Professional Documents
Culture Documents
The first key internal control area is deciding whether to work with a customer. It is very important to evaluate the
years of experience of your owner and what kinds of projects the owner has been soliciting bids for in the past. If
owners are experienced in the commercial market and are now deciding to pursue residential construction, this
should be a red flag to those of us who are interested in pursuing their work.
These questions and answers should be ferreted out at the beginning of any kind of relationship with a customer:
1. Do they have the capability to finance projects?
2. Do they have personnel on board who understand the language and the various documents who are
capable of signing a contract for that work?
The second key area where internal controls are important is contract terms. We hear of situations with contractors
executing on projects without the correct legal documentation in place. Contract terms, material price escalation,
and contract completion should all be considered when signing a contract for a project.
Construction has a complex project cycle requiring extensive reporting as you manage that job. It is imperative that
your employees have the expertise, the capability, and, most importantly, the authority to pursue actions when
contracts and profits start heading south.
It is extremely important to be proactive with your associates who are involved with a project. There is tremendous
stress on a project when the field supervisor is late with paperwork, the accounting department is negligent in
crosschecking the actual orders with the material used on the job, and there is a late work produced in process
schedule, which has not been verified by enough third parties. These are the scenarios in which construction
projects have the best chance of going awry.
Work-in-process (WIP) reports are essential to assuring risk has been identified and insuring profitability. When
there are manual processes involved with old data, it makes it difficult to track down the actual information needed to
provide an accurate template for the readers of that WIP report; ultimately, this also makes it difficult for the
individual who is putting together the package to request a draw on the work to-date.
The third area that requires a lot of internal control due diligence is the management of subcontractors. It is very
important to have multiple quotes from subcontractors as you prepare a project budget. Oversight is also very
important for project managers who continue to use similar subcontractors on jobs. Oversight is key because of the
opportunity for collusion as the job is progressing; it could eliminate possible kickbacks.
You will often rely on software personnel for the budget on a project, the actual costs on the project, and the vendor
billings. You should be comparing the actual subcontractor language and retention terms being withheld to the
contract. It is very important the key personnel within your organization have expertise to provide accurate and
concluded. This will necessitate a discussion with the superintendent on-site with regard to determining the final
punch list and future work you have to do to complete the project. Without certain habits in place, doing all of that
without communication makes it difficult to close a project with the targeted gross profit and timely cash flow you
need.
The easiest analysis you can do to evaluate a successful project is identify the under-billings reported on a firm's
current financial statement. As you close out the project, make sure errors and all confirmations and necessary
signatures have been tracked. In addition, a review on a timely basis of your aged receivables shows you which
projects are performing and whether or not there are concerns with completing projects. It is the role of the project
managers to collect this information with the assistance of internal accounting. As the project manager has been in
regular communication with the owner, it should fall on his shoulders. You should consider additional compensation
for those who can bring projects in at more successful gross profit percentages.
Having good solid practices within your organization involves internal accounting, field labor, technology, and a
competent software system that tracks detailed information when you need it. As you move through your budgeting
cycle next year and look at trying to increase your growth profit percentages, it is very important for you to identify
resources to enhance these internal control areas. By doing so, you will have a greater chance of increasing
shareholder equity.