What risk factors are common in construction audits related to bills payable to subcontractors, and how would you test them?

• A. Timeliness of payments, accuracy of subcontractor balances, lien waivers, and proper approvals; test by sampling invoices, requesting confirmations, and verifying lien waivers.
• B. Invoice totals must match PO
• C. Focus on cash disbursement timing only
• D. Only confirm with suppliers

Answer: (A)

In construction audits, payables to subcontractors carry several interrelated risks: payments must be made in a timely manner to reflect the project’s progress, balances billed by subcontractors must be accurate and supported by the work performed and approved change orders, lien waivers should be obtained to prevent future claims, and payments should be properly authorized to ensure controls over disbursements. These areas together help ensure the liability is complete, accurate, and enforceable.

The best answer captures all these risk factors and suggests practical testing steps. By sampling invoices, you examine whether the amounts and timing of payments align with the work completed, change orders, and the project schedule. Requesting confirmations from subcontractors provides external evidence about the balances reported by the contractors, helping detect overstatements or missing liabilities. Verifying lien waivers ensures that once payments are made, subcontractors have relinquished potential lien rights as agreed, reducing the risk of future claims. Checking for proper approvals confirms that disbursements follow the established authorization processes, mitigating the chance of unauthorized or improper payments. Together, these tests address the main exposure areas in construction payables.

The other options are too narrow. Focusing only on invoice totals versus purchase orders misses the broader construction context, where change orders, retainage, and project-specific billing rules affect the recorded liability. Concentrating solely on cash disbursement timing ignores accuracy, approvals, and lien-related risks. Relying only on confirmations with suppliers omits internal controls and documentation that support the timing, authorization, and release of liens.