PROJECT AUDITING

CHAPTER #12
  A major vehicle for evaluation (but by no means the only one) is the
project audit, a more or less formal inquiry into any aspect of the
project.

The Nature of  The word audit is associated with a detailed examination of

conscience financial matters, but a project audit is highly flexible
Project and may focus on whatever matters senior management desires.

Evaluation  Evaluate means to set the value of or appraise. Project Evaluation

appraises the progress and performance of a project compared to
that project’s planned progress and performance, or compared to
the progress and performance, and performance of other, similar
projects.
Purposes of
Evaluation-Goals
of the system
  1. The first and most straightforward dimension is the project’s
efficiency in meeting both the impact/satisfaction. This dimension
includes the obvious factors of meeting the project’s technical and
The Perspective operational specifications but also includes factors relating to
loyalty and repurchase fulfilling the customer’s needs, actual use
of Project by the customer, solving a major operational problem of the
customer, and the perennial challenge of customer satisfaction.
Managers there
 2. The next dimension, again somewhat straightforward and
are Several expected, is business/direct success measured here primarily in
Independent terms of level of commercial success and market share. For
internal projects, however, the factors might include such
Dimensions of measures as yields, cycle times, processing steps, quality, and so
one.
Project success.
 3. The last dimension, somewhat more difficult and nebulous to
ascertain, is future potential. This includes factors an internal
project, developing a new technology, skills, or competences.
 1. Identify problems earlier
2. Clarify performance, cost, and time relationships
A set of 3. Improve project performance
recommendati 4. Locate opportunities for future technological advances
ons that can 5. Evaluate the quality of project management

help both 6. Reduce costs

7. Speed up the achievement of results
ongoing and 8. Identify mistakes, remedy them, and avoid them in the future
future 9. Provide information to the client
projects to: 10. Reconfirm the organization’s interest in and commitment to the
project
  1. Improve understanding of the ways in which projects may be of
sid to the organization
Some  2. Improve the processes for organizing and managing projects
examples of  3. Provide a congenial environment in which project team
members can work creatively together
recommendati  4. Identify organizational strengths and weaknesses in project-
ons concerning related personnel, management, and decision-making techniques
and systems
these “ancillary  5. ldentify and improve the response to risk factors in the firm’s
goals” include use of projects
attempts to:  6. Improve the way projects contribute to the professional growth
of project team
 7. Identify project personnel who have high potential for
managerial leadership
The adjective “Ancillary” is not a sufficient descriptor,
though it is the best single word we could find which
could also mean helpful,” “subsidiary,” “accessory,” and
the like, and we have all these things in mind. In
addition, the ancillary goals are usually not overtly
identified. For the most part, they are “hidden” by
accident, not by purpose. Finding them requires
deductive reasoning. Organizational decisions and
behaviors imply goals, often very specific goals, that are
simply not spelled out anywhere in the organizational
manuals.
 1. Current status of the project- Does the work actually
completed match the planned level of completion?
2. Future status – Are significant schedule changes likely? If so,
indicate the
nature of the changes.
3. Status of crucial tasks- What progress has been made on tasks
that could
The Project decide the success or failure of the project?
Audit 4. Risk assessment-What is the potential for project failure or
The project audit is a thorough monetary loss?
examination of the management of
a project, its methodology and 5. Information pertinent to other projects – What lessons learned
procedures, its records, its from the
properties, its budgets and
expenditures, and its degree of project being audited can be applied to other projects being
completion. undertaken by the
organization?
6. Limitation of the audit – What assumptions or limitations
affect the data in
the audit?
 COMPARISON OF FINANCIAL AUDITS WITH PROJECTS AUDITS
Financial Audits Project Audits

Status Confirms status of business in relation to Must create basis for, and confirm, status
accepted standard on each project

Prediction Company’s state of economic well-being Future status of project

Measurement Mostly in financial terms Financial terms plus schedule, progress,

resource usage, status of ancillary goals

Record-keeping System Formal dictated by legal regulations and No standard system, uses any systems
professional standards desired by individual organization or
dictated by contract

Existence of information system Minimal records needed to start audit No records exist, data back must be
designed and used to start audit
 Financial Audits Project Audits

Recommendation Usually few or none often restricted to Often required, and may cover any
management of accounting system. aspect of the project or it’s management

