Implementing the AASHTO Audit Guide – July 13, 2010

Agenda

Cost recovery Update Proposed rulemaking for 23 CFR 172 Hierarchy of Federal and State laws, Applicability of the FARs outside of Part 31 The CPA work paper review program and its

application across State lines

Agenda, continued…

Cognizance State contracting practices, GAAP and

consistency State risk assessment framework Team audits

Agenda, continued…

Communication among States, A/E Firms, CPA Firms, and FHWA

Selected items of cost – the hot buttons Compensation Training Questions and Answers

Cost Recovery Update 20 firms with questioned costs on compensation, and 1

additional firm with other unallowable overhead costs. Cost Recovery collaboration:

DCAA contracted to assist and efforts under way. A&E firms have opportunity for dialogue Confidentiality to be maintained. Status update: DCAA review to be completed

July/August timeframe

Cost Recovery Update, cont…

Identification/determination of final questioned costs and subsequent recovery of costs and credits to FHWA – to be coordinated with States/FHWA offices by October 31, 2010.

Coordination on final questioned cost determination among Home State DOT, FHWA, and AASHTO Audit Guide Task Force members

Proposed Rulemaking

Most of Audit Guide is made up of existing statute, regulation, cost principles, audit standards.

Plan is to propose incorporation of Guide by reference into 23 CFR 172.

Clarification of cognizance, and other A/E contract related topics may be included.

Process to begin this summer.

Hierarchy of Federal and State Laws

23 CFR 1.9(a) requires compliance with Federal and State laws and regulations.

If compliance with Federal law yields noncompliance with State law, there is no provision in 23 CFR that allows the State law to override specific Federal requirements.

49 CFR 18.4(a) states that where a Federal statute conflicts with the Common Grant Rule requirements, the Federal statute prevails.

Applicability of FARs Outside of Part 31

48 CFR 31 incorporated by reference in 23 U.S.C. 112 and 23 CFR 172.

49 CFR 18.36(a) authorizes a State to procure consistent with its own requirements, except when a Federal statute or regulation implementing such statute conflicts with those procedures [49 CFR 18.4].

A State DOT may incorporate into their policies and procedures other parts of the Federal Acquisition Regulation, outside of the Cost Principles contained in Part 31, so long as: There is no conflict with the principles outlined in 23 U.S. C. 112 or other

laws & regulations applicable to the Federal-aid Highway Program. Such policies and procedures are formally adopted and approved by FHWA.

CPA W/P Review Program: Application Across State Lines

Purpose of program: to determine whether is it appropriate to issue a cognizant letter of concurrence.

The workpaper review program is a tool to assist in determining whether: (a) the CPA’s audit was conducted in accordance with GAGAS, (b) the CPA adequately considered the auditee’s compliance with FAR

Part 31 and related laws and regulations, and (c) and the audit report format is acceptable.

Challenges to full implementation: Extent of review and documentation.

Weighting of the factors/procedures within the review program

CPA W/P Review Program: Application Across State Lines, cont. Challenges to full implementation, continued…

What resources are being applied to the review program?

Are team audits being used? Communication with the CPA – is staff involved in

the audit engagement available during the visit to their offices?

Cognizance

23 USC 112 (b)(2)(C) Instead of performing its own audits, a recipient of funds shall accept indirect cost rates established in accordance with the FAR for 1-year applicable accounting periods by a cognizant Federal or State government agency, if such rates are not currently under dispute.

23 CFR 172.7 Contains similar language.

Cognizance, cont…

■ What is a Cognizant Agency?■ A Federal agency, ■ The Home State Transportation or Highway

Department,■ A Non-Home State Transportation or Highway

Department – If Transferred.

■ Chapter 12 of the Audit Guide and FHWA Q&A

State Contracting Practices, GAAP and Consistency

Allowable Costs

Consistency

Contracting Practices

State DOT Risk Framework

Purpose: provide assurance of compliance by A/E firms, CPA firms, State DOTS, and Local Public Agencies, with Federal & State requirements over A/E firm indirect cost rates and contract costs with limited resources available.

“Toolbox” of controls include: Cognizant indirect cost rate approvals. State DOT-performed audits. Reviews, analytical procedures, other tools.

State DOT Risk Framework, cont…

Types of risk criteria to be considered in determining appropriate tool(s) to apply: Dollar volume of contracts with State. A/E firm’s overall experience with State contracts. Past history, reputation of firm. Number of States in which firm does business. Date of last “FAR compliant” audit.

State DOT Risk Framework, cont…

Type and complexity of firm’s accounting system.

State accounting and audit experience. CPA firm experience. Firm’s responses to Internal Control

Questionnaire. Change in A/E firm’s organization structure. Other risk criteria, as deemed appropriate.

Team Audits

Concept: Use teams of State DOT auditors from multiple states: Use CPA work paper review program. Increase awareness and consistency. Result in greater reliance by others.

Requirements of 23 CFR 172 Pool Funding, Coordination and Other

Recommendations

Communication among States, A/E Firms, CPA Firms, and FHWA

“Audit Exchange” Community of Practice web site. AASHTO Audit Guide Task Force currently using. It has been expanded to other States, FHWA

financial staff. Over 200 postings on a variety of topics to date.

ACEC/AASHTO Steering Committee meetings to discuss ongoing implementation of the Audit Guide

Communication among States, A/E Firms, CPA Firms, and FHWA, cont…

CPAs should contact State DOTs early in audit planning process

Many States have begun or have continued collaboration among all parties on Audit Guide implementation issues

States have either formal or informal dispute resolution processes

FHWA Division Offices may be involved if resolution does not occur

Selected Items of Cost – Hot Buttons

Life Insurance Premiums Travel Costs Taxes Depreciation Organization Costs Asset Valuations Resulting From Business

Combinations

Compensation National Compensation Matrix Compensation Survey Data Salary Cap vs. Salary Ranges Executive Compensation Benchmark

Compensation Range of Reasonableness

Training Update

National Highway Institute (NHI) Training courses under development. 3 courses to be developed:

high level overview, indirect cost rate development, and oversight and evaluation.

RFP on the street now; contractor selection to occur this month.

Pilot courses likely 9 months after contract begins.

Points of Contact

For questions, issues: Begin with your Home State DOT. AASHTO Audit Guide Task Force. FHWA Division Office FHWA Consultant Services Team.

Questions?