Capital Project Monitoring and Reporting

The financial management of major capital projects requires a substantial commitment of organizational time and resources. Given their scale and cost, these capital projects can represent a significant undertaking for local governments. Consequently, governmental entities should establish policies and procedures to support effective capital project monitoring and reporting to assist in the management of these significant projects. Such efforts can improve financial accountability, enhance operational effectiveness and promote citizens’ confidence in their government. 

In many jurisdictions, finance officials are called upon to oversee or directly perform capital project monitoring and reporting activities. To successfully perform those activities, finance officials should be familiar with project management practices, software systems for project management and project accounting, and capital project reporting procedures.

1. Identify and incorporate legal and fiduciary requirements into capital monitoring and reporting processes. Because finance officials are typically involved with ensuring that capital project activity is consistent with applicable laws and organizational rules and procedures, initial efforts should focus on understanding requirements that relate to:

• Auditing and financial reporting needs consistent with generally accepted accounting principles and jurisdictional accounting requirements.
• Any arbitrage regulations, bond covenants, and/or bond referenda requirements related to long-term debt that may be used to finance capital projects.  In addition, ensure that all reporting of bond related projects/programs is consistent and in compliance with SEC regulations.
• State and local laws, including such areas as debt capacity limits, voter authorization, capital budgeting requirements, as well as public bidding and reporting requirements.
• Capital project contract language and the jurisdiction’s contracting practices.
• The relationship between each project and the jurisdiction’s planning processes, including specific initiative plans, local master plans, and any regional or state plans that may impact any planned projects.
• Grant administration and reporting requirements related to the specific grant(s) to be used for capital projects.

2. Identify relevant data for external and internal stakeholder information needs. Finance officials may also be called upon to compile cost and performance data for diverse stakeholders. With this in mind, financial officials responsible for capital monitoring and reporting should: 

• Identify key stakeholders involved in capital projects, for example, project oversight staff, project engineers, contractors, finance and budget staff, executive management, bondholders, rating agencies, grantors, elected officials, and constituents.
• Identify the business needs of key participants, including timing status, cost activity, and project scope.
• Establish project milestones, performance measures and reporting criteria based on stakeholder needs and legal and fiduciary requirements.
• Collaborate with participants to determine the content of reports and the preferred reporting tools of various stakeholders, including the depth and frequency of information, established expectations and notable variances.  For example, larger entities with a substantial number of similar routine capital projects may consider providing information for routine capital projects at a program level, rather than providing information for each individual project.

3. Plan and design systems to collect, store, and analyze project data and to report results. Often, more than one system or technological solution is required to properly address all informational requirements. To assist in this process, responsible officials should:

• Decide which system will be the primary system(s) for storing capital project financial and/or operational data.
• Assure that appropriate system controls and security have been incorporated, consistent with the jurisdiction’s technology standards.
• Strive for consistency and standardized language when compiling information from various sources.  A data dictionary or similar documentation that establishes standards is ideal.
  • The following factors should be taken into consideration when establishing a data system specifically for capital projects:
    • The appropriate technological solutions for project accounting, scheduling and reporting. Solutions may include spreadsheets, customized databases, ERP systems, or project management software, and may differ based on the scope, complexity, and cost of each project.
    • Positional roles, including access, input and editing privileges for system users who will be charged with compiling, analyzing and reporting financial and management information.
    • The process for controlling and managing changes to project scope, schedule, cost, funding, and contract requirements.
    • Processes for identifying direct and indirect asset construction component costs.
    • Accountability and data integrity within the financial management system.
    • Data accuracy. This is particularly important when there are interfaces between separate information systems, such as geographic information systems, project management systems and financial systems. Careful consideration should be given to avoid duplicative data among these different systems.
    • Triggers and protocols for identifying and addressing project cost overruns and schedule delays.
• When selecting a system or means to monitor/manage projects, take steps to ensure it will provide the capability to report on projects and programs with minimal manual effort.  (See recommendation #4 for information on reporting.)

4. Regularly monitor capital projects’ financial and project activity information. Once legal, fiduciary, and other reporting requirements have been established and information systems are in place, finance officials should monitor capital project activity on a regular basis. At a minimum, such monitoring should include: 

• Confirmation that a project plan exists that identifies all required resources and milestone work products and assurance that the project plan is being followed.
• Confirmation that the project’s scope has been clearly identified upon completion of final design and that the project stays within scope or that changes to scope have been made consistent with an established process.
• A review of project-related financial transactions to support budget review, auditing and asset management.
• A review of expenditures, both in relation to the current budget, and over the entire project life.
• A review of any project retainages, warranties, or other conditional performance schedules.
• Review of encumbrances and estimates of planned expenditure activity.
• Confirmation of continued availability and appropriateness of revenue sources identified in the capital budget.
• Confirmation of the adequacy of cash flow in relation to project requirements.
• Review  of  the  timing  of  investment  maturities  compared  to  planned  project disbursements.
• Review of sources and project uses of bond proceeds and grants.
• Results compared to established measures of performance, including, at a minimum, cost and schedule performance indices.

5. Reporting on project status and activities. Producing project status reports will help keep officials informed regarding project progress. In establishing report content and frequency it is important to keep in mind that high profile projects often require more extensive reporting of activity compared to a jurisdiction’s more routine capital projects, which may be better addressed at a program level. It is important to be consistent and use plain language when compiling information from various sources and reporting it to multiple stakeholders. Meaningful reports should provide straightforward project information for executive leadership and internal staff as well as citizens and the media, and, at minimum:

• Provide a comparison of actual results to the project plan, including:
  • Percent of project completed
  • Percent of project budget expended
  • Progress on key project milestones
  • Contract status information including time remaining and percentage used
  • Revenue and expenditure activity
  • Cash flow and investment maturities
  • Funding commitments
  • Available appropriation
  • Comparison of results in relation to established performance measures
• Highlight significant changes to project scope, costs, schedule, or funding.
• To aid in the reporting, an annual snapshot of key schedule, cost estimate, and available funding information should be taken to establish baseline data for performance measures and report components.

6. Project close-out. Upon project completion, ensure that actions are taken to finalize project activity, including, at minimum:

• Confirming that the project is closed out appropriately within all systems used to manage, monitor and report on the project.
• Confirm that all remaining contract encumbrances are properly closed out and remaining funds are handled appropriately.
• Confirming that the established procedures for user acceptance of project work and final project completion have been followed.
• Confirming that all closeout and reporting requirements of grantors and bond covenants have been completed.
• Confirming that all project close out data is properly recorded on the fixed assets schedule and capital assets are added to the government’s capital asset tracking system, if any.
• Confirming that procedures are in place to meet any continuing disclosure or ongoing reporting requirements.

7. Evaluate monitoring and reporting activities. In order to ensure that capital project monitoring and reporting practices continue to be effective and relevant to the organization, jurisdictions should conduct a periodic review of these practices, including at minimum:

• An inspection of reporting data for accuracy and completeness.
• The existence and adequacy of measures used for quality assurance and control in each phase of capital projects.
• Solicitation of feedback from stakeholders on the adequacy and relevance of reports and reporting tools, including the extent to which business needs are being addressed.
• A comparison of the organization’s report format and content to other agencies’ practices.
• An assessment of the adequacy of communication between various organizational units.