Qualifications Customary to qualify statement if Qualifications focus on shortcomings of

conditions dictate, but strong audit process (e.g. lack of technical
managerial pressure not to do so. expertise, lack of funds r time)
  There are several practical constrains that may limit the depth
of the project auditor’s investigation. Time and money are two
of the most common (and obvious) limits on the depth of
investigation and level of detail presented in the audit report.
Depth of the Of course, there is cost associated with the audit/evaluation
process over and above the usual costs 'of the professional and
Audit clerical time used in conducting the audit. Accumulation,
storage, and maintenance of auditable data are important Cost
elements. Such storage may be critically important in meeting
the test of “ due diligence.
  Like audit depth, the timing of a project audit will depend on the
Timing of the circumstances of a particular project. Given that all projects of
significant size or importance should be audited, the first audits
Audit are usually done early in the project’s life. The sooner a problem is
discovered, the easier it is to deal with.
  The type of project being audited and the users for which the
audit is intended dictate some specifics of the audit report format.
Construction Within any particular organization, however, it is useful to
establish a general format to which all audit reports must
and Use of conform. This makes it possible for project managers, auditors,
Audit Report and organizational management all to have the same
understanding of, and expectations for, the audit report as a
communication device.
 Timing and Value of Project Audits/Evaluations

Project Stage Value

Initiation Significant value if audit takes place early- prior to 25 percent

completion of initial planning stage

Feasibility study Very useful, particularly the technical audit

Preliminary plan/schedule budget Very useful, particularly for setting measurement standards to
ensure conformance with standards

Master schedule Less useful, plan frozen, flexibility of team limited

Evaluation of data by Marginally useful, team defensive about findings

project team
Implementation More or less useful depending on importance of project
Methodology to successful implementation
Post project More or less useful depending on applicability of findings to
future projects
  This section contains a description of the project to provide a
1. framework of understanding for the reader. Project objectives
(direct goals must be clearly delineated. If the objectives are
Introduction complex, it may be useful to include explanatory parts of the
project proposal as an addendum to the report.
  Status should be reported as of the time of the audit and, among
other things, should include the following measures of
performance:
a. Cost- This section compares actual costs to budgeted costs. The
time periods for which the comparisons are made should be clearly
defined.
b. Schedule – Performance in terms of planned events or
2. Current milestones should be reported. Completed portions of the project
should be clearly identified, and the percent completion should be
Status reported on all unfinished tasks for which estimates are possible.
c. Progress- This section compares work completed with resources
expended. Earned value charts or tables may be used for this
purpose if desired, but they may lack the appropriate level of detail.
d. Quality –Whether or not this is a critical issue depends on the
type of project being audited. Quality is a measure of the degree to
which the output of a system conforms to prespecified
characteristics.
• 3. Future Project Status - 5. Risk Management – This
This section contains the 4. Critical Management Issues-
section should contain a review
auditors conclusions All issues that the auditor feels
of major risks associated with
regarding progress together require close monitoring by
the project and their projected
with recommendations for senior management should be
impact on project
any changes in included in this section, along
technical approach, time/cost/performance. If
with a brief explanation of the
schedule, or budget that alternative decisions exist that
relationships between these
should be made in the may significantly alter future
issues and the objectives of the
remaining risks, they can be noted at this
project.
tasks point in the report.
6. Caveats,  This section of the report may be placed at the end or may be included as
Limitations, a part of the introduction. The auditor's responsible for the accuracy and
timeliness of the report, but senior management still retains full
and responsibility for the interpretation of the report and for any action(s)
based on the findings.
Assumptions
 Below is the list the following steps for carrying out an audit:
1. Assemble a stall team of experienced experts

Responsibilitie 2. Familiarize the team with the requirements of the project

3. Audit the project on site
s of the Project
4. After completion, debrief the project’s management
Auditor/ 5. Produce a written report according to a prespecified format
Evaluator 6. Distribute the report to the PM and project team for their
response
7. Follow up to see if the recommendation have been implemented
  Like the project itself, the audit has a life cycle composed of an
orderly progression of well-defined events. There are six of these
events:
 1. Project Audit initiation-This step involves starting audit
process, defining the purpose and scope of the audit, and
The Project gathering sufficient information to determine the proper audit
Audit Life methodology.
 2. Project Baseline Definition- The purpose of this phase is to
Cycle establish performance standards against which the project’s
performance and accomplishments can be evaluated.
 3. Establishing an Audit Database-Once the baseline standards
are established, execution of the audit begins. The next step is to
create a database for use by the audit team
 4. Preliminary Analysis of the Project – After standards are set
and data collected. Judgments are made. Some auditors eschew
judgment on the grounds that such a delicate but weighty
responsibility must be reserved to senior management.
 5. Audit Report Preparation- This part of the audit life-cycle
includes the preparation of the audit report, organized by
whatever format has been selected for use. A set of
recommendations, together with a plan for implementing them, is
also a part of the audit report. If the recommendations go beyond
normal practices of the organization, they will need support from
the policy-making level of management.
 6. Project Audit Termination – As with the project itself, after the
audit has accomplished its designated task, the audit process
should be terminated.
Some  For an audit/evaluation (hereinafter, simply A/E) to be conducted
with skill and precision, for it to be credible and generally
Essentials of acceptable to senior management, to the project team, and to the
client, several essential conditions must be met. The A/E team
Audit/ must be properly selected, all records and files must be accessible,
Evaluation and free contact with project members must better preserved.
 Summary of Recommendations
Recommendations which require Board action.
Final Report, 1. The Board of for our salary item. Should continue its effort to obtain
Agency additional funds

