The Uniform Audit and Accounting Guide for Audits of Architecture and Engineering (A/E) Consulting...

The Uniform Audit and Accounting Guide

forAudits of Architecture and

Engineering (A/E) Consulting Firms

AgendaAgenda

BackgroundBackground OIG Audit RecommendationsOIG Audit Recommendations Collaborative EffortCollaborative Effort Overview of the Updated Audit Overview of the Updated Audit

GuideGuide Next Steps Next Steps

BackgroundBackground

USDOT OIG Audit on Architectural & USDOT OIG Audit on Architectural & Engineering Firm Executive Engineering Firm Executive Compensation and Other Overhead Compensation and Other Overhead Costs Billed to the Federal-aid Costs Billed to the Federal-aid Highway Program: Highway Program: Audit initiated in 2004Audit initiated in 2004 Report issued in February 2009Report issued in February 2009

OIG Audit OIG Audit RecommendationsRecommendations

Revise 23 CFR 172:Revise 23 CFR 172: Require A&E firms to certify cost allowabilityRequire A&E firms to certify cost allowability Provide States penalty assessment authorityProvide States penalty assessment authority Assign responsibility & accountability for Assign responsibility & accountability for

overseeing CPA audits of A&E firmsoverseeing CPA audits of A&E firms Issue guidance for A&E firm procurement Issue guidance for A&E firm procurement

of CPAsof CPAs Cost Recovery on questioned costsCost Recovery on questioned costs Establish a process for monitoring & Establish a process for monitoring &

ensuring State implementation of NHS ensuring State implementation of NHS Act section 307Act section 307

OIG Audit FindingsOIG Audit Findings CPA’s did not perform sufficient transaction CPA’s did not perform sufficient transaction

testing.testing.

Unallowable costs.Unallowable costs.

Unallowable executive compensation.Unallowable executive compensation.

Audit services not effectively acquired.Audit services not effectively acquired.

CPA’s did not have relevant training.CPA’s did not have relevant training.

Oversight of CPA’s not effective.Oversight of CPA’s not effective.

EstablishmentEstablishment

The AASHTO Administrative The AASHTO Administrative Subcommittee on Internal and Subcommittee on Internal and External Audit approved the External Audit approved the establishment of the Uniform Audit establishment of the Uniform Audit and Accounting Guide Task Force to and Accounting Guide Task Force to update the Guide during its 2007 update the Guide during its 2007 Annual Meeting.Annual Meeting.

FHWA joined in this effort.FHWA joined in this effort. Kicked off in August 2007Kicked off in August 2007

Uniform Audit and Uniform Audit and Accounting Guide Task Accounting Guide Task

ForceForce

Representatives from fourteen Representatives from fourteen state DOT audit agencies.state DOT audit agencies.

AASHTOAASHTO FHWAFHWA

Audit Guide Steering Audit Guide Steering CommitteeCommittee

Representatives from five state Representatives from five state DOT agencies.DOT agencies.

Six A/E firms.Six A/E firms. AASHTOAASHTO ACECACEC FHWAFHWA

The Purpose of the Guide The Purpose of the Guide Update:Update:

Assure the Guide is consistent with Assure the Guide is consistent with current auditing standards and current auditing standards and procedures, accounting principles, procedures, accounting principles, and Federal Regulation.and Federal Regulation.

Strengthen the Guide by providing Strengthen the Guide by providing additional guidance and clarification additional guidance and clarification in regard to policy and procedures in regard to policy and procedures set forth in the Federal Regulations.set forth in the Federal Regulations.

Identification of the Identification of the Guidelines and Procedures Guidelines and Procedures that required updatingthat required updatingSolicited input from:Solicited input from: Task Force members.Task Force members. AASHTO Audit Subcommittee Members.AASHTO Audit Subcommittee Members. ACECACEC A/E Member Firms.A/E Member Firms. Public Accounting Firms. Public Accounting Firms. AASHTOAASHTO FHWAFHWA AICPAAICPA

The Guide is a Tool for:The Guide is a Tool for:

State Auditors.State Auditors.

A/E Firms.A/E Firms.

CPA Firms.CPA Firms.

