Ed Travers CCA CFS CICA is the Manager

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Ed Travers, CCA, CFS, CICA is the Manager of the Internal Audit Department at

Ed Travers, CCA, CFS, CICA is the Manager of the Internal Audit Department at Boston Properties, Inc. (BXP). BXP is a self-administered and self-managed real estate investment trust (REIT) and is one of the largest owners, managers, and developers of first-class office properties in the United States. Ed is a Certified Construction Auditor (CCA), Certified Fraud Specialist (CFS) and a Certified Internal Controls Auditor (CICA). Upon receiving a Bachelor of Science (BS) degree from Roger Williams University and post graduate MBA studies with Providence College, he transitioned his career to internal audit. Kenneth Brzozowski, CCA, CCP - Director of Audit for Talson Solutions, LLC, is a Certified Construction Auditor (CCA) and Construction Control Professional (CCP) with 28 years of experience in construction and quality auditing. Mr. Brzozowski manages domestic and international construction audits, risk assessments, procedure reviews, and project readiness reviews for projects that have resulted in process improvements, mitigated project risks, and realistic cost recovery opportunities. VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

1. • • 2. 3. 4. ASK QUESTIONS TODAY – LETS MAKE THIS INTERACTIVE!

1. • • 2. 3. 4. ASK QUESTIONS TODAY – LETS MAKE THIS INTERACTIVE! VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Polling Question No. 1 Have you ever performed a construction audit and if so

Polling Question No. 1 Have you ever performed a construction audit and if so at what stage of construction? Never performed a construction audit A closeout audit only An early-stage construction contract review only Performed construction audits at various stages of construction VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Why this topic is relevant? 1. Value add to the organization…audit and management care

Why this topic is relevant? 1. Value add to the organization…audit and management care 2. Set the tone early with the project team…especially the construction manager 3. Apply lessons learned from previous audits 4. Enhance communications and controls 5. Become part of the process and not viewed as an adversarial impediment VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

The Development Process & Audits Involvement Opportunities Conceptual Contracting / Procurement Feasibility Construction Design

The Development Process & Audits Involvement Opportunities Conceptual Contracting / Procurement Feasibility Construction Design Commissioning / Close-Out VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Why Become involved? 1. Who are your stakeholders? Ø Audit Committee Ø Board of

Why Become involved? 1. Who are your stakeholders? Ø Audit Committee Ø Board of Trustees Ø City or County Agency Ø The Internal Project Team 2. What is the main objective(s) of your involvement? Ø Is important to your stakeholders and why? Ø Enhance controls Ø Ensure compliance to internal and external obligations VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Polling Question No. 2 Are you involved in reviewing the construction contract agreement prior

Polling Question No. 2 Are you involved in reviewing the construction contract agreement prior to final execution? Yes No VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

When To Engage Into The Project? 1. Typical construction audit timing Ø Initial @

When To Engage Into The Project? 1. Typical construction audit timing Ø Initial @ 20% completion Ø Interim @ 40% thru 80% completion Ø Closeout @ 95% completion 2. Early is best… Ø Being proactive versus reactive Ø Influence contractual terms Ø Assess contract costs are clearly defined Ø Ensure transparency during the procurement process VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

When To Engage Into The Project…continued? 1. Other contract opportunities for audit Ø Architect

When To Engage Into The Project…continued? 1. Other contract opportunities for audit Ø Architect Agreement • Schematic, Design, Construction Drawings – Budgeting? • Constructability • Reporting / Field Visits • Construction Administration Ø Owners Representative Agreement Ø Engineering / Construction Processes • Procurement • Budgeting VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

NOTABLE AUDIT STEPS THROUGHOUT THE AUDIT PROCESS Contract Administration • Cost of Work Definition

