Forensic auditing provides clear visibility of all costs for stricter cost control

Forensic Cost Assurance ensures cost transparency which improves confidence in the financial management of a project. This will result in increased performance across the board, ensuring all parties deliver results safely, on time, to budget and to auditable standards.

With more and more oil & gas/chemical projects being tendered using NEC open book contracts, there is a corresponding need for stricter cost control, eliminating excess waste and ensuring costs are appropriate and accurate.

Due to its unique risk based approach to auditing, FCA is requested by clients at various stages of the project life cycle:

• Project inception; to ensure systems and processes are able to deliver accurate cost reporting
• During PRE-FEED and FEED when clients typically engage the supply chain on reimbusable contracts

During construction; to establish accuracy of costs incurred to date and highlight operational failings that put project costs/operations/timelines at risk, and recommend corrective measures

• Project completion; to ensure final account settlements are based on accurate cost information and that project accounts are fully auditable.

There are inherent risks facing those who adopt a collaborative open book contract with respect to ensuring that they only pay for properly incurred costs, if the contractors’ systems are not reviewed on a regular basis.

Some such risks are:

• Contractors’ cost capture systems not aligning with clients’ financial systems
• Different interpretations of terms of the contract lead to different interpretations of properly incurred costs
• Lack of clear audit trail eroding confidence in cost validity
• Tying up significant resources trying to audit costs
• The increased opportunity for accounting errors, sharp practice and even fraud.

Forensic Cost Assurance mitigates these risks by:

• Reviewing the contractors’ entire project cost
• Following the project cost back to the source
• Providing visibility of hidden costs such as overheads and bulk rebates
• Auditing 100% of cost as opposed to merely sampling
• Confirms costs charged are in accordance with the contract
• Acting as a deterrent against sharp practice or fraud
• Providing assurance that contractors’ systems and processes enable visibility of cost.

The FCA process consists of three stages; Operational Due Diligence, Forensic Auditing and Commercial Closure. By working collaboratively with the client and contractor EC Harris conducts full operational due diligence of the contractors, the contracts and the systems used to incur, report and invoice costs. The terms and conditions of the contracts are read and understood, the capability of the contractor to provide a clear audit trail of cost is assessed, and the systems and processes used to manage the incurrence of cost are analysed. This ensures that a complete risk assessment can be conducted highlighting potential risks to a successful completion of the client’s project.

Operational due diligence

For instance, does the contractor utilise face recognition software technology automatically linked to its payroll and invoicing procedures. This would ensure that labour supply is 100% efficient and that the client doesn’t pay for what is not supplied or does the contractor have poor, or even no time recording procedures resulting in time estimates being supplied. Either way, prior knowledge of these systems by the client allows them to balance risk in a much more structured and powerful way.

Forensic auditing

Forensic auditing provides clear visibility of actual costs incurred for the duration of a contract. Using the latest IT software, bespoke audit techniques and integrated sector knowledge, 100% cost assurance is approved so that clients are only paying for properly incurred costs.

Commercial close

The final stage of FCA is the commercial close; the process of breaking down and explaining the basis of the findings with all parties to ensure mutual agreement by categorising findings into three sectors; disallowable costs, unsubstantiated costs and value for money issues. This enables the client to differentiate between costs incorrectly charged, those that are in breach of contract terms through lack of substantiation and costs which are uncovered and of poor value.

One hundred per cent visibility and transparency of such issues ensures all parties work collaboratively from the outset and are comfortable that costs are properly incurred - providing not only benefits for the client but also the end contractor too.

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