The Guide’s focus is on auditing and The Guide’s focus is on auditing and reporting procedures applied to reporting procedures applied to costs incurred by A/E firms for costs incurred by A/E firms for engineering and design related engineering and design related services on various federal, state, services on various federal, state, and local transportation projects.and local transportation projects.

FocusFocus

IntentionIntention

The Guide is not intended to be a detailed The Guide is not intended to be a detailed auditing procedures manual.auditing procedures manual.

A guide to assist users in understanding A guide to assist users in understanding terminology, policies, procedures, and terminology, policies, procedures, and audit techniques, along with Federal audit techniques, along with Federal Regulations and their source.Regulations and their source.

Users are cautioned to be aware that the Users are cautioned to be aware that the FAR Cost Principles change frequently and FAR Cost Principles change frequently and the applicable version should be referenced the applicable version should be referenced in conjunction with the use of this Guide. in conjunction with the use of this Guide.

Substantive ChangesSubstantive Changes

Chapter 2-Adequaqcy of Accounting RecordsChapter 2-Adequaqcy of Accounting Records Mgt is responsible to ensure that Federal and State Mgt is responsible to ensure that Federal and State

DOT Auditors are granted full access to their CPA’s DOT Auditors are granted full access to their CPA’s work papers.work papers.

The CPA is responsible for performing an audit or The CPA is responsible for performing an audit or examination level attestation engagement in examination level attestation engagement in accordance with GAGAS, to obtain reasonable accordance with GAGAS, to obtain reasonable assurance that the engineering consultant complied assurance that the engineering consultant complied with FAR Part 31 and applicable Cost Accounting with FAR Part 31 and applicable Cost Accounting Standards.Standards.

Before accepting a FAR audit engagement, CPA’s must Before accepting a FAR audit engagement, CPA’s must determine if they have the required specialized determine if they have the required specialized knowledge to complete the engagement -reference knowledge to complete the engagement -reference included to SAS 105.included to SAS 105.


Chapter 2, continued: Chapter 2, continued: Selection of a CPA Firm as the Overhead Selection of a CPA Firm as the Overhead

Auditor.Auditor. The CPA must follow AICPA professional The CPA must follow AICPA professional

standards; must obtain sufficient, standards; must obtain sufficient, appropriate audit evidence to support their appropriate audit evidence to support their opinion; was the overhead schedule opinion; was the overhead schedule prepared in compliance with the FAR 31.2 prepared in compliance with the FAR 31.2 Cost Principles. Cost Principles.

Listing of factors for consideration in Listing of factors for consideration in selecting a CPA is included. selecting a CPA is included.


Chapter 3-Standards for Attestations Chapter 3-Standards for Attestations and Auditsand Audits

Auditing StandardsAuditing Standards Generally Accepted Government Auditing Generally Accepted Government Auditing

Standards apply to audits s audits of Standards apply to audits s audits of Federal-aid funds paid to engineering Federal-aid funds paid to engineering consultants.consultants.


Chapter 4-Cost PrinciplesChapter 4-Cost Principles Reasonableness and AllowabilityReasonableness and Allowability

FAR 31.201-2- Provides a cost is allowable only FAR 31.201-2- Provides a cost is allowable only when the cost complies with all of the following when the cost complies with all of the following requirements:requirements:

Reasonableness.Reasonableness. Allocability.Allocability. Standards promulgated by the CAS Board, if applicable; Standards promulgated by the CAS Board, if applicable;

otherwise, GAAP and practices appropriate to the otherwise, GAAP and practices appropriate to the circumstances.circumstances.

Terms of the contract.Terms of the contract. Any limitations set forth in FAR 31.201.Any limitations set forth in FAR 31.201.


Chapter 4, continued:Chapter 4, continued: FAR 31.201-3-Provides the framework for FAR 31.201-3-Provides the framework for

addressing the reasonableness of costs:addressing the reasonableness of costs: Cost in its nature & amount, does not exceed Cost in its nature & amount, does not exceed

that which would be incurred by a prudent that which would be incurred by a prudent person in the conduct of competitive business.person in the conduct of competitive business.

No presumption of reasonableness.No presumption of reasonableness. If an initial review of the facts results in a If an initial review of the facts results in a

challenge of a specific cost, the burden of proof challenge of a specific cost, the burden of proof is on the contractor to establish that such cost is on the contractor to establish that such cost is reasonable.is reasonable.

