, analytical review, or testing. c) Become familiar with all laws, policies, and regulations impacting the area under review. Ensure that the audit program includes sufficient procedures to evaluate compliance with applicable rules and regulations.

d) Obtain an understanding of the procedures and the flow of documents for construction project operations. e) Obtain copies or examples of all reports generated for each construction project and determine their use and distribution. Include system reports, PC reports, and manual reports. Ensure that the information presented in these reports is tested or analyzed at some point in the audit program. Among the reports that may, or should, be available are procurement reports, cash-flow projections, schedule progress reports, and cost forecasts. Determine that adequate records are received from the contractor to monitor progress (daily inspection reports, job meeting minutes, job photographs, updated schedules, material and equipment delivery schedules, drawing revisions, daily job progress reports/diaries, etc.). Review minutes of all construction meetings held. Identify unusual situations that may require additional testing or follow-up during the examination.

f)

g) Obtain a copy of the construction contract (and related addenda) and highlight significant and specific terms. The contract will be an important reference throughout the audit. h) Obtain a copy of the Districts contract with the architect and/or engineer (as well as any other contracts prepared directly with the District). Highlight significant and specific terms and ensure that they are adhered to throughout the course of the project. Determine if fee and reimbursement guidelines appear reasonable.

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ROUND ROCK INDEPENDENT SCHOOL DISTRICT

CONSTRUCTION
AUDIT PROGRAM
AUDIT PROGRAM 2) Contract Formation a) Obtain a copy of the bid package for the project. This should include the following items: i) ii) iii) iv) v) vi) Proposal Agreement General conditions Supplementary (Special) Conditions Technical Specifications Drawings W/P REF AUDITOR INITIALS

Ensure that the bidders are requested to submit their proposals in a particular format that is designed to enhance comparison of the bids. Determine if bidders are required to submit bid bonds and certificates of insurance. b) Examine advertising copy regarding the construction project to ensure that it met government requirements for notification. c) Document the process for qualifying bidders. Does the District determine in advance of bid opening whether or not the contractors responding are stable and have the financial wherewithal to complete the project? If this process is performed after bid opening, how do we ensure that the bid is not awarded to an unsatisfactory contractor simply because he is low bid?

d) Determine which District administrator is responsible for replying to questions from bidders prior to bid opening. Is there a mechanism to ensure that no conflicting information is presented to bidders? If additional information is prepared for one bidder by request, is it automatically sent to all bidders? e) f) Does the District conduct pre-bid conferences and site visits with all bidders jointly? Obtain a copy of the agenda for the pre-bid conference and copies of any minutes maintained. Document the process for receiving and controlling bids received prior to bid opening. Ensure that controls are adequate to prevent breaches of confidentiality. Ensure that a log is maintained listing the date and time of receipt of all bids. Determine that bids received after bid opening are returned unopened to the bidder after documenting the time and date of receipt.

g) Obtain a copy of the bid tabulation. Review the accuracy with which the bids were transcribed, calculated, and awarded. Determine if a fair price estimate was determined in advance of bid opening. If so, comment if significant fluctuations were noted between the bids received and the price estimated.

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT

CONSTRUCTION
AUDIT PROGRAM
AUDIT PROGRAM 3) Contract Administration a) Review the initial set of contractor submittals received. Typical submittals should include: i) Insurance certificates ii) Fabrication/installation procedures iii) Quality assurance or control program documentation iv) Shop drawings v) Material certificates vi) Fabrication, shipping, and construction schedules vii) Equipment tagging procedures viii) Equipment operating and maintenance manuals and instructions ix) Signed bond forms x) Sample products (wall coverings, siding samples, etc.) xi) Subcontractor and material supplier bid and change order information Determine if receipt of submittals is documented on a log or check sheet to ensure that required items have been received. b) Determine if an insurance certificate log is prepared. Review insurance certificates received and evaluate for propriety. Such insurance should include general liability, automobile liability, workers compensation, and umbrella coverage. Verify the adequacy and authenticity of insurance coverage. Ensure that insurance was actually purchased. Determine how subcontractors insurance requirements are monitored. c) Review various bonds received from the successful bidder, including the bid bond, payment bond, performance bond and possibly a maintenance bond. If possible, confirm the validity and adequacy of the bonds. Ensure that bonds were actually purchased. W/P REF AUDITOR INITIALS

d) Determine and document the method used to calculate progress payments. Ensure that there is a clear correlation between the payment processed and the percentage of work completed. e) f) Obtain the original schedule of values and all requests for payments. Schedule RFPs and compare to schedule of values. Investigate unusual differences. Review the most recent schedule of payment requests or progress billings. Examine underlying RFPs and ensure that necessary evidence of inspection and approval is adequately documented. Ensure that sales tax has not been included on tax-exempt improvements.

g) Verify that the contractor submits all necessary lien waivers with progress payment invoices. h) Schedule all allowances identified in the contract and ensure that allowances have been properly adjusted. Ensure that no change orders have been issued for items included in the allowances. All allowances should be adjusted to actual cost after the specific work component is defined and the actual cost is determined. Ensure that this has occurred. i) Determine and document the method used to calculate retention. (Note: Retention amounts should be documented in the contract in order to be enforceable.) On the RFPs selected above, ensure that the appropriate retention amounts were withheld.

