1 INTERNAL AUDIT PROGRAM OF CONSTRUCTION INDUSTRY

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1. Overall project based audit

a. Evaluation of project wise profitability ratio of projects completed during the period
b. Evaluation of budgeted profitability of all new projects approved

2. Review of Tendering process

a. Is there a bidding policy?
b. Has the entity performed site investigation before entering the bidding process?
c. Approval of appropriate level of authority before accepting the process
d. Is the agreement signed by both the parties before commencement of work?
e. Requisition for bid bond / performance bonds or any alternative procedure is specified?

3. Review of Work Order

a. Review the work order value and the permissible variation (variation limit should not be
more than 25%). Check with the continuing work order details.
b. Review the liquidity damage clause which enables him to levy penalty if the work order is
not completed on time. Similarly, review the incentive clause for timely or early
completion.
c. In case of material provided by the client, ensure that standard consumption norms are
decided as per IS standards, beyond which the consumption is deducted from contractor
bill at certain rates.
d. Review whether the contract is EPC and requisite resources are available. (EPC contract is
the contract where in addition to contract capabilities, one has to possess expertize skills
in designing & structure)
e. Every contract shall contain work commencement date based on the work closure date.
Ensure that work is completed within the work closure date.
f. During the project completion, final free Issue material reconciliation with the RA bills and
the quantity
g. Controls in the entity pertaining to ageing of material to ensure proper valuation of non-
moving inventory is done?
h. In case of availability of critical material / non-moving material in a location, is it
transferred to another location for proper & efficient utilization of material?

4. Billing Cycle
a. Ensure that the payment is made as per the billing cycle. Analyze the reasons for any delay in
payment / payment not made within the due date.
b. Review the clause for release of 60% - 70% adhoc amount against uncertified bill which shall
ease out working capital requirements.
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5. Review of RA (Running Account) Bills

a. Review all the RA bills and ensure that they are released as per the terms & conditions.
b. Deduction in the RA bills should be as per the work order. Adhoc deduction should not be
made.
c. Monthly reconciliation of free material issue to avoid discrepancies and revenue loss.
d. Review the adjustments towards mobilization advance, provisional acceptance and final
acceptance.

6. Procurement
a. Scope includes: Procurement of material, procurement of labour, procurement of services
b. Review of the Vendor Management process (Calling for quotation, screening of vendors,
selection of vendor, maintaining vendor manual, entering contract with vendor, and renewal
of contract, assigning of vendor code)
c. Control over the material provided by the client
d. Review the process of identification of scrap, documentation of the scrap generated, approval
of the scrap by the respective head
e. Review the process of receipt of material and comparison with the purchase order &
generation of GRN
f. Review of cash purchases at the site

7. Material handling & Storage

a. Segregation of material into critical and non-critical material and storage of critical materials
b. Proper storage of material to avoid wastage / spoilage and segregation as defined above.
c. Maintenance of material and utilization of materials on FIFO
d. Review the procedure and records for transfer of material

8. Fixed Assets
a. Review the procedure for purchase & maintenance, transfer & disposal of fixed assets.
b. Review of the periodic maintenance of fixed assets with Annual Maintenance contract.
c. Review the entity’s procedure for deciding the asset procurement or hiring.
d. Review whether the date of installation is rightly identified & recorded
e. Coding of fixed assets
f. Analytical procedure for Asset utilization ratio (Total revenue / Total asset) month wise
g. Maintenance cost to the value of fixed assets (Maintenance cost / Cost of asset)
h. Documentation for the transfer of fixed asset (from site to site)
i. Maintenance of fixed asset register and updating of fixed asset register
j. Revenue generation for the disposal of fixed assets

9. Cash / Bank & IOU

a. Review the procedure for receipt of fees for contract and consultancy fees
b. Review procedure for payment to vendor & sub-contractors
c. Cash & bank book maintenance
d. Record of person involved in every procedure & their key roles and responsibilities
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e. Entity’s policy with regard to IOU and compliance of the policy

f. Review of bank reconciliation statement & ascertaining the long pending items
g. Review of average cash utilization Vs. Average cash maintained
h. Review of cash insurance Vs. cash balance maintained

10. Payroll
a. Review the HR Manual to verify the following & compliance of the same:
 Availability of leave
 Leave encashment
 Gratuity
 Leave travel allowance
 Reimbursements
 Availability of perquisites
 Salary advances
b. Recovery and remittance of PF, ESI and Professional Tax from employees is made regularly.
c. Check the calculation & remittance of Income Tax
d. Check that provision for gratuity is done correctly
e. Analytical review of Average employee cost per head per project (Total cost of project /
Average number of employees), Employee Turnover ratio, Total employees to outsourced
workers ratio.
f. Reconciliation with respect to changes in the number of employees due to additions,
termination & retirement between various months.

11. Operating Cost

a. Repair & maintenance: Make segregation between the preventive maintenance and
breakdown maintenance.
b. Ensure that the equipment for which repair and maintenance is done is properly identified.
c. Review the contract entered by the Logistics provider.
d. Review the logistics bills and ensure that they are used solely for the purpose of business by
cross checking the attendance register and duty slips

12. Agreement with Collaborators (When two or more hands join hands for execution of project)
a. Review the financial, technical and legal implications of the agreement
b. Perform the reconciliation of the funds remitted, taxes deducted apart from other procedure
performed
c. Does the entity value all gifts in the nature of tools, machinery at proper valuation?

13. Disputed Claims

a. Does the entity have proper method of valuation of claims and is supported by proper
evidence