Capital Improvement Project Audit Guidelines Manualfpd.ku.edu/sites/dcm.ku.edu/files/docs/Standards/Capit… · · 2014-03-19Capital Improvement Project Audit Guidelines Manual

Audit Guidelines for KU Capital Improvement Projects March 19, 2014

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Capital Improvement Project Audit

Guidelines Manual


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Capital Improvement Project Audit Guidelines Manual

Office of Design & Construction Management

The University of Kansas

Lawrence, Kansas

Bernadette Gray-Little

Chancellor

Jeffrey S. Vitter

Provost

Diane Goddard

Vice Provost for Administration & Finance

Barry Swanson

Associate Vice Provost for Operations

James E. Modig

Director, Office of Design & Construction Management

University Architect


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TABLE OF CONTENTS

Executive Summary

Process Outline

Construction Manager at Risk Projects

General Contractor Competitive Bid Projects

Architect & Contractor Requirements

DCM Project Manager Reconciliation

Audit Software Tool

Auditor Reconciliation

Bonds and Insurance

Reports

Appendix

1. Sample Project Budget

2. Sample of Invoice Scanned to ImageNow

3. ImageNow Sample Search Terms

4. Pay Request Format Requirements

5. Frequently Asked Questions


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EXECUTIVE SUMMARY

The Office of Design & Construction Management (DCM) has been assigned by The University of Kansas

administration and the Kansas Secretary of Administration the responsibility for oversight of all design

and construction projects under management authority of the Lawrence campus.

In 2012, DCM began the process of developing and implementing a capital improvements project audit

process. This process was designed to focus efforts on the projects, or aspects of projects, with the

highest financial risks. The audit program will:

Analyze labor, material, and rental costs

Reconcile project expenditures

Analyze bond and insurance expense

Verify that expenditures meet contractual requirements

Coordinate with DCM project managers to recoup expenditures

After studying alternatives, the decision was made to develop an internal audit process using software

currently in place at the university. The audit process will include the following:

Project identification: Capital improvements projects over $1,000,000 will be audited. Projects

under $1,000,000 may be audited as needed.

Architect/Contractor Requirements: Architects and contractors will be required to submit all

requests for payment in a standard format developed by DCM. The standard contract formats

will be revised to include audit requirements.

Project Manager Reconciliation: DCM project managers, working with project architects, will

audit invoices, change orders, and requests for payment, checking for overcharges for labor and

material, charges for non-allowable costs and re-work.

ImageNow Software Tool: Using a process developed by KUIT, DCM auditors will utilize

ImageNow Software to scan submittals for overcharges, non-allowable costs, and double-billed

items in order to identify areas needing future investigation.

Auditor Reconciliation: DCM auditors will audit invoices, change orders, requests for payment,

and the project budget, checking for incorrect calculations, double billings, overcharges, and

charges for non-allowable costs.

Bonds and Insurance Review: Any amounts over 1% for bonds and 2% for insurance will be

referred to Lockton for review.

Reports: Monthly reports and project completion reports will be published that outline areas

that were investigated and savings generated for each project. A report of annual savings will be

submitted at the end of each fiscal year.


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Capital Improvement Audit Program

Recoup/avoid inappropriate expenditures

Analyze labor, material, and rental costs

Reconcile project expenditures

Analyze bond and insurance expense

Verify expenditures

meet contractual requirements


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Capital Improvement Audit Process

• Based on project size/complexity

• Experience with architect/contractor

Audit Project Identification

• Standard format required

• Standard numbering system required

Submittal Requirements

• Overcharges

• Non-allowable costs

• Rework charges

DCM Project Manager

Reconciliation

• Scan submittals

• Identify areas to investigate

ImageNow Software Tool

• Incorrect calculations

• Double billings

• Overcharges

• Non-allowable costs

Auditor Reconciliation

• Lockton review

• Max 1% bonds

• Max 2% insurance

Bonds and Insurance

Review

• Monthly reports

• Annual reportReporting


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PROCESS OUTLINE

Capital improvement projects are generally contracted as either a Construction Manager at Risk

(CM at Risk) or a General Contractor (GC) managed project.

Because of the different financial risks associated with the two processes, audits will be tailored

to the unique needs of each process.

