Published on March 5, 2014
Welcome to Today’s Webinar: Parliament Buildings Rehabilitation Projects – Performing Due Diligence
Presenter André Auger, CGA, CFE Government Services Advisor firstname.lastname@example.org www.welchllp.com Twitter: @andreauger ca.linkedin.com/in/andreauger
Agenda • Why are we doing this webinar? • Red flags (what to watch for): - Loading of overheads - Numerous contract amendments - Contract burn-rate - Change in ownership - Other warning signs • What you can do to protect yourself
Why are we doing this webinar? • To share professional experiences • To highlight the need to be proactive in meeting the reporting requirements of the FAA and TBS vis-à-vis large, complex, long term capital projects • Focus is on the East Block Rehabilitation Project as it runs through 2022
Red Flags - Loading of Overheads • Indirect costs claimed as direct • Results in duplication of claimed costs • Costs of a direct nature are eliminated from the overhead pool thereby reducing the overhead rate • Lesson learned: precise basis of payments in the agreements clearly outlining what costs are eligible • Lesson learned: ensure proper oversight via active monitoring throughout the process
Numerous Contract Amendments • Shortly after contract award, large amendments are processed • Raises the issue of fairness in the bidding process • Raises concerns at to whether the original requirement was adequately defined • Can result in significant overpayments & fraudulent transactions Lesson learned: • Clearly define the roles and responsibilities of the procurement & technical authorities early in the process • Ensure proper oversight via active monitoring throughout the period (consider using an independent Fairness Monitor)
Contract Burn Rate • Substantial increases in funding • Significant portion of the contract spent in very little time • Significant mark-ups • No validation of charges • Issue: basis of payment not respected, contract controlled by the technical authority rather than the contracting authority • Result: contract fraud Lesson learned: • Control deficiencies occur at both the buyer & seller levels • Ensure proper oversight via active monitoring of milestones, change orders, etc…who is initiating the extra work?
Change in Ownership • Contractor has been bought out by another company • No validation that internal controls of the new company are effective and prevent material errors Result: • Significant subcontractor charges passed on to the buyer at excessive mark-up rates • The new company is collecting monies for little service and no value added Lesson learned: • during transition, control systems are at significant risk – potential for misconduct is greater
Other Warning Signs • No documentation or limited documentation • Poor or inconsistent documentation • Extensive use of spreadsheets • Under resourced organization • Lack of a strong finance function • Tone at the top • Limited or lack of oversight • Turnover of staff • Custom IT systems • Significant business changes – acquisitions, downsizing, new location
What you Can Do to Protect Yourself • Initial visits to contractors’ offices to gather information on the company and its accounting systems • Continuous monitoring / reviewing of contractors’ invoices & progress reports • Ensure that the contracts contain audit clauses • Do fraud risk assessments • Review internal controls regularly, identify redundant controls, & develop management action plans (MAP’s) • Have Internal Audit review the MAP’s on a quarterly basis • Annual audits of contractors’ records, including contract cost audits, pre-negotiation studies, overhead studies, labour recording systems’ audits, profit audits
For more information André Auger, CGA, CFE Government Services Advisor email@example.com www.welchllp.com Twitter: @andreauger ca.linkedin.com/in/andreauger
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