2014 AASHTO Subcommittee 2014 AASHTO Subcommittee Annual MeetingAnnual Meeting

Audit Guide Task ForceAudit Guide Task ForceAudit Guide Survey ResultsAudit Guide Survey Results

AgendaAgenda

Panel membersPanel members: : AASHTO Panel membersAASHTO Panel members: Darrin Player (SC), Bruce : Darrin Player (SC), Bruce

Kalland (MN), Gerald Dobek (CT), Vickie Kalland (MN), Gerald Dobek (CT), Vickie Murphy (MT)Murphy (MT)

FHWA Panel membersFHWA Panel members: Dan Parker and Dave Bruce : Dan Parker and Dave Bruce (FHWA)(FHWA)

History:History: AASHTO Task Force, USDOT OIG Audit AASHTO Task Force, USDOT OIG Audit

2014 Survey Results:2014 Survey Results: 29 States responded 29 States responded

Questions and DiscussionQuestions and Discussion

The Audit Guide TaskforceThe Audit Guide Taskforce Members include representatives from 26 Members include representatives from 26

State DOTs and DC. Also, 2 AASHTO and 4 State DOTs and DC. Also, 2 AASHTO and 4 FHWA representativesFHWA representatives.. 2010 issued Audit Guide update; updated 20122010 issued Audit Guide update; updated 2012 2012 issued National Compensation Matrix; 2012 issued National Compensation Matrix;

updatedupdated

annuallyannually 2013 Risk Assessment Framework2013 Risk Assessment Framework 2013 Audit Guide Suggestion Form2013 Audit Guide Suggestion Form Current:Current:

CPA Work paper review trainingCPA Work paper review training Issues/Clarifications as submitted by SDOTs, Issues/Clarifications as submitted by SDOTs,

task force members, and ACECtask force members, and ACEC

AASHTO Taskforce-Key AASHTO Taskforce-Key OutcomesOutcomes

Clarity in roles and responsibilities related to Clarity in roles and responsibilities related to validation, validation, cognizancecognizance and acceptance of A/E and acceptance of A/E firm indirect cost rates.firm indirect cost rates.

Promote consistency and ensure compliance Promote consistency and ensure compliance with FAR cost principle interpretations and with FAR cost principle interpretations and applications by State & local government and applications by State & local government and A/E firms.A/E firms.

Overall, improve the procurement, Overall, improve the procurement, management and administration of A/E management and administration of A/E consultant services. consultant services.

Increased CPA audit quality.Increased CPA audit quality.

U.S. DOT OIG AUDITU.S. DOT OIG AUDIT

U.S. DOT OIG AUDIT:U.S. DOT OIG AUDIT: Executive Compensation and Other Overhead Executive Compensation and Other Overhead

Costs Billed to the Federal-aid Highway Costs Billed to the Federal-aid Highway Program.Program.

Report issued February 2009.Report issued February 2009. Report ID: ZA-2009-033 Report ID: ZA-2009-033 Significant finding : Excessive executive Significant finding : Excessive executive

compensation.compensation. Develop a task force and update the Develop a task force and update the

AASHTO Uniform Audit and Accounting AASHTO Uniform Audit and Accounting Guide Guide to address the audit findingsto address the audit findings

OIG Audit OIG Audit RecommendationsRecommendations

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

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

CPAs.CPAs. Cost Recovery on unallowable executive Cost Recovery on unallowable executive

compensation costs and other unallowable compensation costs and other unallowable expenses identified.expenses identified.

Establish a process for monitoring & Establish a process for monitoring & ensuring State implementation of NHS ensuring State implementation of NHS Section 307Section 307..

OIG Audit Outcomes- OIG Audit Outcomes- Have we met them?Have we met them?

Improved consistencyImproved consistency Increased qualityIncreased quality Greater reliance on work by Greater reliance on work by

othersothers Efficient and effective oversightEfficient and effective oversight Compliance with laws and Compliance with laws and

regulationsregulations Improved guidanceImproved guidance

FHWA ResponsibilitiesFHWA Responsibilities

Potential involvement in dispute Potential involvement in dispute resolution process, after exhausting resolution process, after exhausting state procedures.state procedures.

