Project Auditing

Project Auditing
SHOWAIB AHMED CHOWDHURY
Lecturer
Department of Building Engineering & Construction
Management
Rajshahi University of Engineering & Technology(RUET)

Introduction
Project assurance is a fundamental part of effective project
governance.
The project audit is the means to provide that assurance and enables
the sponsor to have confidence that the governance is working and that
the project is being managed as intended.
In this lesson, we will try,
to demonstrate how to plan and undertake a comprehensive audit of a
project, thereby providing that assurance.
to explain the role of an auditor, how it could be planned and
undertaken, the degrees of assurance that can be given, and how
project audits can be aligned to organizational governance.

The three main roles involved in project audits are:
Role Description
Organization board/audit committee/
sponsor/other stakeholders
Those who schedulethe projectauditand
receive the audit findings
Project team
Those whose project is being audited, with
whom the auditors interact
Project auditor(s)
Those who undertake the audit, and report its
findings and make recommendations
For any audit to be successful and provide value to all parties, these
three main roles must work together and understand each other’s
function in the process.

What is project auditing?
According to the Chartered Institute of Internal Auditors,
‘an independent, objective assurance and consulting activity designed
to add value and improve an organization's operations.
It helps an organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes’.
In any audit, the auditor(s) perceives and recognizes the propositions
before them for examination, collects evidence, evaluates the same,
and on this basis formulates an opinion on the adequacy of controls
within the activity being audited.

Principles of project audit
Project audit should be:
independent, and supported in this by the organization board;
accountable within a governance and reporting system;
planned and coordinated as part of the organization's
management system;
risk-based, against an independent risk evaluation;
able to allow the impact of identified weaknesses to be
reported and addressed, by follow-up and escalation.

Why do we need project audits?
• The giving of assurance to project stakeholders, including the
organization board, through providing assessment of the likelihood of
the project achieving its objectives, is a fundamental aspect of project
governance
• This assurance will cover the identification and management of risk,
evaluation of opportunities, and actions being taken to realize those
benefits on which approval of the business case was based.
• Assurance also seeks evidence of effective controls and opportunities
to increase the likelihood of success of the project
So, Throughout the phases of a project there should be provision for
independent audit to give assurance to key stakeholders including the
project sponsor and executive board, of the likelihood that the objectives
of the project will be achieved.

The audit will cover the following elements :
• Project definition and requirements management;
• Project organization and governance;
• Risks management;
• Commercial, procurement and commissioning;
• Configuration management, project change controls;
• Project planning and scheduling;
• Performance and benefits management;
• Stakeholder management and communications;
• Organizational capability and culture;
• Social responsibility and sustainability.

Project audit process
Step 1: Planning the audit
• Audit prioritization: Project audits should be planned on the basis of risks to the organization
and to the project.
• Choosing the audit team: The audit team should have access to specialist technical skills e.g.
quality assurance, and should bear in mind the organization's appetite for integrated assurance.
• Information gathering:
Background information Results
1 Project name/reference
2 Brief description of the objectives of the project
3 Project value (total)/(this year)
4 Appropriate (outline or full) business case approved/ date/value
5 Agreed project audit scope, objectives and name/ reference
6
Project governance arrangements including project sponsor,
projectmanager and projectteam
7 Project management arrangements

8 Project phase (Inception, Feasibility, Development, Delivery, Close-out)
9 Overview ofproject controls includingchange controls
10
Project Management Plan (PMP) and Project Initiation Document (PID)
approved date
11 Project audit team details
12 Organization policies andprocedures tobeusedas basis for project audit
13
Extent ofPMO support required including management, cost and
financial reports
14
Risks from corporate and project risk registers, and additional risks from
discussion with stakeholders
15 Project and organization risk management and mitigation measures
16 Integration with other assurance providers
17 Alignment of project with corporate strategy
18 Risk-based audit programmed and schedule
19 Audit reporting details including timetable
20 Significant stakeholders (including their influence and interest)
21 Communications strategy
22 Arrangements tohandovertonextphase,stageor client ofproject

• Risk assessing of a project: This should be carried out by discussion with
stakeholders on risks that they have identified but which have not been
included in the formal register; and on the auditor’s own experience and
discussion with the project team.
• The project audit programme: The audit team should identify the risks
to the project, and the controls and tests which are derived from these. The
different phases of the project life cycle should lead to audit programmed
and tests appropriate to those phases, and to the nature of the project.

