The surety wants an audited WIP
Build WIP monthly from approved cost to complete.
A surety uses the WIP schedule to see how each open job will finish and whether the company is borrowing from future jobs to pay for current ones. When they ask for an audited one, they want the totals to tie to the financial statements and the estimates behind them to be defensible. Auditors look at how cost to complete was set, who approved it, and whether it changed from month to month without a reason. A schedule built from a spreadsheet that one person updates at year end is hard to defend. Controllers who build it every month, with a clear sign off, spend far less time answering questions in the fall.
Three moves, in order
What CFOS does about it
CFOS has month end cost to complete entered by the PM and approved, a WIP schedule with over and under billing, and a master WIP of all open jobs. Job cost updates every hour from QuickBooks Online, and the books stay in QuickBooks. Revisions are kept, so you can show how an estimate changed. CFOS doesn't replace the audit and doesn't have a SOC 2 report today, so your auditor still does the testing, and CFOS gives them a schedule with the approvals already on it.
Who owns this: Controller.
At $25M, your surety may ask for an audited WIP every year. A schedule closed and approved each month turns that request into an export. The controller stops rebuilding it each fall.
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Step 07: Monthly cadence
Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.
Other problems step 07 solves
Other things that go wrong
What owners ask
Surety audited WIP schedule requirements?
Build WIP monthly from approved cost to complete. A surety uses the WIP schedule to see how each open job will finish and whether the company is borrowing from future jobs to pay for current ones. When they ask for an audited one, they want the totals to tie to the financial statements and the estimates behind them to be defensible. Auditors look at how cost to complete was set, who approved it, and whether it changed from month to month without a reason. A schedule built from a spreadsheet that one person updates at year end is hard to defend. Controllers who build it every month, with a clear sign off, spend far less time answering questions in the fall.
Which part of the system fixes this?
The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It's drawn from chapter 7 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Have each PM enter cost to complete on every open job every month, and keep the date and the person who approved it.
Does CFOS produce an audited WIP?
No, an audit is done by your CPA firm. CFOS produces the WIP schedule with approved cost to complete and over and under billing, which is what the auditor tests. Having it closed monthly makes their work easier.
What do auditors check on a WIP schedule?
They look at how the estimates were made, whether cost to complete changed in ways the job doesn't explain, and whether the totals tie to the financial statements. Approval by the PM and a controller helps on each of those. Keep the approval dates with the schedule.
How early should I start before my surety deadline?
Start at least a quarter ahead. Clean up the cost to complete on open jobs, tie the totals to the books, and fix any jobs with old or missing estimates. Then a year end request is a report, not a rebuild.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 07 depends on step 03, overhead calculation and step 04, estimating system and step 05, software and bookkeeping alignment and step 06, project management. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.