Auditing Compliance In The Construction Industry

Auditing Compliance In The Construction Industry

In the past few years, the number of construction companies has significantly increased in the UK, USA, and Canada. The construction companies are focusing on achieving the competitive advantage by improving their quality, lowering their costs and minimizing their risks. Undoubtedly there are numerous risks and costs involved in construction projects, so there is a significant need for auditing compliance in the construction industry. All the above-mentioned issues regarding the construction project can be dealt with by employing personnel or using consultants for auditing compliance in the construction industry.

Construction Audit Procedures

The most part of a construction audit revolves around the scope of services and timeframe you engaged the auditing firm to assess. After the pre-construction section, auditors continue to monitor billing and construction costs to make sure the project is moving forward according to plan and on budget. The auditor may also assess the actual work site and find ways for the building process to be streamlined or pivoted to address outside factors, such as weather issues or an issue with delays because of compliance with municipal building codes. In many instances, your contractor primarily directs the construction site and would implement changes, but an outside auditor helps verify engineers and contractors are making the right decisions when redirecting efforts to an area that can lead to a higher price tag. Moreover, the application of audit provides compliance in the construction industry by highlighting all monitoring issues.

Return on Investment for an Audit

The auditor, in fact, helps to confirm a building project is moving forward on schedule. Delays eventually result in extra costs and risks if a contract term needs to be extended, so monitoring time management is essential. Because of the main target is on keeping project costs down from the onset and dedication to get a project completed properly the first time, paying for a comprehensive construction audit can provide an excellent return on investment. With a high-quality auditing firm, a construction audit guide and quoted prices can also include additional services. Some companies are capable to combine auditing services with cost segregation studies on the build. These studies help your business reclassify assets for faster depreciation and more tax savings. So, a proper internal audit of compliance in the construction industry at different stages becomes fruitful for the projects.

Major Stakeholders in construction industry

There are many stakeholders involved in construction projects, including some from outside the company. Stakeholders may include:

  • Developers.
  • Designers.
  • Consultants.
  • Project Managers.
  • Contractors.
  • Government Regulatory Authorities.

Construction Audit Approach (multi-stage)

An internal audit is a valuable tool that provides quick and timely measures at all stages of a construction project. This provides instant judgment as the implementation progresses and highlights if any areas require remedial action, therefore, it can be addressed at the time they need to be addressed. It is generally accepted that this approach can provide further assurance by identifying problems as they arise, and improve outcomes. In this way, this method becomes instrumental in auditing compliance in the construction industry.

Stages in a Construction Project

Generally, a construction project undergoes the following stages:

  • Feasibility report.
  • Design and Planning of audit approach.
  • Tendering and Contracts regarding construction.
  • Monitoring of Construction.
  • Handover.

Application of audit approach at various stages

Auditors need to consider the following while auditing construction projects in their various stages:


Main considerations in feasibility are:

  • To highlight Major Risks.
  • Comparing desired results with current actual conditions.
  • Internal ‘checks and balances’.
  • Assurance by independent external consultants for significant projects.

Design and Planning

Major considerations for selection of consultants include:

  • Method of selection.
  • Qualification and experience.
  • Insurances and bonds
  • Specified payment milestones.

Tendering and contracts regarding construction:

These steps involves:

  • The proper selection of contractors.
  • Ensuring all the tender and contracts as per regulations.

Monitoring of Construction

Main points are:

  • Project progress reports are usually prepared by consultants on a monthly basis and circulated to all parties. The monthly progress reports contain, amongst other things, details about the actual versus planned progress and costs, variations, claims and disputes, non–conformance to contract specifications, and safety issues. A detailed review of the monthly progress reports gives a good view of the current project status.
  • The auditor needs to review whether there is a formal Document Control System with proper control over all project documents such as contract copies, communication with contractors, consultants, etc. A detailed review of these documents is necessary to audit the project and understand its current status. Further, a document monitoring system should be in place to enable the company to ensure claims from contractors are correct.


Key considerations are:

  • Regulatory approvals such as Certificate of Occupancy.
  • The final drawings, testing reports, end-user training, warranties and manuals for equipment have been handed over to the developer.
  • Adequate spare parts for equipment are handed over.
  • All non-conformances have been rectified to the developer’s satisfaction.
  • All issues around time extensions, non-conformances and penalties have been approved and settled.
  • All variations have been approved and valued.

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