Substantive ChangesSubstantive ChangesChapter 4, continued:Chapter 4, continued: Reasonable depends upon a variety of Reasonable depends upon a variety of

considerations and circumstances, includingconsiderations and circumstances, including——

Type of cost generally recognized as ordinary Type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s and necessary for the conduct of the contractor’s business or the contract performance;business or the contract performance;Generally accepted sound business practices, Generally accepted sound business practices, arm’s length bargaining, and Federal and State arm’s length bargaining, and Federal and State laws and regulations;laws and regulations;The contractor’s responsibilities to the The contractor’s responsibilities to the Government, other customers, the owners of Government, other customers, the owners of business, employees, and the public at large, andbusiness, employees, and the public at large, andAny significant deviations from the contractor’s Any significant deviations from the contractor’s established practices.established practices.

Substantive ChangesSubstantive ChangesChapter 5-Cost AccountingChapter 5-Cost Accounting Discussion of Allocation BasesDiscussion of Allocation Bases Accounting for Unallowable Costs in Accounting for Unallowable Costs in

Allocation BasesAllocation Bases Costs CentersCosts Centers Addresses Allocated CostsAddresses Allocated Costs

Internal Labor costsInternal Labor costs Direct LaborDirect Labor Uncompensated Overtime for Salaried Uncompensated Overtime for Salaried

EmployeesEmployees Overtime PremiumOvertime Premium


Chapter 5, continued:Chapter 5, continued: Field Office RatesField Office Rates

Table 5-5 Sample Overhead ScheduleTable 5-5 Sample Overhead Schedule Table 5-6 Sample Overhead Schedule Table 5-6 Sample Overhead Schedule

(With Field Rate)(With Field Rate) Table 5-7 Field Office ComputationsTable 5-7 Field Office Computations

Substantive ChangesSubstantive ChangesChapter 6-Labor Charging Systems and Other Chapter 6-Labor Charging Systems and Other

ConsiderationsConsiderations

Allowability and Reasonableness of Indirect Allowability and Reasonableness of Indirect LaborLabor

DCAA Accounting Guide Referenced-Guidance DCAA Accounting Guide Referenced-Guidance on:on: Accounting SystemAccounting System Labor Charging SystemLabor Charging System Timecard PreparationTimecard Preparation Timekeeping PolicyTimekeeping Policy

A Labor Charging Checklist is included.A Labor Charging Checklist is included.


Chapter 7-CompensationChapter 7-Compensation Guidance in the determination of reasonable Guidance in the determination of reasonable

compensation costs. compensation costs. Revisions IncludeRevisions Include: :

Steps to evaluate compensation reasonableness Steps to evaluate compensation reasonableness and perform a compensation analysis in and perform a compensation analysis in compliance with FAR 31-205-6, the Techplan and compliance with FAR 31-205-6, the Techplan and Information System decisions.Information System decisions.

Determining reasonableness of compensation Determining reasonableness of compensation when an independent compensation analysis has when an independent compensation analysis has not been performed. Guide discusses the creation not been performed. Guide discusses the creation of a National Compensation Matrix (NCM) to set of a National Compensation Matrix (NCM) to set parameters for reasonableness. The Task Force parameters for reasonableness. The Task Force recommended that the NCM should be prepared recommended that the NCM should be prepared under the direction, guidance, and authority of the under the direction, guidance, and authority of the FHWA. FHWA.


Chapter 7, continued:Chapter 7, continued: Differentiating between the processes Differentiating between the processes

required to determine reasonable required to determine reasonable compensation paid to Senior Executives, as compensation paid to Senior Executives, as defined in FAR 31.205-6(p)(2)(ii)(B), and defined in FAR 31.205-6(p)(2)(ii)(B), and other employees.other employees.

The comprehensiveness of compensation The comprehensiveness of compensation survey data as a fair representation of survey data as a fair representation of realistic, reasonable compensation for the realistic, reasonable compensation for the A/E industry, continues to be an area of A/E industry, continues to be an area of concern expressed by ACEC.concern expressed by ACEC.

