Thomas Wooster and Imran Akhtar The Meeting of the Worlds

© Turner & Townsend plc November 15 making the difference

Audit Conference Europe

Turner & Townsend 3rd November 2015

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Introduction

Thomas Wooster MRICS

Associate Director

Imran Akhtar ACA

Senior Consultant

• Construction expert • Previously worked for UK

leading construction firm Costain

• Head of Cost Assurance in Turner & Townsend Infrastructure South

• Cycles 200 miles per weekend for fun

• Audit and accountancy expert

• Previously worked for National Audit Office

• Helping develop Turner & Townsend’s Cost Assurance Proposition

• Plays computer games for fun……

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Health & Safety moment

How many working people are suffering from a work-related illness? (per HSE statistics for 13/14)

650,000 people

1.2 million people

1.8 million people

What was the estimated cost of injuries and ill health from current working conditions (per HSE data for 12/13)

£800 million

£3.5 billion

£14.2 billion

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How many working people are suffering from a work-related illness? (per HSE statistics for 13/14)

650,000 people

1.2 million people

1.8 million people

What was the estimated cost of injuries and ill health from current working conditions (per HSE data for 12/13)

£800 million

£3.5 billion

£14.2 billion

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Why we are here

The Cost Assurance Team brings together a unique combination of

expertise including Quantity Surveyors, Accountants, and Data

Visualisation and Analytics specialists. With a focus on the property,

infrastructure and natural resources sectors our activities revolve

around unlocking the power of data to reveal commercial insights,

audit in a lean manner and to improve or automate decision making.

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Our vision

To be the leading capital programmes professional service provider operating across property, infrastructure and natural resources.

Who we are – Turner & Townsend

Turner & Townsend is an independent professional services company specialising in programme management, project management, cost management and consulting across the property, infrastructure and natural resources sectors.

With 90 offices in 38 countries we draw on our extensive global and industry experience to manage risk while maximising value and performance during the construction and operation of our clients’ assets.

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Who we are – Our services

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Who we are - Highlights 2014–2015

turnover up eight percent

£380m

* at 30 April 2015

£350

£313

£271

£232

14/15

13/14

12/13

11/12

10/11

£380

£33

£30

£23

£16

14/15

13/14

12/13

11/12

10/11

£37

Results

people

4,000+ People at the heart of our success – we are dedicated to investing in our people and building on the culture that has bought us success with the world’s leading companies.

offices

90 One global business – from 90 offices around the world we deliver great outcomes to projects and programmes in over 130 countries.

Programmes over USD1bn

100 Transformational programmes – across the globe we are working on programmes that are delivering lasting benefits for organisations, economies and societies.

Operating profit up 11 percent

£37m

3,590

3,177

2,725

2,290

14/15

13/14

12/13

11/12

10/11

4,102

people up 14 percent

4,102

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Who we are – Our clients

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Why we are here

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Why do we audit?

Client Contractor

There is an inherent cost risk to the client when reimbursable and target cost contracts are employed……

Client Contractor Client Contractor

Cost Risk

Fixed Price (lump sum) Target Cost Cost Reimbursable

……There is a potential incentive for contractors to lose focus on their costs – this increases their revenue.

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Why do we audit?

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Why do we audit?

Targ

et

Cost

Actu

al Cost

Client

Paym

ent

Savi

ng

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Why do we audit?

Actu

al Cost

This is our focus

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High levels of risk

Low balling: contracts let at unsustainably low rates

Cross-subsidy: over-recovery of reimbursable costs to subsidise loss making projects

Financial control: cost capture and reporting capabilities are often insufficient to manage Open Book contracts effectively

Supply chain failure: contractors and subcontractors failing as competition has intensified

Fraud: manipulation of financial records to artificially increase turnover

Knowledge they don’t know they get it wrong

Increased scrutiny from stakeholders

Shareholders, governments and regulators increasingly demand transparency of cost and value for money

Project Delivery does not provide Cost Assurance

Commercial teams on the ground do not have the time, technology tools or accountancy skills to fully assure projects

What do we see in the Construction Industry?

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Cost Verification Traditional Audit

Traditional Cost Audit

Sample audit of Super Structure costs during September

The auditor takes the sample of costs and manually validates the costs back through the audit trail.

Electronic General Ledger

Electronic Sub-ledgers

Primary Records

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Cost Verification Our techniques

100% testing of General Ledger and Sub Ledger cost information

Targeted sampling of paper records based on risks identified through electronic testing

Cost Assurance provides broader audit coverage at reduced timescales and cost

Cost Assurance

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Who are we – Cost Assurance

Cost Assurance

Controls and Systems Review Detailed systems diagnostics to highlight risks and areas for improvement, provide assurance and develop supply chain capability

Cost Verification Independent verification of costs to source documentation and sufficient and appropriate evidence to provide a view on cost accuracy

Contract Compliance

Review of contractors compliance with the specific terms of the underlying contract ensuring

that costs incurred are allowable and

contractually entitled

Data Analytics & Insight

Intelligent review of cost data to identify trends, patterns

and generate valuable insight to help drive value for money

decisions

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Cost Verification

Final Account Audit

Continuous Audit

1. Diagnostics 2. Audit

Plan 5. Benefits Realisation

3. Data Gathering

4. Forensic audit & Validation

- Engagement early on within the project - ongoing

- Systems and processes development

- Engagement at the end of the project – one off

- Confirmation of final cost position

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Cost Verification Six Key Themes

4 Smart Verification Techniques 5 Procedures & Templates 6 Actual Cost Database

1 Audit Programme 2 Team Design 3 Management Information

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Cost Verification Six Key Themes

4 Smart Verification Techniques

2 Team Design 5 Procedures & Templates

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Team Design

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Smart Verification Techniques

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Database and data management

Duplicate analysis

Statistical sampling and

analysis

Maintaining robust audit trail

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Custom scripts for word search to help review contract compliance

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Example – the case of the wondering project manager

Scenario – Our client has provided us with ledger data for their London based construction project covering the past few years. The ledger has 7000+ line items.

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Trend analysis of cost by spend area

Analysis of cost by supplier

Analysis of total cost by spend area

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Transactions occurring on weekends

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Visual analysis of duplicate records via custom logics and

calculations

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Real examples of overpayments across a number of projects

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Some Thoughts

The future of construction audit?

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Big Data – The next big thing

BIG DATA

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Analysis vs Analytics

Cost / Financial Schedule Supplier

Market Competitor

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Analysis vs Analytics

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Progressing Analytics

Descriptive Analytics

Predictive Analytics

Prescriptive Analytics

Past Future Intelligent Future

Wisdom

Knowledge

Information

Data

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Descriptive Analytics

Analytics on historic data providing information to users on past performance, patterns and trends. Does not look to the future

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Predictive Analytics

Analytics to forecast what may happen. Using data that we have to predict data that we don’t. Is more complex in nature underpinned by mathematical modelling and statistics.

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Prescriptive Analytics

A form of predictive analytics, that doesn’t predict one future but ‘multiple futures’ based on a decision makes outputs. The use of prescriptive analytics is increasing.

Machine Learning Internet of Things

Building Information Modelling (BIM)

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Questions, Comments, Thoughts

Thank you for listening

Business

Thomas Wooster and Imran Akhtar The Meeting of the Worlds