Parliament Buildings Rehabilitation Projects - Performing Due Diligence

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Information about Parliament Buildings Rehabilitation Projects - Performing Due Diligence
Business & Mgmt

Published on March 5, 2014

Author: WelchLLP



Presented by André Auger, Director of Government Services, this webinar addresses the East Block Rehabilitation Project, which is set to run through 2022. Learn how performing due diligence throughout this construction can help you spot the red flags and protect you from potentially costly problems resulting from a long term capital project.

Welcome to Today’s Webinar: Parliament Buildings Rehabilitation Projects – Performing Due Diligence

Presenter André Auger, CGA, CFE Government Services Advisor Twitter: @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 Twitter: @andreauger

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