Substantive ChangesSubstantive ChangesChapter 7, continued:Chapter 7, continued:

Related parties - The consultant is to provide a Related parties - The consultant is to provide a list of all related employees along with list of all related employees along with pertinent employee information including the pertinent employee information including the employees’ names, position titles or job employees’ names, position titles or job classifications, duties, total wages or salaries, classifications, duties, total wages or salaries, bonuses paid, and total taxable fringe benefits.bonuses paid, and total taxable fringe benefits.

Auditors should review this information and Auditors should review this information and evaluate whether there is a risk that the evaluate whether there is a risk that the compensation paid to the related party is compensation paid to the related party is unreasonable and whether additional audit unreasonable and whether additional audit procedures and or adjustments are necessary.procedures and or adjustments are necessary.


Criteria for Demonstrating Superior Criteria for Demonstrating Superior Performance.Performance.

Special Consideration For Closely-Held Special Consideration For Closely-Held FirmsFirms

Bonus and Incentive Pay PlansBonus and Incentive Pay Plans

Fringe BenefitsFringe Benefits

Supplemental BenefitsSupplemental Benefits


Chapter 8-Selected Areas of CostChapter 8-Selected Areas of Cost

Provides clarification, guidance, Provides clarification, guidance, and tools to assist in determining and tools to assist in determining allowable or unallowable costs, allowable or unallowable costs, resulting in increased resulting in increased consistency in FAR cost consistency in FAR cost interpretations nationwide.interpretations nationwide.

Substantive ChangesSubstantive ChangesChapter 8, continued:Chapter 8, continued: Clarifications and/or additions in a Clarifications and/or additions in a

number of areas, including: number of areas, including: Directly Associated Costs, Reasonableness, Directly Associated Costs, Reasonableness,

Direct Costs, and Burden of Proof.Direct Costs, and Burden of Proof. Depreciation, Employee Welfare, Gains & Losses Depreciation, Employee Welfare, Gains & Losses

on Depreciable Property, Idle Facilities and Idle on Depreciable Property, Idle Facilities and Idle Capacity Cost, Precontract Cost, Insurance, Capacity Cost, Precontract Cost, Insurance, Losses on Other Contracts, Retainer Agreements, Losses on Other Contracts, Retainer Agreements, Relocation Costs, Rent/Lease, Taxes, Travel, Relocation Costs, Rent/Lease, Taxes, Travel, Goodwill, and Business Combination Costs.Goodwill, and Business Combination Costs.

The listing of common unallowable costs was The listing of common unallowable costs was updated.updated.

Substantive ChangesSubstantive ChangesChapter 9-General Audit ConsiderationsChapter 9-General Audit Considerations Auditors must exercise significant judgment in Auditors must exercise significant judgment in

planning and performing engagements and must planning and performing engagements and must consider both the environment in which the consider both the environment in which the engineering consultant operates and the engineering consultant operates and the adequacy of the consultant’s accounting systems adequacy of the consultant’s accounting systems and procedures to comply with Federal and procedures to comply with Federal requirements.requirements.

Auditors must consider specific Government Auditors must consider specific Government

regulations and individual contract provisions regulations and individual contract provisions when designing, performing, and evaluating when designing, performing, and evaluating audit procedures.audit procedures.


Chapter 9, continued:Chapter 9, continued: The wide variety of tools and publications The wide variety of tools and publications

available to provide guidance in available to provide guidance in determining the appropriate procedures, determining the appropriate procedures, testing methods, and reporting formats is testing methods, and reporting formats is noted, referencing Appendix D – Listing of noted, referencing Appendix D – Listing of Resource Materials, and listing some Resource Materials, and listing some publications that may be helpful.publications that may be helpful.

Provides additional guidance in regard to Provides additional guidance in regard to internal controls, estimating and proposal internal controls, estimating and proposal systems, cost accounting systems, audit systems, cost accounting systems, audit risk and materiality and sampling.risk and materiality and sampling.