Audit Process for CM at Risk (Guarantee Maximum Price) Projects:

Audit Process for General Contractor (competitive bid) Projects


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Audit Process for General Contractor (GC) Projects:


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PROJECT IDENTIFICATION

All contractors managing capital improvement projects will be notified as part of the standard

contract process that their project could be audited.

In order to maximize efficiency, audits will normally be performed on capital improvement

projects with a budget of at least $1,000,000. Projects with a budget of less than $1,000,000

may be chosen for audit based on the following criteria:

Audit history of architect and/or contractor

DCM project manager or KU leadership concerns

Audit staff will be notified of new projects meeting the audit criteria by the DCM Deputy

Director at least 30 days prior to the anticipated audit kick-off meeting. Information to be given

to the auditor will include:

Name of project

Name of DCM projector manager

Type of project (CM or GC)

Name of contractor and architect

Total project budget

Project number


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DCM PROJECT MANAGER RECONCILIATION:

DCM project managers, working in conjunction with project architects, play a vital role in the

audit process. These individuals are KU’s capital improvement industry experts and are the first

to evaluate change order requests, requests for payment for re-work, allowance requests, and

to review standard requests for payment.

DCM project manager responsibilities:

Attend a kickoff meeting with the DCM auditor to review the project contract, project

scope, and schedule of values. Describe unique contract requirements that could impact

an audit.

Coordinate a kickoff meeting with the general contractor, architect and/or construction

manager to introduce the auditor and review the audit process and requirements.

For Construction Manager at Risk projects, the DCM project manager will analyze

requests for payment, change orders, allowances, and items charged to the contingency

budget for:

Appropriateness of charge based on project requirements

Direct labor and materials quantity, quality and cost

Equipment rental cost

Contract compliance For General Contractor (Competitive Bid) projects, the DCM project manager will

analyze change orders, allowances, and items charged to the contingency budget for:

Appropriateness of charge based on project requirements

Direct labor and materials quantity, quality and cost

Equipment rental cost

Contract compliance Prepare and maintain the project budget

Notify DCM auditor of concerns

Maintain a cost savings log due to project manager/architect actions

Submit the cost savings log to the auditor at the end of the project

Assist auditor in working with GC/CM as needed


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ImageNow AUDIT SOFTWARE TOOL

Using a process developed by KUIT, DCM auditors will utilize ImageNow Software to scan

submittals for overcharges, non-allowable costs, and double-billed items in order to identify

areas needing future investigation. DCM project managers and the auditor have been assigned

login ID’s to ImageNow.

Payment Process:

Payment requests will follow DCM’s current protocol. Requests will first be received by the

DCM project manager. After approval, the signed paperwork will be forwarded to the DCM

accounting staff responsible to input it into the KU accounting system. When KU accounts

payable staff route an invoice forward to AP-Complete, all invoices with AP Cost Center =

1518100 or AP Cost Center is greater than or equal to 9100000 will be sent to a AP-DCM Copy

queue where the system will automatically copy invoices with DCM cost centers into the DCM

workflow.

Access the DCM-Copied Invoices workflow queue:

Open the document by double-clicking on the row in the results grid. Rotate the pages as

necessary. Use the Next Page icon to page through the document.

For each page that needs rotated:

Rotate, and Save Image Rotation to Server.


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When all pages have been rotated, Route Forward.

This will submit the copied document to Content Server. Once the Content Server process is

complete, the document will be moved to the DCM-File Docs queue and will be available for use

via the DCM Construction Audit view. If the Content Server process fails, the document will be

routed to the DCM-Content Server Error queue and system administrators will be notified.

ImageNow Search Function:

Documents copied to the DCM Construction Audit File are accessible to the DCM auditor

and project managers via the ImageNow CM Construction Audit View.

Standard terms have been pre-programmed and grouped into categories called “filers”.

On a monthly basis, the DCM auditor will run each filter for each active project by

selecting the filter, entering the project number and clicking “OK”.

Select the DCM Construction Audit view.

Select the appropriate Filter(s) and enter the Search criteria and click OK.