Proposed rulemaking for 23 CFR 172 Proposed rulemaking for 23 CFR 172 enhancements.enhancements.

OIG audit cost recovery effort.OIG audit cost recovery effort. Evaluation of State procedures.Evaluation of State procedures. Increased monitoring and assurance of Increased monitoring and assurance of

FAR cost principle compliance.FAR cost principle compliance.

State DOT’s State DOT’s ResponsibilitiesResponsibilities

In order to provide FHWA assurance of In order to provide FHWA assurance of compliance with statutes, regulations, compliance with statutes, regulations, cost principles, toolbox of controls cost principles, toolbox of controls include:include: Cognizant approvals through use of Cognizant approvals through use of

CPA work paper reviews.CPA work paper reviews. State DOT-performed audits of A/E firm State DOT-performed audits of A/E firm

indirect cost rates.indirect cost rates. Reviews, analytical procedures, other tools.Reviews, analytical procedures, other tools. Awareness/oversight of local public agency Awareness/oversight of local public agency

practices.practices.

CognizanceCognizanceCognizance and OversightCognizance 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.documents published by FHWA.

State DOT auditState DOT audit

Develop and maintain effective risk Develop and maintain effective risk management framework, internal controls.management framework, internal controls.

Provide assurance over State and A/E firm Provide assurance over State and A/E firm compliance with the FAR cost principles.compliance with the FAR cost principles.

Use of CPA work papers to evaluate quality Use of CPA work papers to evaluate quality of work and to use in acceptance of indirect of work and to use in acceptance of indirect cost rates.cost rates.

Determining/communicating cognizant audit Determining/communicating cognizant audit agency issues for firms crossing State lines.agency issues for firms crossing State lines.

National Risk Management: National Risk Management: Team Audit ConceptTeam Audit Concept

Anecdotally, less than 100 firms Anecdotally, less than 100 firms represent more than half of Federal-represent more than half of Federal-aid dollars on State and local aid dollars on State and local contracts.contracts.

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

2014 Survey Results2014 Survey Results

Cognizance – Bruce Kalland, MNCognizance – Bruce Kalland, MN

Audits – Vickie Murphy, MTAudits – Vickie Murphy, MT

CPA Work paper Reviews – Gerry CPA Work paper Reviews – Gerry Dobek, CTDobek, CT

CognizanceCognizance Cognizance Questions:Cognizance Questions:

11. List top 10 cognizant firms in your state. Explain . List top 10 cognizant firms in your state. Explain the the reasons why a cognizant was not performed.reasons why a cognizant was not performed.

ResponseResponse – –

Most states listed their cognizant firms but Most states listed their cognizant firms but some some said they are not performing cognizant said they are not performing cognizant reviews reviews because of liability and/or because of liability and/or limited/untrained staff. limited/untrained staff.

55. If no cognizant is being performed, what ideas do . If no cognizant is being performed, what ideas do you you have for getting them completed? have for getting them completed?

ResponseResponse – –

Multi-state joint cognizant reviews are the Multi-state joint cognizant reviews are the preferred preferred solution.solution.

CognizanceCognizance

Cognizance Questions:Cognizance Questions:

66. Would you transfer cognizance?. Would you transfer cognizance? Response Response - Trust appears to still be - Trust appears to still be

an issue.an issue.

77. . What would make it more likely for you to What would make it more likely for you to issue a issue a cognizant letter of cognizant letter of concurrence?concurrence? ResponseResponse - Lack of training and staffing - Lack of training and staffing most most cited. cited.

CognizanceCognizance

Cognizance Questions:Cognizance Questions:

88. What would make it more likely for you to . What would make it more likely for you to transfer transfer cognizance? cognizance?

Response Response - Most states would agree to - Most states would agree to transfer transfer

cognizance. So what’s holding states back cognizance. So what’s holding states back from from issuing cognizance? Is there a need for issuing cognizance? Is there a need for training on training on the CPA Work paper review the CPA Work paper review checklist?checklist?

