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Negative Message - Business Communications

In: Business and Management

Submitted By cn32
Words 835
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To: | Executive Committee Members and Harold C. McBride | From: | Andrew M. Fisher, Senior Planning & Development Manager | Date: | March 15, 2010 | Subject: | Internal Audit Discovers $2.3 Million Error in Prior Cost Estimate Report |

Earlier this afternoon, our internal auditing department completed their quarterly examination of my division and notified me of a significant, material error that was discovered in the amount of $2.3 million. This multi-million dollar inaccuracy was found during the inspection of financial documents related to the “East Lawn Office Expansion and Renovation Project.” According to preliminary reports obtained directly from the internal auditors, the $2,300,000 error was found on a previously released cost estimate report related to this project. This error will cause the “East Lawn Office Expansion and Renovation Project” to be over budget by $2.3 million and this material error will significantly impact the future of the “East Lawn Office Expansion and Renovation Project” and will also negatively influence the multitude of related projects, initiatives and programs that operate in close proximity to the “East Lawn Office Expansion and Renovation Project.” This “East Lawn Office Expansion and Renovation Project” is an aggressive initiative that falls under the direct control and supervision of the Google Excellence in Internal Operations Team (GEIOT). This team of seasoned industry professionals is composed of talented individuals from across our company and this enthusiastic compilation of men and women is responsible for improving internal operations within our company to promote efficiency in internal operations and ultimately maximize our company’s profits. As Senior Planning & Development Manager, I am the leader of this team and I’m ultimately responsible for all activities that relate to GEIOT.
After reviewing the financial documents from the “East Lawn Office Expansion and Renovation Project” I have realized my numerous mistakes in tabulating the total estimated cost of the project and, after reworking the numbers I must agree with the internal auditors that the “East Lawn Office Expansion and Renovation Project” will now be $2.3 million over budget. My errors and the reasons for each miscalculation are listed below: 1. One of my main errors within the previously released cost estimate report stemmed from my failure to correctly account for labor expenses associated with the “East Lawn Office Expansion and Renovation Project.” An error associated with capitalizing labor costs and failing to account for fringe benefits for certain eligible workers caused this error and contributed to the gross inaccuracy of the overall report. The root cause of this error was an incorrect formula in one of our company’s main databases that incorrectly tabulated and projected an erroneous figure related to the cost of labor. 2. Additionally, the price of construction materials in my previously released cost estimate report was estimated to be nearly 75% lower than the true fair market value of these same construction materials. These price estimates were received directly from our very own Building and Facilities Department. I contacted their Managing Director and he confirmed that this error was caused by a glitch in their system. 3. Furthermore, I discovered a grave miscalculation related to new software that was intended to upgrade and replace the existing software inside the East Lawn office facility. The price of this new software is originally shown in the erroneous cost estimate report at a projected price of $100,000 but this figure should have been correctly recorded as $950,000. I tracked down the root cause of this specific error and found that our company’s price lists are outdated and inaccurate.
This significant error in the amount of $2.3 million is clearly a setback for not only GEIOT and its activities but also for our company as a whole but I feel that it is my duty to also accentuate the positive that has resulted from this error. During my preliminarily investigation into the causes of this significant mistake I found that many of our company’s very own internal functions were flawed and contributed to this gross miscalculation. For instance, the main database used to calculate the cost of labor had an erroneous formula that caused this projection to be severely misstated in the cost estimate report. I have already alerted the IT department and they will correct this error within the company’s database before the end of the week. Also, the system used by the Building and Facilities Department to project the cost of construction materials for internal projects is defective (I have contacted the proper individual and this inaccuracy within their system will also be corrected within the next few days).

I will continue to update everybody on any further developments concerning this miscalculation and will conduct a full investigation over the coming week into the events that led to this grave miscalculation and will also assign a taskforce to ensure that a mistake of such magnitude doesn’t repeat itself with GEIOT or other segments of our company. I appreciate everyone’s cooperation concerning this matter.…...

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