Project Performance Audit – A Methodology


Advances in Project Management Series

Dr. Alexia Nalewaik FRICS CCP CCA

QS Requin Corporation

Pasadena, California, USA


It all started on a normal workday, with two seemingly unrelated questions:

  1. Why didn’t this recent audit identify as many findings as the last one?
  2. What can we do to win more audit work?

But they were related … and then, suddenly, I had a PhD.

Management consultants, by the nature of their business, live in a world where winning the work means survival of their firm, and improvements to their salary. Some will do whatever it takes to win the work. Others genuinely care about the service they provide. The two are not always mutually exclusive.

After analyzing over seven hundred audit reports, the answers to the two questions were clear. Work was being won by other firms because they were able to price their services very low. However, in order to do so, they were reducing the scope of the audit to the bare minimum required by law. Their audit reports were, at most, three pages long – and that included the cover page and managing partner’s affidavit. In contrast, a performance audit with broader scope could yield a report 30 to 100 pages long. Second question, answered. As for the first question, that turned out to be a combination of audit team skills and scope (Nalewaik, 2013). And yet, the answers to both questions turned out to be more.

Projects, especially construction projects, typically apply specialized project management techniques to mitigate the volatility, cost overruns, significant delays in completion, and failures with which such projects are often associated. Audit represents one type of independent external oversight often utilized to provide an opinion on current project status and quality of management. However, variability in audit sampling and review techniques, team composition, scope, quality and availability of data, standards, and other factors can impact audit results. Unexpectedly, this research provided a contribution to two spheres: auditing and procurement. After answering the two initial questions, the research goal evolved to define key components in the execution of performance audits, in order to improve performance audit procurement and process, impacting findings and thus their applicability and usefulness as a project and organizational performance improvement mechanism.

The objectives of project performance audit are to: 1) reduce risk; 2) enable transparency and accountability; and 3) create a culture of organizational maturity. Inherent in performance audit are the three concepts of Economy, Effectiveness and Efficiency (Waring & Morgan, 2007). “Economy” emphasizes frugality and reasonability in the use of resources, “Efficiency” focuses on achieving results while minimizing waste, and “Effectiveness” assesses the level of success in attaining the intended results. In evaluating the “three e’s”, project performance audit addresses the intersectional universe of resources (input), results (output), and impact. By significantly reducing the audit scope, the research found that certain performance audits did not deliver the depth and breadth of review promised or even implied. This, in turn, led to an expectations gap, wherein stakeholders had assumed a “performance audit” would truly evaluate stewardship and other concepts (such as equity, legality, fiscal prudence, and rational / justified decision-making), but the reduced audit scope did not really do so.

The research results found that different types and quantities of findings were generated by different audit scopes. Typical audit findings tended to focus on routine procedural, accounting, and controls errors. On average, contract expenditure audits questioned 2.65% of expenditures, and performance audits of large complex programs questioned only 0.04% of expenditures. The majority (72.56%) of the performance audits in the sample yielded no findings or questioned costs whatsoever. When more expenditures and project documents were reviewed, the audit yielded more qualitative findings. Including technical experts on the audit team increased both the percentage of expenditures questioned and the number of qualitative findings. Applying audit standards at first appeared to have a negative impact on the number of audit findings, but it was later determined that the reduced number of audit findings were related to limited audit scope and a lack of technical experts on the audit team. The research concluded that the two biggest factors that impacted audit results were audit scope and the auditor’s depth of project- and industry-specific expertise (Nalewaik, 2013).

Several years later, that research led to the development of a methodology for scoping and procuring performance audits. The predominant guidance available at the time was typically written by governmental audit offices, specifically for their projects, or by consultants eager to sell services; there existed no substantial guidance for the layman or practitioner…


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Editor’s note: The Advances in Project Management series includes articles by authors of program and project management books published by Gower in UK and by Routledge worldwide. Information about Routledge project management books can be found here.


About the Author

Dr Alexia Nalewaik

California, USA


Dr. Alexia Nalewaik, FRICS CCP CCA is a project controls director and management consultant with 25 years of experience in the industry. She is President-Elect 2017-2018 of AACE International, Research Chair and Past-Chair of the International Cost Engineering Council, and the owner of QS Requin Corporation. She holds a PhD in project and program management, an MS in structural engineering, and a BA in physics. Alexia is a certified cost professional, a certified construction auditor, and a chartered quantity surveyor. She is a Fellow of AACE International, RICS, and ICEC.