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Double click to open a document in the results grid. Use the Content Search Results to select

the pages with search results. The search criteria will be highlighted in yellow. Right click on the

Rectangle Annotation icon and select Red Rectangle. Use your mouse to draw a Red Rectangle

around the highlighted content that needs to be researched. Select the Sticky Note Annotation

icon and drag onto the document. On the Sticky Note window, enter your message and Click

Ok. Click Close.


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Select File, Send To E-mail (or use Ctrl M) to open the E-mail window. Select DCM Email Profile

as the Profile. Enter the E-mail address(es) here or enter the addresses on the Outlook email

that opens. Select the Pages to be sent. Use the Content Search Results to find the pages you

need. Click OK to send the email.


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Your message will open in Outlook where you can type in the email body if you want to.

In the ImageNow Viewer, select Workflow, Add to Workflow. On the Add to Workflow window,

Select DCM-Construction Audit from the dropdown and select the DCM-Pending Response

queue. Click Add.

When the Project Manager receives the email and opens the attachment, they can see the Red

Rectangle annotations (but not the yellow highlights). The Sticky Note contents will be at the

end of the document.


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The Project Manager can write their response directly in the email and return to the auditor

using the FORWARD function instead of using Reply. The attachment will not be returned when

using Reply and you will need it to find the correct document.

When the Auditor receives the response, go to the DCM-Pending Response workflow queue and locate

the document they are responding to. Open the document and locate the page. Double click on the

Sticky Note icon to open the Sticky Note content. Copy / Paste the response into the Sticky Note and


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click Add. Click Close. Route the document forward to remove it from the DCM-Pending Response

queue.

Each item found during the search will be analyzed by the auditor.

Ad hoc searches will be conducted as needed.

Items of concern will be notated on the invoice and routed via ImageNow to the

appropriate DCM project manager.

After consultation with the DCM project manager, invoices will be emailed to the

appropriate architect or contractor for explanation.

The DCM auditor will notify, via email, the DCM project manager at the conclusion of

the investigation.

The DCM project manager will coordinate with DCM accounting and the vendor of the

item in question if either an item will not be paid or the amount due has changed.

The auditor will note the reason for the change, the date of the change, and the cost

savings on the auditor’s project cost savings log.

At the end of each month, the auditor will submit the cost savings log to the DCM

project manager, the assistant director of consultant services, and the director.

At the end of each quarter, the auditor will submit an audit report to the Provost’s

Office.


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AUDITOR RECONCILIATION

DCM auditors will audit invoices, change orders, requests for payment, and the project budget,

checking for incorrect calculations, double billings, overcharges, and charges for non-allowable

costs.

Auditor reconciliation responsibilities:

For Construction Manager at Risk projects, on a monthly basis, the DCM auditor will

analyze requests for payment, change orders, allowances, and items charged to the

contingency budget. For General Contractor (Competitive Bid) projects, the DCM

project manager will analyze change orders, allowances, and items charged to the

contingency budget in order to:

o Determine that calculations are correct

o Determine that charges comply with contract requirements Items of concern will be notated on the corresponding invoice and routed via

ImageNow to the appropriate DCM project manager.

After consultation with the DCM project manager, invoices will be emailed to the

appropriate architect or contractor for explanation.

The DCM auditor will notify, via email, the DCM project manager at the conclusion

of the investigation.

The DCM project manager will coordinate with DCM accounting and the vendor of

the item in question if either an item will not be paid or the amount due has

changed.

The DCM auditor will utilize ImageNow software to scan submittals. See ImageNow

section for details.

DCM Project Budget: On a monthly basis, the auditor will check all formulas and

calculations within the project budget and meet with the appropriate DCM project

manager to discuss any concerns.

Cost Savings Log: The auditor will maintain a log of cost savings resulting from audit

actions. At the end of each month, the auditor will submit the cost savings log to the

DCM project manager, the assistant director of consultant services, and the director.


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BONDS AND INSURANCE

Any amounts over 1% for bonds and 2% for insurance will be referred to Lockton for review and advice.

REPORTS

Four reports will be used to monitor and report on project expenses and audit results.

DCM Project Budget

DCM will continue to use the current project budget process to monitor projects. This budget will be

reviewed by the auditor on a monthly basis. Any errors found will be reported to the appropriate DCM

project manager.

