Audit Prep 101

Unfortunately, audits are simply an inevitable part of the construction industry. Investors and clients, especially those involved in government projects, will request audits to ensure every part of the process is falling in line with your already agreed-upon contract. In addition to these requests, many contractors will need to prepare for their annual financial audits.

We’re going to help prepare you for when an audit comes along, and, believe us, it will.

Project-specific audits:

  1. It’s all about the paper trail. Start with a clear audit trail containing all documentation for each and every part of the project. This includes timesheets, invoices, contracts and correspondence. With all documentation in one place, you can easily find and provide a written source for all decisions made.
  2. Materials. In addition to making sure your materials purchases have been properly documented, it’s important to ensure that those materials are in fact the ones used. If the right things are not found in the contracted buildings when inspected, you may be required to replace them.
  3. Safety. This includes the safety of those working on the site as well as the general public who may be in the area. Correct safety gear, which could vary from masks to hard hats, should be worn when necessary, with signs that explicitly state said requirements. If a problem like a live wire or harmful toxin exposure arises, you’ll be responsible for alerting, documenting and treating those affected.

Financial audits:

  1. Get organized. Know exactly what your auditor is expecting and when he or she is expecting it. Surprises are never fun!
  2. Revise last year’s reports. If there was any issue last time, be sure not to make the same mistake again.
  3. Gather all documentation. Ensure all bank reconciliations, accounts receivable, accounts payable, general ledgers, schedules of contract activity, debt and leases are available, reconciled and backed up with source documentation.
  4. Be ready to discuss and defend any major changes that have taken place. This includes changes in ownership, systems, personnel and development, large purchases or any other things that have had a significant impact on the operation of the company. 

In the end, audits hold all involved accountable that they are doing what they’re supposed to and can also help identify and expose any internal problems that your company may contain. This will help future projects move more efficiently.

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