Following is a program and report for an audit of a cost-plus-fixed-fee construction project. Apologies to subscribers for the length of this message; originally I had attached the program and report but the message came back as non-deliverable. I'm having trouble gettng this sent (attachments or no) and also havn't been receiving many Audit-L messages lately. Something going on (or off)? Regards, Tom O'Loughlin Providence Alaska ------------------------------------------------------------------------ XXX CONSTRUCTION - AUDIT PROGRAM - Prepare a contract payment history by line item (payroll, burdens, materials, fee, etc.) - Verify the summary to XXX's cumulative total on their Pay Applications - Verify the summary to PAMC's cost accumulation database - Verify Fees paid to contractual agreements - Review Certified Payrolls etc. and determine if billings to PAMC were reduced for Wage Limits on FICA, ESC and FUTA. EXCEPTIONS NOTED. PAMC was overcharged $41,000 because payroll taxes were billed after Wage Limits had been reached. - Review detail provided with Certified Payrolls to determine if Workman's Compensation was charged on Premium Overtime. EXCEPTIONS NOTED. PAMC was overcharged $15,000 because Workman's Comp was billed on Premium Overtime wages. - Obtain DOL ESC Rate letters from XXX and verify to rates charged PAMC - Prepare a spreadsheet of workman's comp paid by classification/rate. - Obtain annual Workman's Comp Audit Reports and verify rates to the above spreadsheet. Determine if there were any Premium Discounts, Scheduled Credits, Experience Modifications or Loss Sharing\Retroactive premium plans which reduced costs to XXX but were not passed on to PAMC. Also determine if there are any wage limits applicable to the workman's comp paid. Finally, determine if the rate classifications used are appropriate for the level of work performed. EXCEPTIONS NOTED. PAMC was overcharged $38,000 because billings were not reduced for experience modifications. - Consider tracing certified payrolls to XXX's payroll records and on to canceled checks. - Obtain union contracts pertaining to Benefits. Verify benefit rates to what PAMC was charged and confirm with the unions the rates that were actually paid. - Determine if any bonuses were paid and charged to PAMC. - Obtain a DBIV run by sub-company, with invoices listed in dollar value order. Scan for same amounts / same vendor and determine if they are duplicate charges. - Select a sample of invoices to review for reasonableness. - Prepare a schedule of sub-companies receiving over $100,000. - Trace each vendor to telephone book listings or personal knowledge of existence. - Request payment histories for the over100K vendors from XXX. - Compare XXX's response to DBIV detail. - Confirm XXX's response / DBIV detail with sub-companies EXCEPTION NOTED - XXX paid MM $4,405 less than what PAMC paid XXX for MM NOTE - because of the delay between project completion and audit, many of the subcontractors could not accurately confirm amounts received. For future contracts, the onfirmation process should be done on an annual basis. - Verify the rates charged for equipment rentals to the rental rate appendix of the contract. - Determine if equipment rentals (if material) are supported by equipment time tickets while the rentals are based on daily rates. If so, determine if rental charges were paid on idle equipment. - Utilize Dun & Bradstreet reports to determine if any of the subcontracts were to companies owned by XXX. If so, there should be no overhead or profit charged to PAMC. - Determine if the contract has ceilings on the cost of any specific areas of the construction. If so, determine if any ceilings have been exceeded. ----------------------------------------------------------------------- PAMC - AUDIT REPORT ON SOUTH TOWERS CONSTRUCTION PROJECT Background and Scope In November 1992 PAMC and XXX entered into a Contract for New and Remodel Construction to the South Tower, Medical Office Building and Cancer Therapy Center. Per the terms of the contract XXX was to receive fees of $1,346,000 plus reimbursement of actual costs incurred. Construction was completed in July of 1995 at a total cost of $22,100,000. The scope of the audit was to recalculate amounts paid for Payroll Taxes, Workmans Compensation and Union Benefits, confirm that subcontracted costs reported by XXX agree to subcontractor records and verify that fees were paid in accordance with the contract. The scope did not include testing the validity of amounts paid for materials and labor (i.e. - were the materials installed and priced competitively and was the labor actually performed). Findings Employers pay Social Security and Unemployment taxes at statutory rates based on their employee's earnings. Once an employee attains a certain level of earnings, called the wage limit, the taxes are no longer paid. XXX continued to charge PAMC after wage limits had been reached, resulting in excess payments of $41,000. Employers are required to pay monthly Workmans Compensation premiums. Annual audits are performed by the Workmans Compensation carrier and if claims are less than a targeted level the employer receives a refund, called an Experience Modifier. XXX did not reduce their reported Workmans Compensation premiums for the Experience Modifiers they received on work performed at PAMC, resulting in excess payments of $38,000. Employers do not pay Workmans Compensation premiums on the overtime portion of employee earnings. XXX charged PAMC for Workmans Compensation premiums on overtime earnings, resulting in excess payments of $15,000. Because the audit was performed two to three years after most of the work was completed, reliable confirmations could not be obtained from several of the subcontractors. Recommendations Obtain a $94,000 refund from XXX based on the above findings. Design and implement standard audit procedures for cost-plus contracts, including verification of Payroll Taxes and Workmans Compensation and confirmation of subcontractor payments with subcontractor records. The verification and confirmation procedures should be performed annually on long-term contracts to ensure that timely and reliable responses are received from subcontractors. Audit Services should assist in the design and implementation of the procedures. Response to Recommendations Pat E, Assistant Administrator - agree and will implement Distribution SR JM PE DH DB Tom O'Loughlin Audit Services July 29, 1996