CCA CCA Subcontractor and Vendor Management Auditing 2 — Questions and Answers
Question 1: When auditing a construction project's supplier invoices, which internal control most effectively prevents duplicate payment of the same vendor invoice?
- Assigning unique invoice numbers and checking for duplicates in the payment system before processing (Correct answer)
- Requiring two signatures on all checks over $10,000
- Requiring vendors to submit invoices electronically
- Reconciling vendor accounts at year-end
Correct answer: Assigning unique invoice numbers and checking for duplicates in the payment system before processing
A systematic duplicate invoice check using unique identifiers at the point of entry is the most direct control to prevent the same invoice from being paid more than once.
Question 2: A construction auditor finds that a subcontractor on a federally funded project has not been registered in SAM.gov. What is the compliance implication?
- The subcontract may be disallowed and federal funding may be withheld for payments made to an unregistered subcontractor (Correct answer)
- The subcontractor must re-bid the work to become eligible
- The general contractor must absorb the subcontractor's costs without owner reimbursement
- The subcontractor is automatically debarred from future federal projects
Correct answer: The subcontract may be disallowed and federal funding may be withheld for payments made to an unregistered subcontractor
Federal procurement regulations require all contractors and subcontractors receiving federal funds to be registered and active in SAM.gov; non-compliance can result in disallowed costs.
Question 3: Which audit procedure is most effective for detecting a shell company subcontractor scheme on a construction project?
- Verifying the subcontractor's physical address, employee records, equipment, and financial capacity independent of the GC (Correct answer)
- Confirming the subcontractor's certificate of insurance
- Reviewing the subcontractor's bank references provided by the GC
- Checking the subcontractor's state business license
Correct answer: Verifying the subcontractor's physical address, employee records, equipment, and financial capacity independent of the GC
Shell company schemes involve fictitious entities that have mailing addresses and licenses but no real employees, equipment, or capacity; independent verification of physical operations exposes these frauds.
Question 4: An auditor reviewing vendor change orders on a construction materials supply contract finds that steel prices were escalated based on a price index not specified in the original contract. The auditor should:
- Disallow the escalation claim because only contractually specified indices or mechanisms are enforceable (Correct answer)
- Accept the escalation as commercially reasonable given current market conditions
- Verify the escalation against the unspecified index and approve if it seems reasonable
- Request the owner to retroactively amend the contract to include the index
Correct answer: Disallow the escalation claim because only contractually specified indices or mechanisms are enforceable
Contract terms govern price adjustment mechanisms; an escalation claim based on an index or method not specified in the contract lacks contractual basis and should be disallowed.
Question 5: When auditing subcontractor certified payroll compliance on a federally prevailing wage project, what is the auditor primarily verifying?
- That workers were paid at least the Davis-Bacon wage rates for their job classifications on the project (Correct answer)
- That the subcontractor's workers are represented by a union
- That the GC withheld the correct income taxes from subcontractor worker paychecks
- That the subcontractor's workers received overtime pay for weekend work
Correct answer: That workers were paid at least the Davis-Bacon wage rates for their job classifications on the project
Davis-Bacon Act compliance requires that covered workers on federal construction projects be paid at least the prevailing wage rates published by the Department of Labor for their trade classification.
Question 6: A construction auditor discovers that a subcontractor substitution was approved by the project manager without owner notification on a public project. The most significant risk is:
- Violation of public procurement rules requiring owner approval for subcontractor substitutions after contract award (Correct answer)
- Reduction in the GC's bonding capacity
- Increase in the project's insurance premiums
- Delay in the project's Certificate of Substantial Completion
Correct answer: Violation of public procurement rules requiring owner approval for subcontractor substitutions after contract award
Most public contracts and state procurement statutes require owner approval for post-award subcontractor substitutions to maintain accountability, competition integrity, and MBE/WBE compliance.
CCA CCA Subcontractor and Vendor Management Auditing 2
When auditing a construction project's supplier invoices, which internal control most effectively prevents duplicate payment of the same vendor invoice?