Substantive ChangesSubstantive ChangesChapter 10-Guidance for Developing Audit Chapter 10-Guidance for Developing Audit

ProceduresProcedures Before accepting a FAR audit report or Before accepting a FAR audit report or

examination-level attestation report, the examination-level attestation report, the Home State DOT or other reviewing Home State DOT or other reviewing State DOT must determine whether the State DOT must determine whether the auditor has adequately complied with auditor has adequately complied with the procedures described in Chapter 9 the procedures described in Chapter 9 (General Audit Considerations) and (General Audit Considerations) and performed adequate testing in performed adequate testing in compliance with the recommended compliance with the recommended minimum audit testing procedures minimum audit testing procedures discussed in the Guide. discussed in the Guide.

Substantive ChangesSubstantive ChangesChapter 10, continued:Chapter 10, continued: When employing a CPA firm (or When employing a CPA firm (or

other service provider/auditor) to other service provider/auditor) to audit a proposed overhead rate, the audit a proposed overhead rate, the engineering consultant must inform engineering consultant must inform the CPA that:the CPA that: The audit should comply with The audit should comply with

AASHTO’s minimum recommended AASHTO’s minimum recommended audit procedures, as discussed in audit procedures, as discussed in the Guide.the Guide.


The CPA should consider meeting The CPA should consider meeting with representatives of the with representatives of the reviewing State DOT to discuss the reviewing State DOT to discuss the audit process. audit process.


Planning and General ProceduresPlanning and General Procedures

Audit work must meet professional standards Audit work must meet professional standards (Government Auditing Standards and either (Government Auditing Standards and either Generally Accepted Auditing Standards or Generally Accepted Auditing Standards or Attestation Standards), and the audit must be Attestation Standards), and the audit must be planned and performed to provide reasonable planned and performed to provide reasonable assurance that the overhead rate presented on assurance that the overhead rate presented on the overhead schedule complies with the Cost the overhead schedule complies with the Cost Principles of FAR Part 31.2. Principles of FAR Part 31.2.


Audit SamplingAudit Sampling

The chapter presents some basics to The chapter presents some basics to be considered in designing an audit be considered in designing an audit sample. sample.

Substantive ChangesSubstantive ChangesChapter 10, continued:Chapter 10, continued: NoteNote: B: Before selecting a statistical audit efore selecting a statistical audit

sample using sample using variable samplingvariable sampling techniques to techniques to test for unallowable cost items, auditors are test for unallowable cost items, auditors are expected to scan the engineering consultant’s expected to scan the engineering consultant’s general ledger so that large dollar or general ledger so that large dollar or sensitive (LDS) transactions can be sensitive (LDS) transactions can be removed/stratified for complete examination, removed/stratified for complete examination, including verification to source documents. including verification to source documents.

The The sampling universesampling universe should be limited to should be limited to the group of items that remain after the LDS the group of items that remain after the LDS items have been removed. items have been removed.


Chapter 10, continued:Chapter 10, continued: The auditor should determine an appropriate The auditor should determine an appropriate

sample size after considering the size of the sample size after considering the size of the firm, the auditor’s previous experience with firm, the auditor’s previous experience with the firm, the number of transactions and the firm, the number of transactions and high-risk accounts in the indirect cost pool, high-risk accounts in the indirect cost pool, and the assessed level of control risk. The and the assessed level of control risk. The test sample of an account balance or line item test sample of an account balance or line item must be sufficient to comply with GAGAS must be sufficient to comply with GAGAS 4.26. Additionally, in accordance with SAS 4.26. Additionally, in accordance with SAS No. 111, the auditor should document the No. 111, the auditor should document the sampling plan, including factors used in the sampling plan, including factors used in the determination of sample sizes.determination of sample sizes.


Auditors are encouraged to apply sampling Auditors are encouraged to apply sampling methods using a 95-percent confidence level with methods using a 95-percent confidence level with a precision level in the range of 2 to 5 percent.a precision level in the range of 2 to 5 percent.

All unallowable costs uncovered through audit All unallowable costs uncovered through audit testing must be removed from the overhead testing must be removed from the overhead schedule, regardless of amount, as FAR Part 31 schedule, regardless of amount, as FAR Part 31 does not establish a tolerance level to permit any does not establish a tolerance level to permit any amount of unallowable costs to remain in the amount of unallowable costs to remain in the indirect cost pool. indirect cost pool.