Auditor’s Monthly Cost Savings Log

The auditor will maintain a log of cost savings resulting from audit actions. At the end of each month,

the auditor will submit the cost savings log to the DCM project manager, the assistant director of

consultant services, the director of business operations and the director of DCM.

DCM Project Manager’s Cost Savings Log

The DCM project manager will maintain a log of cost savings resulting from audit actions,. At the end of

the project, the project manager will submit the cost savings log to the auditor for inclusion in the

annual report.

Auditor’s Annual Report

The auditor will submit an annual savings report to the DCM Director at the end of each fiscal year. The

report will detail the savings, by project, which were a result of the actions of that year’s audits.


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APPENDIX


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Appendix 1 - Sample Project Budget


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Appendix 2 - Sample of Invoice Scanned to ImageNow


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Appendix 3 - ImageNow Sample Search Terms (This is not a complete list.)

Travel

Commute

Vehicle

Auto

Car

Truck

Fuel

Gas

Gasoline

Mileage

Rental

Copy/copying

Fax

Entertainment

Meal

Lunch

Breakfast

Dinner

Change Order

Item’s number not equal to allowed item number

Misc

Miscellaneous


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Appendix 4 - Pay Request Format Requirements

CAPITAL IMPROVEMENT PROJECT AUDITS – PAY REQUEST FORMAT REQUIREMENTS

Contractors shall use the following pay request line item numbers and work description names

on the Schedule of Values for each project cost which is included in the scope of Work, without

deviation or modification, for consistent cost identification and to support KU’s project cost

audits.

For items not listed in the following table, Contractors shall use the 6-digit specification section

number from the project manual, or they shall use a standard CSI MasterFormat 6-digit identifier

as the item number, as approved by KU. Line item numbers on pay requests can be non-

sequential, if a line item indicated below is not applicable to a particular project.

A - Item

Number B – Description of Work

GC (Comp. Bid) or

CM At-Risk (GMP)

Construction Manager Expenses

001001 Management Personnel CM

001002 Project Supervision Personnel CM

001003 Cost Estimating Personnel CM

001004 Administrative & Accounting Personnel CM

001005 Project/Jobsite Office, Furnishings & Equipment CM

001006 Telephone Equipment & Service Charges CM

001007 Printing of Bid Packages CM

001008 Shipping & Postage CM

001009 Project-Related Travel CM

001010 Project-Related Meals, Food & Drink CM

001011 Project Management Website CM


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A - Item


GC (Comp. Bid) or

CM At-Risk (GMP)

001012 Building Information Modeling (BIM) CM

001013 Record/As-Built Documents CM

Contractor’s Fee / Overhead & Profit

002001 Construction Manager’s Fee CM

002002 General Contractor’s Overhead & Profit GC

Insurance & Bonds

003001 General Liability Insurance GC & CM

003002 Builder’s Risk Property Insurance GC & CM

003003 Performance Bond GC & CM

003004 Public Works / Material & Labor Payment Bonds GC & CM

Allowances

004001 Allowance #1 – brief description GC & CM

004002 Allowance #2 – brief description GC & CM

Change Orders

005001 Change Order #1 GC & CM

005002 Change Order #2 GC & CM

GMP Contingency

006001 Construction Manager’s GMP Contingency CM

General Requirements & Temporary Provisions

015100 Temporary Utilities GC & CM

015213 Jobsite / Project Office GC & CM

015219 Temporary Toilets GC & CM

015400 Hoisting & Cranes GC & CM

015500 Temporary Roads & Parking GC & CM

015616 Temporary Dust Barriers GC & CM

015626 Construction Fencing & Gates GC & CM

015629 Protective Walkways GC & CM

015713 Erosion Control GC & CM

015813 Jobsite Signs GC & CM

017123 Field Layout & Surveying GC & CM

017400 Dumpsters & Waste Management GC & CM

017401 Jobsite Cleaning GC & CM

017402 Pest Control GC & CM


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A - Item


GC (Comp. Bid) or

CM At-Risk (GMP)

017823 Operation & Maintenance Manuals GC & CM

018000 Performance Mockups, Testing & Inspections GC & CM

019100 Commissioning GC & CM

Cost of the Work

02xxxx Division 2 work GC & CM

03xxxx Division 3 work GC & CM

xxxxxx

Other line items by the primary specification section

number, broken into material and labor where

applicable or as required by Architect/Engineer or

Owner

GC & CM


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Appendix 5 – Frequently Asked Questions

The following guidelines apply to all project expenses that were not competitively bid.

