Consultant Audits Under ACECAASHTOFHWA Guidelines

1
Consultant Audits Under ACEC/AASHTO/FHWA
Guidelines
2
Introduction

• This program supports the implementation of
  Section 307 (single audit) as well as fairness
  and efficient use of scarce resources.

3
Presentation Outline

• Section 307 -
• The Law and its Intent
• Task Force Guidance
• ADOTs Position
• Audit Analysis Implementation
• Recent Events

4
Task Force Members

• ACEC - HNTB, Kimley-Horn, Otak, Ralph Whitehead,
  and Anderson Associates
• AASHTO - Alabama, Arizona, Illinois, North
  Carolina, and Washington
• FHWA - 2 representatives from the Office of
  Program Administration including the
  Pre-construction Leader

5
Section 307

• (a) CONTRACTING FOR ENGINEERING AND DESIGN
  SERVICES
• (C) PERFORMANCE AND AUDITS - Any contract or
  subcontract awarded in accordance with
  subparagraph (A), whether funded in whole or in
  part with Federal-aid highway funds, shall be
  performed and audited in compliance with cost
  principles contained in the Federal Acquisition
  Regulations, including part 31 of title 48, Code
  of Federal Regulations.

6
Section 307

• (C) PERFORMANCE AND AUDITS
• INTENT OF THE LAW
• Single set of accounting rules FAR
• Applied consistently to all contracts

7
Section 307
(C) PERFORMANCE AND AUDITS - GUIDANCE

• LAW
• 307 applies to any contract funded with
  Federal-aid highway funds.
• QUESTION
• Does 307 apply to State funded design contracts
  when the construction contract is Federally
  funded?
• ANSWER
• No, 307 only applies to specific contracts funded
  in whole or in part with Federal-aid highway
  funds.

8
Section 307
(C) PERFORMANCE AND AUDITS - GUIDANCE

• LAW
• Contracts shall be performed and audited in
  accordance with the FAR.
• QUESTION
• Can a firm choose national, geographic or
  business segment overhead rates?
• ANSWER
• Yes. It is up to a firm to propose FAR compliant
  overhead rate(s) and it/they must be
  consistently and fairly applied to all public
  clients.

9
Section 307
(C) PERFORMANCE AND AUDITS - GUIDANCE

• LAW
• Contracts shall be performed and audited in
  accordance with the FAR.
• QUESTION
• How can greater consistency among States in
  determining FAR allowable costs be achieved?
• ANSWER
• ACEC and AASHTO agree greater consistency among
  States is desirable. Inconsistencies will be
  referred to AASHTOs Audit Subcommittee for
  action.

10
Section 307
(C) PERFORMANCE AND AUDITS - GUIDANCE

• (a) CONTRACTING FOR ENGINEERING AND DESIGN
  SERVICES
• (D) INDIRECT COST RATES - Instead of performing
  its own audits, a recipient of funds under a
  contract or subcontract awarded in accordance
  with subparagraph (A) shall accept indirect cost
  rates established in accordance with the Federal
  Acquisition Regulations for 1-year applicable
  accounting periods by a cognizant Federal or
  State government agency, if such rates are not
  currently under dispute.

11
Section 307

• ( D) INDIRECT COST RATES
• INTENT OF THE LAW
• Single, Annual Audit by a Cognizant Agency

12
Section 307
(D) INDIRECT COST RATES - GUIDANCE

• LAW
• Instead of performing its own audits, a recipient
  of Federal funds shall accept indirect cost rates
  established by a cognizant Federal or State
  agency.
• QUESTION
• What is the definition of a cognizant agency?
• ANSWER
• A cognizant agency is any one of the following
• Federal Agencies
• Home State (where the firms headquarters is
  located)
• non-Home State (cognizance transfer required by
  Home State)

13
Section 307
(D) INDIRECT COST RATES - GUIDANCE

• LAW
• Instead of performing its own audits, a recipient
  of Federal funds shall accept indirect cost rates
  established by a cognizant Federal or State
  agency.
• QUESTION
• What constitutes an acceptable or cognizant
  audit?
• ANSWER
• A cognizant audit is one performed by a
• Cognizant Agency (unconditional)
• Non-Home State (conditional)
• CPAs hired by the Firm (conditional)

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Section 307
COGNIZANT AUDIT CONDITIONS
Reviewed Concurred With By
180 Days After Receipt
Performed By
Cognizant Audit
Cognizant Agency
No Action by Home State
Non-Home State
Home State
CPAs Hired by Firm
Non- Home State
No Action by Home State
15
Section 307
(C) INDIRECT COST RATES - GUIDANCE

• LAW
• A recipient of funds shall accept indirect cost
  rates from a cognizant agency, if rates are not
  currently under dispute.
• QUESTION
• Who can dispute and what constitutes a legitimate
  dispute?
• ANSWER
• AASHTO and ACEC have chosen not to address the
  issue of disputes at this time. If necessary,
  the Task Force will formulate additional guidance
  for FHWA.