2. Fieldwork : The audit team should gather information and
documentation, and talk to key stakeholders including (as appropriate)
members of the project team, the procurement function and the supply chain.
• Elements for review:
 Project definition and requirements management
 Project organization and governance
 Risks management
 Commercial, procurement and commissioning
 Project planning and scheduling
 Performance and benefits management
 Stakeholder management and communications
 Organizational capability and culture
 Social responsibility and sustainability

3. Evaluation and reporting
 Evaluation
• The basic idea is to use a grading score to rank each audited element
and indicate the extent to which the project has performed.
• One method of grading used extensively to measure performance is
the ‘traffic light’ system of three ratings: red/amber/green (RAG).
• During project audits it may be more appropriate to use four or five
ratings, with additional definitions and next steps.
• Definitions of RAG will depend on project and reporting
requirements.

 Reporting
 Individual organizations have their own reporting requirements,
including who should receive the report, who has responsibility for
responding to it, and who will be tasked with implementing its
findings and recommendations.
As some of the content of the report may be commercially or
otherwise sensitive, this should be borne in mind in circulation and
distribution of draft and final reports.
Following a close-out meeting with auditees, the preliminary report
should be prepared and internally reviewed before issue to those
auditees and other stakeholders for comment on findings and
recommendations.
The final report, which should contain the evaluation rating based on
the responses received, should be distributed in accordance with the
requirements of the agreed audit plan. The final report should also be

4. Follow-up
• Follow-up is the final element of the audit process, in which the audit
team confirms that the sponsor and project team have implemented the
agreed actions to address identified project risks and issues.
• This can be confirmed by monitoring the implementation process, or
by accepting a formal statement from the sponsor or project team that
the recommended actions have been carried out.
5. Benefits evaluation
• Where the scope of the project audit included evaluation or auditing of
outcomes on which approval of the business case was, a separate audit
process will be required.
• This will seek to compare recorded benefit outcomes against those
proposed in the business case through the use of defined benefit
measures, normally by quantitative methods.

6. Legacy and lessons learned
• The results of project audits can provide valuable reference
points for the organisation’s legacy and lessons learned
process. The audit team should be aware of the organisation’s
requirements for confidentiality if involved in the legacy and
lessons learned process.
• The organization may operate a legacy programme, to capture
the intellectual capital within a project before the project
team is disbanded.

• Prepare a mid-term audit report for a building construction project
which have a budgeted cost at TK. 1000000 with a total project
duration 8 months, Also consider at the time of mid-term 40%
construction work is completed at a cost of TK 600000.
Solution:
Auditor:
Audit-Team:
Date of Audit:
Project Audited:
Project Manager:
Introduction:

General Analysis of the project by EVM:
Budget at completion(BAC) : 1000000TK
Completion Period: 8 months
Actual cost(AC): 600000TK
Earned Value(EV)= 40% * 1000000 = 400000TK
Planned Value(PV)= 50% * 1000000 = 500000TK
Cost Variance, CV= EV-AC = -200000TK
Schedule Variance, SV= EV-PV= -100000TK
Cost Performance Index, CPI= EV/AC= 0.67<1
Schedule Performance Index, SPI= EV/PV= 0.8<1

• Current Status:
• Future Projection:
• Critical Management issues:
• Risk Analysis and Risk Management:

Project Auditing

More Related Content

What's hot (20)

Similar to Project Auditing (20)

More from BECM, RUET, Bangladesh (6)

Recently uploaded (20)

Project Auditing