Q1: Can food and beverage expenses be charged to projects?

A1: Food and beverage purchases, paid with University funds, must follow KU policy in order to be

charged to and paid by a project. This expense should be budgeted as part of the construction

manager’s fee. The KU Hospitality Policy is located at:

http://www.policy.ku.edu/comptroller/hospitality-policy.

Q2: What food and beverage expenses are allowable?

A2: This expense should be budgeted as part of the construction manager’s fee. Refer to the policy

referenced in Q1. Food/beverages supporting official business (workshop, training session)

As evidenced by a formal program agenda, statement of purpose, listing of participants;

Food/beverages must serve as an essential ingredient for success, not merely a hospitality

enhancement;

Provision of food/beverages must serve a clear University of Kansas business purpose.

Food/beverages supported by collected event fees (typically within a conference registration fee,

banquet fee, etc.)

As evidenced by a formal program/agenda, statement of purpose, listing of participants.

Q3: What food and beverage expenses are not allowable?

A3: Refer to the policy referenced in Q1. Food/beverage provided in a largely social setting, such as

receptions, parties, gatherings which do not serve a clear official business purpose.

Food/beverages provided as incidental to normal meetings, typically involving predominantly

employees (staff meetings, committee meetings, etc.) on which the success of the meeting does not

depend on food/beverages being served. Therefore, the costs of food or beverage should not be

borne by state funds.

Example: Staff meetings throughout the business day (e.g., a staff meeting that lasts 1-2 hours

& occurs during the morning or afternoon). (Note: In comparison to a meeting over the meal

http://www.policy.ku.edu/comptroller/hospitality-policy


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hour, food or beverage for this type of meeting is a “nice to have” but not a necessity in order

to have a successful meeting.)

Q4: What are examples of allowable food and beverage costs that can be charged to a project?

A4: This expense should be budgeted as part of the construction manager’s fee. Refer to the policy

referenced in Q1. Below are two examples of allowable expenses. Contact KU if you have any

questions concerning if an expense is allowable.

All-day or half-day workshops or training sessions

Staff meetings scheduled over a meal hour due to limited schedule availability. (Note: Business

purpose is justified in that the meeting would not have occurred if staff were not provided the

opportunity to eat lunch and not all staff have the ability to bring a sack lunch).

Q5: May employee transportation expenses, from home to work and back home, be charged as a

project expense?

A5: Employee transportation expenses may be charged to a project in a manner consistent with the

construction manager’s corporate policies. This expense should be budgeted as part of the construction

manager’s fee.

Q6: May expenses for vehicles provided to employees be charged as a project expense?

A6: Construction managers may cover vehicle/transportation expenses for project employees in a

manner consistent with the construction manager’s corporate policies. This expense should be

budgeted as part of the construction manager’s fee. Construction equipment stationed at the job site

should be budgeted as a general conditions expense.

Q7: May employee mileage and or vehicle expenses be reimbursed for trips to/from the project

location and the company’s offices?

A7: Mileage and/or vehicle expenses may be charged for trips whose purpose is 100% tied to the KU

project being charged. These expenses should be budgeted as part of the construction manager’s fee.

Q8: May project funds be spent to place non-KU logos on items?

A8: In general, project funds may not be spent to place a non-KU logo on any item. It is recommended

that you check with the KU project manager or auditor prior to spending project funds to place a non-KU

logo on any item.

a. Safety Equipment, including vests and hard hats – No


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b. Marketing materials, such as pens, paper pads, etc. – No

c. Signage on trailers, fencing, or vehicles – No

d. Official KU project signage that includes the names of the A/E, CM, KU and client group - Yes

Q9: May employee vacation, holiday, sick days, etc. be charged to a project?

A9: In accordance with the signed contract, employee benefits may be charged to a project. The cost of

these benefits should be included in the hourly rate charged per employee/job classification. Only actual

hours worked should be charged to a project.

Q10: May late charges from subcontractors or suppliers be passed on to KU?

A10: No