Substantive ChangesSubstantive ChangesChapter 10, continued:Chapter 10, continued: Based on the assessed level of control risk, Based on the assessed level of control risk,

the auditor should determine an appropriate the auditor should determine an appropriate labor sample with a labor sample with a minimum of 26 minimum of 26 timesheetstimesheets chosen for testing across an chosen for testing across an appropriate mix of direct-charge employees, appropriate mix of direct-charge employees, including supervisors and/or project including supervisors and/or project managers. managers.

In this context, “direct-charge employees” In this context, “direct-charge employees” means any employees, supervisors, and/or means any employees, supervisors, and/or principals who spend a portion of their time principals who spend a portion of their time working on A/E projects.working on A/E projects.


Chapter 10, continued:Chapter 10, continued: NoteNote: An auditor who selects a smaller : An auditor who selects a smaller

sample size than that recommended must sample size than that recommended must include an adequate explanation in the include an adequate explanation in the workpapers to justify the deviation. If the workpapers to justify the deviation. If the State DOT conducting the review State DOT conducting the review determines that the deviation is not properly determines that the deviation is not properly justified, the State DOT may reject the justified, the State DOT may reject the overhead rate determined through the audit.overhead rate determined through the audit.


Chapter 10, continued:Chapter 10, continued: In situations where the auditor determines that In situations where the auditor determines that

additional testing beyond the LDS items is required, additional testing beyond the LDS items is required, the remaining indirect costs in the high-risk accounts the remaining indirect costs in the high-risk accounts (the sampling universe) should be tested on a sample (the sampling universe) should be tested on a sample basis, using the sampling parameters recommended basis, using the sampling parameters recommended above in Section 10.2. (A 95-percent confidence level above in Section 10.2. (A 95-percent confidence level with a precision level (materiality threshold) in the with a precision level (materiality threshold) in the range of 2 to 5 percent). range of 2 to 5 percent).

A minimum random sample in the range of A minimum random sample in the range of 2 to 20 2 to 20 transactionstransactions is recommended for each high-risk is recommended for each high-risk account. This requires transactions to have been account. This requires transactions to have been verified from the overhead schedule back to the verified from the overhead schedule back to the general ledger and requires that the transactions be general ledger and requires that the transactions be vouched from the general ledger to source vouched from the general ledger to source documents.documents.

Substantive ChangesSubstantive ChangesChapter 10, continued:Chapter 10, continued: NoteNote: State DOTs generally will deem an : State DOTs generally will deem an

overhead audit insufficient due to an overhead audit insufficient due to an auditor’s failure to comply with the auditor’s failure to comply with the recommended minimum testing procedures recommended minimum testing procedures as established in this chapter (unless as established in this chapter (unless deviations from the minimum testing deviations from the minimum testing requirements are adequately identified and requirements are adequately identified and justified in the auditor’s workpapers), failure justified in the auditor’s workpapers), failure to apply properly the FAR Subpart 31.2 cost to apply properly the FAR Subpart 31.2 cost principles, and/or failure of a CPA or other principles, and/or failure of a CPA or other audit group to provide access to all audit audit group to provide access to all audit workpapers used to determine the audited workpapers used to determine the audited overhead rate. overhead rate.

Substantive ChangesSubstantive ChangesChapter 10, continued:Chapter 10, continued: NoteNote: The auditor should fully document the : The auditor should fully document the

identification of high-risk accounts, based on identification of high-risk accounts, based on a risk assessment and the application of a risk assessment and the application of professional judgment. If the auditor’s professional judgment. If the auditor’s procedures vary significantly from those procedures vary significantly from those listed, the auditor must provide an adequate listed, the auditor must provide an adequate explanation to justify the deviation. If the explanation to justify the deviation. If the State DOT conducting the review determines State DOT conducting the review determines that the deviation is not properly justified, that the deviation is not properly justified, the State DOT may reject the overhead rate the State DOT may reject the overhead rate determined through the audit.determined through the audit.


