The case for construction audits

By Keith Hosmer, Vice President, Cotiviti Retail

Capital construction spend can take many forms, but the financial exposure is often the same whether you own the building, lease it from a developer, or are still negotiating the deal.

From new hospital wings and custom-built distribution or data centers to major tenant improvements, project teams are understandably focused on schedule, design, and delivery. That is true whether your organization has capital in the project or is managing the general contractor on someone else’s behalf.

What often gets less attention is the line-by-line reconciliation of what is being billed against contract terms and agreements. For owners, developers, and tenants alike, that gap is where costly errors, questionable billing, and fraud can quietly take root.

The scale of the exposure

Construction spending is uniquely exposed to billing risk because projects are large, complex, and constantly changing.

In 2025, LCI and Dodge Construction Network reported that 49% of owners said typical projects go over budget, with healthcare project overages as high as 20%.

Many projects take years to complete and involve dozens of subcontractors issuing hundreds of change orders. That complexity makes it difficult to confirm the accuracy of invoices, pay applications, and supporting documentation.

The risk is not limited to owners writing checks directly. Tenants also have a direct financial stake in build costs because those costs can influence rent for years. While some overruns are legitimate due to supply chain volatility, design changes, weather delays, or other factors, many billing errors go unnoticed because no one is closely reviewing the documentation behind each draw request.

What tends to go wrong

If you examine historical construction costs line-by-line, you’ll see that the same handful of issues show up repeatedly:

• Duplicate billing. The same cost appears on more than one invoice or pay application, sometimes coded slightly differently to avoid detection.

• Overallocated or misallocated costs. Labor, equipment, or materials from a different job get billed to your project.

• Change order inflation. Change orders are priced against an estimate rather than actual invoices, and the true cost never gets reconciled downward.

• Unsupported general conditions and fees. Overhead, supervision, and markup charges that aren't clearly defined in the contract get billed anyway.

• Arithmetic and unit-price errors. Simple miscalculations compound across hundreds of line items on a large project.

• Unreconciled credits and allowances. Owners rarely see the benefit of underused allowances or contractor credits unless someone asks for them.

Individually, these may look like rounding errors, but across a multimillion-dollar project, dollars can skyrocket. The real risk is that these errors go undetected until the project is closed out, after which recovery becomes much harder if not impossible.

Why internal oversight isn't enough

A project manager reconciling payment applications or a controller checking totals against a budget are necessary, but rarely sufficient at catching calculation errors, unallowable costs, and unnecessary cost escalations.

Internal teams are typically comparing summary numbers, not verifying the underlying invoices, timesheets, and subcontractor payments behind them. They're also managing the relationship with the general contractor day to day, which can make it harder to push back hard on questionable charges.

Most internal reviewers are also stretched across competing priorities. A deep, line-by-line reconciliation of construction billing isn't a full-time job for anyone, even though it arguably should be.

None of this suggests bad faith on the contractor's side. Large, fast-moving projects with many hands touching the budget are simply prone to error. The question isn't whether mistakes exist; it's whether anyone is positioned to find them soon enough.

The case for an independent, third-party audit

A third-party construction audit provides an independent review of contract documents, invoices, pay applications, and change orders, aimed at confirming that what was billed matches what was earned, incurred, and owed under the contract.

A thorough audit routinely uncovers overbilling, unsupported costs, that translate directly into recovered dollars or negotiated adjustments that often exceed the audit cost.

If return on investment isn’t compelling enough, there are several more reasons to build third-party audits into project budgets:

A stronger record for all stakeholders. Lenders, bond sureties, investors, boards, and regulators all benefit from a project with a clean, well-documented cost history. An independent audit creates that record.

Gap fill on expertise. Effective construction billing review requires fluency in contract language and construction accounting practices. This is a specialized skill set that's rarely a core competency for a finance team or real estate group and developing it from scratch for occasional projects is cost prohibitive.

Freedom to focus. When a dedicated third party is verifying costs, the team running the job doesn't have to split attention between running the job and playing forensic accountant on every pay application. That's a better use of everyone's time.

Lastly, leveraging third-party audits is emulating others’ success. Many of the largest general contractors and program managers already run their own internal audit functions and build owner-side review into how they operate. Bringing in an independent auditor is simply how large capital projects are managed now.

Where this fits into a broader cost discipline

For companies that already apply rigorous financial oversight to other major spending categories, extending that same discipline to capital construction is a natural next step. The dollars at stake and billing complexity are just as significant, if not greater.

This is the thinking behind Cotiviti's Contract Compliance solution where we provide the same data-driven, line-by-line scrutiny that has protected billions of dollars in healthcare and retail spend to the capital projects that shape hospitals, stores, data centers and distribution networks for decades to come.

The takeaway is simple: if no one is independently verifying what's being billed on your capital projects, it's worth asking why.

To learn more, you can reach out to your primary representative or share your questions at answers@cotiviti.com. 

About the author

Keith Hosmer is a contract compliance leader with more than 15 years of experience helping large organizations protect profit and enhance vendor compliance. He brings deep expertise auditing complex spend categories across facilities management, oil and gas, capital projects, and more. Keith focuses on delivering measurable recoveries, strengthening controls, and creating long-term value for clients. He is known for translating complex contractual and operational details into clear, actionable insights that support confident executive decision-making.