Cost recovery audit for a confidential hospitality REIT
Representative and anonymized experience completed prior to joining HKA
A large hospitality REIT retained the team to evaluate project-related expenditures and verify that costs charged by contractors were consistent with contractual terms and adequately supported.
The audit examined billings, markups, and general conditions costs, resulting in approximately $1 million of identified recoveries and increased transparency into project cost management and contractor billing practices.
Brief
A confidential large hospitality real estate investment trust (REIT) engaged the team to perform a cost recovery audit of capital project expenditures. The audit assessed whether project costs billed by contractors and other parties were allowable, accurate, and supported under the governing contract provisions. The client sought an independent review of project financial activity to validate compliance with contractual requirements and identify opportunities for recovery. The engagement focused on analyzing project cost documentation, billing practices, markup calculations, and general conditions expenditures. Through a detailed examination of project records and supporting documentation, the audit identified areas where established contractual requirements had not been followed. This resulted in significant financial recovery opportunities and enhanced visibility into project cost management practices.
What we did
The team performed a comprehensive cost recovery audit of project expenditures, invoices, supporting documentation, and contract requirements. Audit procedures included detailed testing of contractor billings, evaluation of allowable and unallowable costs, validation of markup calculations, and review of general conditions charges. The team analyzed billed amounts against contract terms, assessed compliance with reimbursement provisions, and evaluated whether charges were adequately supported and accurately calculated. Particular attention was given to identifying non-compliant costs, excessive or unsupported markups, duplicate charges, and overbillings within general conditions. Findings were documented, quantified, and supported through detailed audit schedules and analyses. This provided the client with a clear understanding of recovery opportunities and areas requiring enhanced oversight.
Outcome
The audit identified approximately $1 million in recoverable amounts resulting from non-compliant billings, miscalculated markups, unsupported costs, and overbillings associated with general conditions. In addition to the financial recoveries, the engagement provided the client with greater transparency into project-level cost management and billing practices. The findings enabled management to address identified issues with project stakeholders, strengthen review procedures, and improve oversight of contractor invoicing and reimbursement requests. The engagement also highlighted opportunities to enhance controls surrounding contract compliance, invoice review, documentation requirements, and cost verification processes. As a result, the client gained immediate financial benefits and a stronger foundation for managing future capital project expenditures.