Chapter 11-Audit Reports and Chapter 11-Audit Reports and Minimum DisclosuresMinimum Disclosures

Provides a Sample Audit Report on Provides a Sample Audit Report on Overhead ScheduleOverhead Schedule

Provides a Sample Report on Provides a Sample Report on Internal Controls and ComplianceInternal Controls and Compliance

Minimum Audit Report Disclosures Minimum Audit Report Disclosures DiscussedDiscussed

Substantive ChangesSubstantive ChangesChapter 12-Cognizance and OversightChapter 12-Cognizance and Oversight The underlying guidance concerning The underlying guidance concerning

cognizant audits is contained in 23 CFR cognizant audits is contained in 23 CFR 172 and 23 U.S.C. 112 and supporting 172 and 23 U.S.C. 112 and supporting documents published by FHWA. Section documents published by FHWA. Section 174 of the 2006 Transportation 174 of the 2006 Transportation Appropriations Act and the Appropriations Act and the implementation guidance issued by implementation guidance issued by FHWA served to re-emphasize the FHWA served to re-emphasize the importance of cognizant audits, while importance of cognizant audits, while not actually changing the underlying not actually changing the underlying regulations specific to issuance or regulations specific to issuance or acceptance of cognizant audits.acceptance of cognizant audits.


Chapter 12, continued:Chapter 12, continued: 23 U.S.C. 112 provides definitive 23 U.S.C. 112 provides definitive

guidance on indirect rates and the guidance on indirect rates and the acceptance of cognizant audits. 23 acceptance of cognizant audits. 23 U.S.C. 112 (b)(2), Contracting for U.S.C. 112 (b)(2), Contracting for engineering and design services, engineering and design services, provides the following: provides the following:


Chapter 12, continued:Chapter 12, continued: (A) General Rule – Subject to paragraph (3), each (A) General Rule – Subject to paragraph (3), each

contract for program management, construction contract for program management, construction management, feasibility studies, preliminary management, feasibility studies, preliminary engineering, design, engineering, surveying, mapping, engineering, design, engineering, surveying, mapping, or architectural related services with respect to a or architectural related services with respect to a project . . . shall be awarded in the same manner as a project . . . shall be awarded in the same manner as a contract for architectural and engineering services is contract for architectural and engineering services is negotiated under Chapter 11 of Title 40.negotiated under Chapter 11 of Title 40.

(B) Performance and audits – Any contract or (B) Performance and audits – Any contract or subcontract awarded in accordance with subcontract awarded in accordance with subparagraph (A), whether funded in whole or in part subparagraph (A), whether funded in whole or in part with Federal-aid highway funds, shall be performed with Federal-aid highway funds, shall be performed and audited in compliance with cost principles and audited in compliance with cost principles contained in the Federal Acquisition Regulation of contained in the Federal Acquisition Regulation of part 31 of title 48, Code of Federal Regulations. part 31 of title 48, Code of Federal Regulations.

Substantive ChangesSubstantive ChangesChapter 12, continued:Chapter 12, continued: (C) Indirect cost rates – Instead of performing its (C) Indirect cost rates – Instead of performing its

own audits, a recipient of funds under a contract or own audits, a recipient of funds under a contract or subcontract awarded in accordance with subcontract awarded in accordance with subparagraph (A) shall accept indirect cost rates subparagraph (A) shall accept indirect cost rates established in accordance with the Federal established in accordance with the Federal Acquisition Regulation for 1-year applicable Acquisition Regulation for 1-year applicable accounting periods by a cognizant Federal or State accounting periods by a cognizant Federal or State government agency, if such rates are not currently government agency, if such rates are not currently under dispute.under dispute.

(D) Application of rates – Once a firm’s indirect (D) Application of rates – Once a firm’s indirect cost rates are accepted under this paragraph, the cost rates are accepted under this paragraph, the recipient of the funds shall apply such rates for the recipient of the funds shall apply such rates for the purposes of contract estimation, negotiation, purposes of contract estimation, negotiation, administration, reporting and contract payment administration, reporting and contract payment and shall not be limited by administrative or de and shall not be limited by administrative or de facto ceilings of any kind.facto ceilings of any kind.

Substantive ChangesSubstantive ChangesChapter 12, continued:Chapter 12, continued:■ The AASHTO Audit Subcommittee and The AASHTO Audit Subcommittee and

ACEC Transportation Committee worked ACEC Transportation Committee worked together to develop the following together to develop the following guidance, which was later incorporated guidance, which was later incorporated by FHWA into the by FHWA into the Administration of Administration of Engineering and Design Related Services Engineering and Design Related Services Contracts–Questions and AnswersContracts–Questions and Answers prepared by the FHWA and available on prepared by the FHWA and available on the Internet at the Internet at http://www.fhwa.dot.gov/programadmin/1http://www.fhwa.dot.gov/programadmin/172qa.cfm#r3972qa.cfm#r39..

