The email arrives without warning.
"Federal Compliance Audit Notification" or "Process Review Scheduled" or simply a call from your state DOT's local assistance office asking when they can come out to review project files.
If you've managed federally funded construction projects long enough, you know this moment is coming. The question isn't if your documentation will be scrutinized—it's when, and whether you'll be ready.
I've been through Caltrans mid-construction reviews and federal-aid audits in California, and while the specific forms vary by state, the categories auditors care about are remarkably consistent. They want to see that you followed the process, that you can prove it, and that the documentation tells a coherent story.
I thought it was important to share five document categories that consistently matter—and where I've personally seen projects get tripped-up.
1. Daily Reports: The Foundation of Everything
Daily reports are the most universal construction document, and auditors treat them as the primary record of what actually happened on your project. If something isn't in the daily report, the default assumption is that it didn't happen.
What auditors look for:
They want daily reports that are current (no week-long gaps), specific (not "crew worked on paving"), and signed by the inspector who wrote them. Beyond that, they're checking whether reports identify:
Where projects get tripped up:
The most common problem isn't missing daily reports—it's vague ones. "Contractor continued grading operations" doesn't help anyone reconstruct what happened six months later. Neither does a report that lists workers without indicating who they work for, or that lumps all hours under "general work" instead of tying them to specific bid items.
The other gap: RE oversight. Auditors often check whether the Resident Engineer reviewed and initialed inspector reports. If there's no evidence of review, it raises questions about quality control of your own documentation.
What helps:
A daily report format that prompts inspectors to include the right information—rather than hoping they remember—makes a significant difference. So does a clear workflow where reports are routed for RE review before they're considered complete. The goal is making thoroughness the path of least resistance.
2. Change Order Backup and Justification
Every change order represents a deviation from the original contract, and auditors want to understand why it was necessary and how the price was determined. A change order without adequate backup is a questioned cost waiting to happen.
What auditors look for:
For each change order, they expect to see:
If you paid an agreed lump sum or adjusted unit prices, they want to see how you arrived at that number. "We negotiated it" isn't sufficient—there should be a force account analysis or independent estimate that supports the agreed amount.
Where projects get tripped up:
The most common gap is the justification memo. The CO form itself might be complete, but there's no narrative explaining why the work was necessary, how it relates to changed conditions or design issues, and why the price is reasonable.
The other trap: change orders that reference RFIs, submittals, or design bulletins that prompted the change—but those documents aren't connected in a way that lets someone follow the thread. You know the CO happened because of RFI #47, but if an auditor has to hunt through separate filing systems to find RFI #47 and understand the context, you've created unnecessary risk.
What helps:
The ability to link change orders directly to the RFIs, submittals, and bulletins that prompted them means the story tells itself. When someone pulls up a change order and can immediately see everything that led to it, the audit response writes itself.
3. Certified Payrolls and Labor Compliance Records
Labor compliance is one of the most heavily scrutinized areas in federal-aid audits. The requirements are specific, the documentation is voluminous, and the consequences of gaps can be significant.
What auditors look for:
At minimum, they want to see:
Where projects get tripped up:
Payroll collection often falls behind, especially when subs are slow to submit. By the time an audit comes around, you're chasing down certified payrolls from months ago—or discovering they were never properly signed in the first place.
Employee interviews are another common gap. The requirement is specific (two per month per contract in California), but if interviews aren't being tracked systematically, it's easy to fall short without realizing it.
The technical trap: wage rates that changed between advertisement and bid opening. If the 10-day check wasn't done—or was done but no addendum was issued—you have a compliance problem that's hard to fix retroactively.
What helps:
Labor compliance is one area where most construction management software doesn't provide complete coverage. A checklist system that tracks payroll submission status, interview frequency, and wage rate verification can prevent gaps from developing. The key is treating labor compliance as an ongoing tracking task, not something you reconstruct at the end of the project.
4. Materials Tester Certifications and Lab Accreditation
This one gets requested in almost every audit I've been through. Auditors want to know that the people running your acceptance tests were actually qualified to run them—and that their certifications were valid at the time they performed the work.
What auditors look for:
In California, this means JTCP (Joint Training and Certification Program) certifications for testers, Caltrans Independent Assurance accreditation for labs, and verification that accreditation was current (it's valid for one year and granted test-by-test).
Where projects get tripped up:
Certifications expire. A tester who was certified when the project started might not be certified when they run a test eight months later. If their certification lapsed and they ran a compaction test during that gap, the validity of that test result is now in question.
The other gap: collecting certifications at the start of the project and never updating them. Auditors don't just want to see that testers were certified—they want to see that you verified it was valid when the work was done.
What helps:
A tracking system that flags certification expiration dates before they become a problem. Like labor compliance, this requires ongoing attention rather than one-time collection. Most construction management programs don't include certification tracking, so this often needs to be handled through a separate checklist or tracking spreadsheet.
5. Buy America Certifications
With increased federal emphasis on domestic sourcing, Buy America compliance is getting more scrutiny than ever. The requirement applies to steel, iron, and manufactured products permanently incorporated into the project—and the documentation needs to be in place before the material is accepted.
What auditors look for:
Where projects get tripped up:
The timing issue is critical. Material arrives, it gets incorporated into the work, and somewhere along the way the certificate of compliance didn't get collected with the delivery ticket. Now you have foreign-origin steel in your project and no documentation proving otherwise.
The other gap: certificates that come from the wrong party. The cert needs to be from the manufacturer, not just a statement from the contractor that the material is domestic.
What helps:
Building certificate collection into your materials acceptance workflow—so nothing gets approved for payment without the required Buy America documentation—prevents the retroactive scramble. This is another area where a checklist for inspectors can catch gaps before material is already in place.
The Checklist Reality
Here's something I've learned from going through audits: no single software system covers all of this.
Daily reports and change orders might live in your project management system. Labor compliance tracking might be handled separately. Materials certifications and Buy America certs often end up in project files or spreadsheets. Lab accreditations might be in a completely different location.
That fragmentation is why staff checklists matter so much. When your inspectors and project managers have a clear list of what needs to be collected, verified, and filed—and when—gaps are much less likely to develop.
The projects that sail through audits aren't staffed by people with photographic memories. They're staffed by people with good systems and clear checklists that make compliance the default rather than something that requires heroic effort.
The Audit Mindset
The best time to prepare for an audit is before the project starts. The second-best time is right now.
Walk through these five categories for your active projects. Are daily reports current, specific, and reviewed? Do your change orders have complete backup and clear justification trails? Is labor compliance being tracked systematically? Are tester certifications current and documented? Are Buy America certs being collected at delivery?
If the answer to any of those is "I'm not sure," that's worth investigating before someone else asks the question.
Because auditors aren't trying to catch you doing something wrong. They're trying to verify you did everything right. Your documentation is either going to tell that story clearly—or leave them guessing.
Resources
These resources can help you prepare for federal-aid audits and understand what reviewers are looking for:
Caltrans / California-Specific:
Federal / Nationally Applicable:
I've managed federally funded projects in California for over two decades, and documentation has saved me more than once. At BridgeDoc, we've built daily report workflows with RE review and approval, and change order systems that link directly to the RFIs and submittals that prompted them—because we've lived the audit process and know what matters. If you'd like to see how it works, I'd be happy to show you.
Book your FREE demo with me HERE!