Article #552 How Can Executives Identify Fraud Actions in Payments for Interim Progress Invoices on Capital Construction Projects

One of the key issues associated with the execution of capital construction projects is the delayed payment of interim progress invoices to contractors which results with cashflow hardships and eventually claims and disputes. Nevertheless, this issue of delayed payments can be also associated with fraud actions where those involved in approving payments against interim progress invoices could be using their “Approval Power” to intentionally cause this hardship. Those possible fraud actions could be related to delayed approval of interim progress invoices, discounting the amount of the submitted progress invoice by the contractor and vendor, delayed release of payment for approved progress invoices and the amount of actual released payment against the approved invoice.

To identify those possible fraud actions, it is important to have access to all interim progress invoices submitted, approved and paid against all contracts and purchase orders awarded across the complete projects’ portfolio that the capital construction projects owner has. This is crucial to identify abnormalities or exceptions in reviewing and approving interim progress invoices. Those would be the interim progress invoices that have either positive or negative abnormalities or exceptions for the trend for the duration of approving interim progress invoices, the discount percentage of the amount of the submitted progress invoice by the contractor and vendor, the number of days to release the payment for approved progress invoices and the percentage of actual payment released against the approved progress invoice.

The data from the captured progress invoices will be used to create a report that will show the variances for the review and approval of progress invoices, payment of approved progress invoices, percentage of approved progress invoice against what was submitted and percentage of actual amount paid against the approved amounts of submitted invoices The report allows filtering displayed information by contractor name and contracts that this contractor has with the project owner. The report will also a tabular log of all submitted progress invoices for all contracts awarded for the complete projects’ portfolio that the project owner. The report will provide critical information related to each interim progress invoice.

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Using a Project Management Information System (PMIS) like PMWeb, all business processes required to manage the project’s cost and contract are readily available out of the box including the progress invoice module. For each awarded contract, all interim progress invoices will be captured including the amount submitted by the contractor and the amount approved by the project owner team. This will also include the submission date, approval date and actual payment date and actual payment amount.

In addition, there should be a predefined checklist of items that need to be formally verified by the contractor before the interim progress invoice can be formally submitted to be either approved or rejected. Those checklists should be comprehensive and aligned with the contract documents to cover the obligations and entitlements set in the contract agreement for each entity who have a role in delivering the project.

Each task in the checklist will be assigned to the project team member responsible for performing the task as well as the date of completing the task. The checklist will be part of the well-thought-of output form. Ensuring that all requirements for approving an interim progress invoice have been completed and submitted along with the invoice will ensure that the review and approval process will be completed without delays due to incomplete or missing verifications.

Similar to all other managed business processes managed in PMWeb, supportive documents that are usually submitted by the contractor along with each interim progress invoice submissions as well as all other relevant documents can be attached to the progress invoice record. Details can be added to the attached documents to better explain what is being viewed.

In addition, links to other relevant records of other business processes managed in PMWeb can be also linked to the reported progress. Those could include for example Work Inspection Requests (WIR) that are associated with the invoiced work in place.

It is highly recommended that all those supportive documents, regardless of their type or source, get uploaded and stored on PMWeb document management repository. PMWeb allows creating folders and subfolders to match the physical filing structure used to store hardcopies of those documents.

To ensure that the submit and approve dates of each interim progress invoice, a workflow will be used to formalize the submission, review and approval tasks. The assigned workflow will map the submit, review and approve tasks, role or roles assigned to each task, task duration, task type and actions available for task.

In addition, the workflow could be designed to include conditions to enforce the approval authority levels as defined in the Delegation of Authority (DoA) matrix. This will be required as all of the needed business processes have financial implications for which the decision to approve will depend on the roles and responsibilities for the individuals involved in those business processes.

When an interim payment certificate is initiated, the workflow tab available on the progress invoice template will capture the planned review and approve workflow tasks for each interim progress invoice transaction as well as the actual history of those review and approval tasks. PMWeb will capture the actual action data and time, done by who, action taken, comments made and whether team input was requested.

The reader of the Progress Invoices report can select a specific contractor or contractors to better understand how the project owner team have acted in reviewing and approved interim progress invoices including actual payments of approved invoices. The report will help the reader to query why contractors were treated differently.

Of course, having the progress invoices data captured at the desired granular level for all awarded contracts on the complete projects’ portfolio that the project owner has, gives the opportunity to analyze the data to identify inconsistent data trends that need to be investigated and understand what have caused those results. The progress invoices data can be analyzed with the data from other business processes managed in PMWeb to identify if there is any correlation between those business processes.

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About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and shopping malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.

Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 300 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the Association for the Advancement of Cost Engineering (AACE) and Green Project Management (GPM).

Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.


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