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ROUND ROCK INDEPENDENT SCHOOL DISTRICT

CONSTRUCTION
AUDIT PROGRAM
AUDIT PROGRAM Contract Administration (continued) j) Obtain the current schedule of change orders (or change order log). Examine all change orders issued, documenting the reason for the change and the amount of the change. Ensure that necessary changes are identified promptly and properly confirmed and approved. Examine supporting documentation for change order pricing and confirm the accuracy. Ensure that change orders represent changed or added work, and not work covered under the scope of the base contract or previously issued change orders. W/P REF AUDITOR INITIALS

k) Determine if change order work descriptions suggest engineering, construction, and/or manufacturing problems that should be back charged to another party. l) Ensure that change orders were not split to avoid Board of Trustee approval requirements.

m) Determine if the contract includes any reimbursable charges. If so, identify any payments for reimbursables and ensure that they agree with the contract provisions and prices. n) Determine and document the procedures for handling back charges. Ensure that back charges are identified and approved by the appropriate contractor or supplier prior to the start of any work, since failure to do so may impair the Districts ability to charge for the work. o) Determine if there have been any claims on the project. Document the settlement of these claims. Determine if there are any outstanding claims and document the reason for the claim and the expected outcome. p) Determine if the District has issued any brief-form contracts related to the project. These contracts might be issued for such situations as emergency work, housekeeping services, relief for large contractors, as competition for change orders to existing contractors, or to perform back charge work. Evaluate any brief-form contracts issued. q) Review the subcontractor documents at the contractors office, including all subcontractor bids. Be alert for reasons for significantly lower subcontractor bids that may indicate some sort of unauthorized re-engineering of the construction. Attempt to ensure that nonconforming work or substituting lower cost materials has not been allowed. Determine controls in place to ensure, on an ongoing basis, that this does not occur. The submittals must include product data on all materials, shop drawings, etc., so that we can confirm that it meets the specifications of the job. Bear in mind that even when the architect and the project manager make periodic inspections, work that is concealed is difficult to inspect. r) s) Reconcile total payments/advances to date with contractor cost ledger accounts to ensure contractor has used all owner funds only for project-related work. If changes are identified during the review phase, determine how these are handled. Often the changes may be found too late to correct. If unauthorized changes of this nature are detected, do we withhold funds and attempt to negotiate a credit for the project?

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT

CONSTRUCTION
AUDIT PROGRAM
AUDIT PROGRAM 4) Contract Close-out a) Document procedures for formally closing out construction contracts. Construction closeout should be a structured process involving final acceptance of the contractors work, receipt of acceptable documentation required by the contractual terms, and an evaluation of the contractors performance. W/P REF AUDITOR INITIALS

b) Ensure that final payment of a construction contract and release of retention does not occur until the following documentation is received: i) ii) iii) iv) v) vi) vii) c) Releases of liens from the contractor and its suppliers and subcontractors Titles to major equipment incorporated in the facility Warranty documentation As-built drawings Inspection and acceptance records Operating and maintenance manuals (Possibly) spare parts, special tools, and consumable supplies.

As-Built drawings are of particular importance. They often represent the only accurate record of the constructed facility and are often needed for operations, maintenance, and repair throughout the facilitys life. Should renovations or retrofits be needed years later, the as-builts allow these to be designed and constructed with full knowledge of what is out there. Their importance is heightened when one considers that much of the completed work may be buried underground, enclosed, or otherwise inaccessible. With this in mind, determine and document the Districts procedures for checking and verifying as-builts prior to approval. Ensure that the cost for preparing as-built drawings is included in the contract so that the District does not incur this cost a second or third time. Determine that final asbuilt drawings are adequately and properly secured, filed, and protected.

d) Determine who is responsible for preparing the post-performance evaluation. Examine the completed evaluation for adequacy. 5) Budget a) Obtain the construction projects budget reports as of the most recent month-end. Compare to the payment schedules maintained by the Construction Department. Review for unexplained differences, significant overdrafts or serious fluctuations from amounts initially budgeted, and unusual entries.

b) Determine what procedures are followed by the Accounting Department to ensure the propriety and validity of invoices submitted for payment on construction projects. Ensure that controls are adequate to confirm approval and adequacy of funds available. c) As necessary, test a sample of transactions for accuracy, reasonableness, and adequacy of supporting documentation.

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT

CONSTRUCTION
AUDIT PROGRAM
AUDIT PROGRAM 6) Summary a) Determine if there are other accounts to be tested or procedures or activities that need review. W/P REF AUDITOR INITIALS

b) Complete and/or update the Internal Control Questionnaire. To the extent possible, answers should be determined through testing or observation. Only as a last resort, obtain answers to control questions by direct inquiry and interview. c) After discussing all exceptions and concerns with the appropriate personnel, prepare and distribute a written audit report.

d) Prepare and/or update the Permanent File. Include such items as a schedule of the audit history and copies of prior audit reports and responses; copies or synopses of any laws or policies impacting the area; and, identification of key personnel in the area being reviewed.

10/24/03