16
Section 307

• (a) CONTRACTING FOR ENGINEERING AND DESIGN
  SERVICES
• (E) APPLICATION OF RATES - Once a firms
  indirect cost rates are established under this
  paragraph, the recipient of the funds shall apply
  such rates for the purposes of contract
  estimation, negotiation, administration,
  reporting, and contract payment and shall not be
  limited by administrative or de facto ceilings of
  any kind.

17
Section 307

• ( E) APPLICATION OF RATES
• INTENT OF THE LAW
• Single overhead rate without CAPS

18
Section 307
SALARY SURVEY GUIDANCE

• FAR 31.205-6(b)(1) addresses relevant factors in
  determining reasonablecompensation including the
  compensation practices of other firms
• of the same size
• in the same industry
• in the same geographic area
• engaged in predominately non-Government work
• The following table is guidance in determining
  reasonable compensationby utilizing salary
  surveys while considering these factors.

19
Section 307

• (a) CONTRACTING FOR ENGINEERING AND DESIGN
  SERVICES
• (F) PRENOTIFICATION CONFIDENTIALITY OF DATA - A
  recipient of funds requesting or using the cost
  and rate data described in subparagraph (E) shall
  notify any affected firm before such request or
  use. Such data shall be confidential and shall
  not be accessible or provided, in whole or in
  part, to another firm or any government agency
  which is not part of the group of agencies
  sharing cost data under this paragraph, except by
  written permission of the audited firm. If
  prohibited by law, such cost and rate data shall
  not be disclosed under any circumstances.

20
Section 307

• ( F) PRENOTIFICATION CONFIDENTIALITY OF DATA
• INTENT OF THE LAW
• a Firms cost and rate data shall remain
  confidential

21
Section 307
(F) CONFIDENTIALITY OF DATA - GUIDANCE

• LAW
• A recipient requesting or using the cost and rate
  data described in subparagraph (E)...
• QUESTION
• What cost and rate data will be shared for a
  given firm?
• ANSWER
• AASHTO has developed an Audit Report Format which
  contains sufficient disclosure of a firms cost
  and rate data. ACEC agrees this is an acceptable
  guide.

22
Section 307
(F) CONFIDENTIALITY OF DATA - GUIDANCE

• LAW
• Such data shall be confidential and shall not be
  provided to another entity which is not part of
  the group sharing data.
• QUESTION
• How will confidentiality be maintained?
• ANSWER
• Any member of the group sharing cost and rate
  data shall use all legal means to maintain its
  confidentiality. If a member is legally required
  to disclose it, the firm will be notified in
  advance, in writing.

23
Section 307 - Quality Through Competition
SECTION 307 OPT OUT STATES
- Minnesota - West Virginia

24
ADOTs Position

• All contracts should be treated in the same way,
  whether federal money is involved or not.
• All consultants should be treated in a fair and
  equitable manner.
• It is advantageous to be inclusive in providing
  opportunities to Consultants of all sizes,
  wherever possible.

25
Audit Analysis Implementation

• All Consultants shall be treated in a fair and
  impartial manner.
• ACEC/AASHTO/FHWA guidelines will be followed for
  all Consultants, whether operating in more than
  one State or not.

26
New Procedures

• The current standards for amount of work done
  with ADOT will be raised as to use of Unit Prices
  of Work or simplified overhead procedures.
• Project managers will be kept in the loop as to
  the status of AAs preaward assignments and the
  compliance of Consultants with providing
  information.

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Oversight by USDOT

• Ongoing three-year project by the IGs office.
• IG is staffing an audit unit of their own.
• Major concern with compensation issues.
• Failure of many CPA firms to properly audit
  overhead rates, based on sampling of audit
  workpapers.

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Cognizant Audits

• Many states appear to be unwilling to act as
  cognizant agency.
• Use of audits done by other states even though
  they are not cognizant.
• Changes in the Yellow Book.