I’ve seen this so often. The commercial team on a construction or development project captures all the project costs in a spreadsheet, but it doesn’t quite agree with the accounts. So, which is right, the spreadsheet or the accounts?
Obviously, the commercial team knows what they’re doing (hopefully), so the accounts must be wrong, right? But why? And who’s going to unpick it?
I’ve been in this situation numerous times throughout my career, but luckily, I’ve always been able to quickly resolve differences because I’ve consistently followed the best practice: cost reports must be reconciled regularly with the accounting system.
Sounds obvious, but so many companies fail to do this. If you have any hope of understanding true project profitability, you must ensure that any reporting you do in spreadsheets agrees with your accounts system. Mistakes can and will occur both in spreadsheets and accounting systems.
- Unexpected costs often pop up and get job costed without key people knowing.
- Costs sometimes go to the wrong project or aren’t costed to any project.
- Costs get allocated to the wrong work packages.
- Retentions aren’t always coded correctly.
- Someone may key in the wrong amount.
- You could have been invoiced twice.
- A supplier invoice could have been missed.
- CIS or VAT treatment isn’t always correct.
There are so many reasons why discrepancies could arise, and reconciling project reports to accounts is a great opportunity to spot errors early.
At the end of every month, make sure your cost and revenue to date in your project reports can be verified against your accounts software. Here’s what you could do to make it easier to spot mistakes:
- Ensure total cost and revenue to date agrees with total cost and revenue for that project in the accounts.
- If possible, extract the project costs from your accounts system and add it into your project reports as an extra tab. You want to ensure that at a package level and supplier level, your costs in your project report agree. Normally, you would use SUMIFS formulas to make this quick and easy.
- Perform reverse checks between your accounts data and your project reports. You’re trying to establish if there is anything in one dataset that is not in the other.
- Understand any differences between your cost to date in your project report and the accounts. Any differences that are greater than your current month’s valuation normally point to a problem. Start at a high level and identify packages or suppliers that differ, then drill down into which valuation the difference occurs in.
- Ensure you have checks and balances in as many places as you need to help spot issues quickly. Sometimes simple issues like a column total not picking up the last cell could be throwing your balance off.
- Reconcile all your projects. If a cost has been coded into the wrong project, you could have an equal and opposite problem somewhere else.
- Make sure you understand any differences between cash and accruals. Different treatment and terminology can often be the difference between accounts and project reporting.
- Set up your project reporting to be compatible with your accounts system, i.e., ensure supplier names/references are the same in both, ensure packages are the same as GL codes/accounts dimensions.
- If you outsource your cost reporting to a project manager or QS, there are always differences between what they know and what’s in your accounts, so always factor this in, and potentially build in a feedback loop to them for any costs they aren’t aware of.
- Having cost management software that integrates with your accounts software is a great way to reduce errors and discrepancies.
This is just a handful of considerations that might improve controls on projects. It might seem complicated, but having good habits on a regular basis will dramatically reduce errors in project cost management.
If you don’t have an in-house accountant who can manage this or if you’re struggling to manage this yourself, please get in touch to see how Financial Foundations might be able to support your business.