NOTABLE AUDIT STEPS THROUGHOUT THE AUDIT PROCESS Contract Administration • Cost of Work Definition • Allowable vs. Unallowable Costs • Terms and Conditions • Obligations and Deliverables • Continued Assessment of Compliance Procurement • Subcontractor Bid Process • Bid-Leveling / Descope • Award Letter • Buyout Savings • Award Letter Change Management Cost Management • Approval Process • Initial G 703 format • Allowances, Buyout Savings, & Contingency Usage • Insurance Programs (SDI, CCIP, OCIP Initial Audit • Change Orders / Mark-ups • Trade Labor Rates • Payment Application Testing • Allowances, Buyout Savings, & Contingency Usage • Insurance Programs (SDI, CCIP, OCIP) Construction Management Claims / Disputes • Project and Cost Reporting • COVID-19 Impacts Project Administration • Internal Project Controls • Risk Identification • Evaluate Project Teams • Risk Mitigation • Evaluate Project Teams • Audit Responsiveness • QA / QC • Schedule • Safety Interim Audits • Obligations and Deliverables (specific to closeout) • Mark-ups • Trade Labor Rates • Subcontractor Financial Closeout • Cost Reconciliations (insurance, allowances, contingency, etc. ) • Commissioning / Turnover • Assess Open / Potential Claims • Evaluate Project Teams • Audit Responsiveness Closeout Audit VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Polling Question No. 3 Do you have access to capital project planning forecasts? Yes

Polling Question No. 3 Do you have access to capital project planning forecasts? Yes No VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

How To Integrate Yourself Into The Process? 1. Become informed on the conceptual and

How To Integrate Yourself Into The Process? 1. Become informed on the conceptual and feasibility process 2. Find advocates within the organization (project team, C-Suite) 3. Prove the value add 4. Don’t approach the audit from an adversarial perspective 5. Ultimately your involvement sometimes becomes a final line of defense and protects your entities brand image VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

How To Integrate Yourself Into The Process…continued? VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS

How To Integrate Yourself Into The Process…continued? VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

How To Integrate Yourself Into The Process…continued? VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS

How To Integrate Yourself Into The Process…continued? VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

How To Integrate Yourself Into The Process…continued? VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS

How To Integrate Yourself Into The Process…continued? VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Construction Town, USA PROJECT: $1. 1 million square feet of Class A office space

Construction Town, USA PROJECT: $1. 1 million square feet of Class A office space comprised of three, six-story buildings and a three-level below-grade parking structure with 1, 742 spaces. VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Case Study DETAILS: Ø Pre-Construction Agreement in place Ø Design/Build Agreement in final negotiations

Case Study DETAILS: Ø Pre-Construction Agreement in place Ø Design/Build Agreement in final negotiations Ø Work Authorizations of $61 million approved Ø Approximately 3% of the WA’s had been invoiced Ø First time BXP worked with this construction manager VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Case Study AUDIT OBJECTIVE: BXP expressed a desire to facilitate early meetings with the

Case Study AUDIT OBJECTIVE: BXP expressed a desire to facilitate early meetings with the project team to discuss prior capital project audit observations, lessons learned from similar projects, and internal BXP and industry best practices in an effort to proactively establish proper communications, controls, and reporting that will aid in the achievement of a successful project delivery. VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Case Study RESULTS: • Project team was operating under the DB Agreement terms •

Case Study RESULTS: • Project team was operating under the DB Agreement terms • Numerous conflicts within the DB Agreement • Cost of Work • Deliverables by the contractor • • • Enhancement opportunities to G 703 Payment Application Newly adopted Corporate Bidding Policy not referenced Excessive subcontractor OH/P in sub-agreements Reporting and communication obligations lacked consensus CM staff lacked large project experience VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Case Study DISCUSSION VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Case Study DISCUSSION VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY

Questions Ed Travers CCA, CFS, CICA : etravers@bxp. com Office: 617 -236 -3427 Ken

Questions Ed Travers CCA, CFS, CICA : etravers@bxp. com Office: 617 -236 -3427 Ken Brzozowski CCA, CCP: kbrzozowski@talsonsolutions. com Office: 215 -592 -9634, ext. 103 VALUE OF ENGAGING AUDIT FOR CONSTRUCTION PROJECTS EARLY