Substantive ChangesSubstantive ChangesChapter 12, continued:Chapter 12, continued:■ What is a Cognizant Agency?What is a Cognizant Agency?■ A cognizant agency can be any of the A cognizant agency can be any of the

following:following:■ A Federal agency, A Federal agency, The Home State Transportation or Highway The Home State Transportation or Highway

Department (the State where the consulting Department (the State where the consulting firm’s accounting and financial records are firm’s accounting and financial records are located), orlocated), or

A Non-Home State Transportation or Highway A Non-Home State Transportation or Highway Department to whom the Home State has Department to whom the Home State has transferred cognizance in writing for the transferred cognizance in writing for the particular indirect cost audit of a consulting particular indirect cost audit of a consulting firm.firm.


Chapter 12, continued:Chapter 12, continued: Revisions include:Revisions include:

An example cognizant letter.An example cognizant letter. Questions and answers relating to Questions and answers relating to

cognizant and FAR compliant audits.cognizant and FAR compliant audits. Includes Q&A relative to steps that may Includes Q&A relative to steps that may

be included in dispute resolution be included in dispute resolution processes.processes.


Appendix A-CPA Quality Control Review Appendix A-CPA Quality Control Review ProgramProgram

To provide a tool for use by all State To provide a tool for use by all State DOTs to evaluate work performed by DOTs to evaluate work performed by Certified Public Accountants to assure Certified Public Accountants to assure audited overhead reports comply with audited overhead reports comply with GAGAS, FAR and CFR GAGAS, FAR and CFR expectations/requirements. This tool expectations/requirements. This tool will also serve as a resource to A/E will also serve as a resource to A/E Firms and CPAs in procuring and Firms and CPAs in procuring and conducting FAR compliant audit.conducting FAR compliant audit.


Appendix B-AASHTO Internal Control Appendix B-AASHTO Internal Control Questionnaire for Consulting Questionnaire for Consulting EngineersEngineers

To standardize the primary Internal To standardize the primary Internal Control Questions and provide Control Questions and provide consistency in the approach.consistency in the approach.


SOIEA Annual Update of the Audit GuideSOIEA Annual Update of the Audit Guide To provide for consistency in the approach.To provide for consistency in the approach. Chair, Vice Chair & Secretary of SOIEAChair, Vice Chair & Secretary of SOIEA One member from each AASHTO One member from each AASHTO

Association/Conference, who is a current Association/Conference, who is a current Guide Task Force member for a 2 Yr. TermGuide Task Force member for a 2 Yr. Term

One member from each AASHTO One member from each AASHTO Association/Conference, who is not a Association/Conference, who is not a current Guide Task Force member for a 4 current Guide Task Force member for a 4 Yr. Term.Yr. Term.

Next StepsNext Steps

The SOIEA approved adoption of the Uniform Audit The SOIEA approved adoption of the Uniform Audit and Accounting Guide update on October 2, 2009.and Accounting Guide update on October 2, 2009. 41 votes in favor; 3 votes to not approve.41 votes in favor; 3 votes to not approve.

Balloting the SCOFA.Balloting the SCOFA. 38 votes @ 10-21-09 35 Yes and 3 No38 votes @ 10-21-09 35 Yes and 3 No

Notice of the ballot sent to the AASHTO Board of Notice of the ballot sent to the AASHTO Board of Directors simultaneously to approve or disapprove Directors simultaneously to approve or disapprove SCOFA making the final decision. SCOFA making the final decision. @ 10-21-09, No votes to not allow SCOFA to make the @ 10-21-09, No votes to not allow SCOFA to make the

final decision.final decision. AASHTO Board Meeting.AASHTO Board Meeting. ImplementationImplementation

The Uniform Audit and Accounting Guide for Audits of Architecture and Engineering (A/E) Consulting...

Documents

Transcript of The Uniform Audit and Accounting Guide for Audits of Architecture and Engineering (A/E) Consulting...