Evaluation, Sub- 2. The cost of Blue Cross and Blue Shield Insurance coverage on
individual employees should be borne by Recommendations which can
Committee II be put into effect by Presidential Order to committees, staff, or others.

Physical Plant, 3. The House Committee should activate with first priority, the
replacement of the healing air conditioning system. Further, this
Management of committee should give assistance and support to the Secretary to the
Executive Director in maintenance and repair procedures.
Office, 4. A professional library should be established even if part time workers
Personnel must share space to accomplish this.
Practices 5. Our insurance needs should be re-evaluated.
6. All activities related to food at meetings should be delegated to
someone other than the Secretary to the Executive Director.
 7. Majority opinion position of Administrative Assistant and
Bookkeeper will need more time in the future.
 8. The Personnel Practice Committee should review job
descriptions of Bookkeeper and Statistical Assistant and establish
salary ranges for those two positions and that of the
Administrative Assistant.
 9. Dialogue between the Executive Director his secretary and the
Administrative Assistant should continue in an effort to streamline
office procedures and expedite handling of paperwork. 10. The
written description of the Personnel Practices Committee should
include membership of a representative of the nonprofessional
staff.
 11. The Personnel Practices Committee should study, with a view
toward action, the practice of managing.
 Team Selection Team Size
> Critical to project success; The size of the team will
choose members based on generally be a function of the
their ability to contribute to size and complexity of the
Audit/ the A/E process, not just project. For a small project,
availability. one person can often handle all
Evaluation the tasks of an A/E audit, but
for a large project, the team
Team may require representatives
from several different
constituencies. Typical areas
that might furnish a/e team
members are:
Constituency Representation
 1. The project itself
 2. Accounting/Controller Department
 3. Technical Specialty Areas
 4. The customer
 5. Marketing Department
 6. Senior Management
 7. Purchasing/Asset Management
 8. Personnel Department
 9. Legal/Contract Administration Department
Team Role Team Requirements
Conduct thorough and complex > Maintain objectivity; avoid
examination of project (or a personal involvement in
specified aspect). project conflicts or rivalries.
> Identify key issues for > Willing and sincere
management attention. commitment to disciplined A/E
> Report information and process.
make recommendations to
maximize work utility.
> Provide constructive
observations and advice based
on member expertise.
  To do a good audit, the team needs access to all the project
information. If it’s a secret project, only people with security
clearance can see certain things. The audit team, not the project
managers, is responsible for gathering the information, even
though the project team keeps the records up-to-date. Important
Access information includes documents from before the project started,
progress reports, technical notes, changes to the project, how the
to project is organized, and financial details. The audit team might
Records need to reorganize some of this information. To be efficient and
trustworthy, the team needs a system for organizing information,
a plan to stop collecting information once they have enough, a
way to decide which information to analyze first, and ways to
avoid doing the same work twice. Using standard forms and
procedures will help.
Access to  The audit team needs to talk freely with project staff and others
Project who know about the project, but they must get permission from
top management before talking directly to the customer. The
Personnel team must be careful to avoid misunderstandings and not share
opinions that aren’t fully formed or backed up by evidence. They
and Others should stay neutral if there are political disagreements about the
project.
  It’s really important to measure how well a project did in an audit.
Some things, like finishing a building or a report, are easy to
measure. But others, like finishing a complicated experiment or
Measurement computer program, are harder. Staying on budget and schedule is
usually simple, but accounting rules can make it a little tricky. The
biggest problems happen when the project’s goal is to make
money.
  The success of an audit depends heavily on gaining the trust and
A cooperation of the project team. While officially assigned, the
auditor/evaluator needs to earn the team’s acceptance
Note (“permission to enter the system”). Signs of resistance include
polite but unhelpful responses to information requests,
to the Auditor/ unproductive interviews, and avoidance of sensitive topics.
Building trust requires a calm, respectful approach,
Evaluator acknowledging both the project’s strengths and weaknesses
without judgment.
Thank you