Cognizance Questions:Cognizance Questions:

99. Would you be interested in having other states . Would you be interested in having other states assist you assist you in performing a cognizant review using the in performing a cognizant review using the CPA CPA work paper review checklist? work paper review checklist?

Response Response - - Mostly yes; however, some states Mostly yes; however, some states citedcited

workload and out-of-state travel issues. workload and out-of-state travel issues.

Cognizance QuestionsCognizance Questions

1010. Questions asked about Cognizance:. Questions asked about Cognizance: How do states select the firms who get a How do states select the firms who get a

free audit by the DOT?free audit by the DOT? What information would be useful to have What information would be useful to have

in cognizant letters? (standards followed, in cognizant letters? (standards followed, adjustment specifics, project specific rates, adjustment specifics, project specific rates, construction management, etc.)construction management, etc.)

Guidance on types of documentation? Guidance on types of documentation? Protection and release policies?Protection and release policies?

Cognizance QuestionsCognizance Questions

1010. (cont.). (cont.) Does FHWA have a list of consultants who Does FHWA have a list of consultants who

need cognizance and which states are need cognizance and which states are assigned to those?assigned to those?

What are the liabilities for the DOT in What are the liabilities for the DOT in issuing a cognizant letter?issuing a cognizant letter?

Are there significant differences between Are there significant differences between states that are not being addressed in states that are not being addressed in cognizant reviews? (OT Premium, G&A cognizant reviews? (OT Premium, G&A rates, allocation issues between field/home rates, allocation issues between field/home etc.)etc.)

AuditsAudits

Audit Questions:Audit Questions:

22. Does your state perform audits of . Does your state perform audits of overhead rates in accordance with the overhead rates in accordance with the Yellow Book?Yellow Book?

Response - Response - 11 respondents noted that they perform AICPA 11 respondents noted that they perform AICPA audits of audits of Indirect Cost Rates in accordance Indirect Cost Rates in accordance with GAGAS.with GAGAS. Some noted that their states require Some noted that their states require audited rates which they audited rates which they perform reviews perform reviews overover

AuditsAuditsAudit Questions:Audit Questions:

1111. What, if any, standards do you follow . What, if any, standards do you follow when when performing performing cognizance/audits/desk reviews? cognizance/audits/desk reviews?

Response - Response - Audits were Yellow book or IIAAudits were Yellow book or IIA Reviews:Reviews:

8 Yellow book8 Yellow book

5 Attestations/Agreed upon Procedures5 Attestations/Agreed upon Procedures

2 IIA standards2 IIA standards

4 Non-audit services (no standards)4 Non-audit services (no standards)

2 AASHTO Guide2 AASHTO Guide

AuditsAudits Audit Questions:Audit Questions:

1212. If your shop follows Yellow book, what changes . If your shop follows Yellow book, what changes did did

you implement with the 2011 revisions? you implement with the 2011 revisions?

Response - Response - 12 No changes12 No changes 2 Attestations, no changes necessary2 Attestations, no changes necessary 2 Trained and made changes2 Trained and made changes 4 Still determining impacts4 Still determining impacts 2 Issues and made changes2 Issues and made changes

AuditsAudits

Audit Questions:Audit Questions:

13. If you follow Red Book, what changes do 13. If you follow Red Book, what changes do you see when you see when rulemaking is complete?rulemaking is complete?

Response - Response - •Most states don’t use IIA. Respondents Most states don’t use IIA. Respondents indicated no major impact.indicated no major impact.

CPA Work Paper reviewsCPA Work Paper reviews CPA Work Paper Review questions:CPA Work Paper Review questions:

3.3. Does your shop perform CPA work paper reviews?Does your shop perform CPA work paper reviews?

Response – Response – Mostly yes responses were receivedMostly yes responses were received

75% of respondents doing reviews issued 75% of respondents doing reviews issued Cognizant Cognizant LettersLetters

Some states indicated performing work Some states indicated performing work paper paper reviews but did not issue Cognizant Lettersreviews but did not issue Cognizant Letters

CPA Work Paper reviewsCPA Work Paper reviews CPA Work Paper Review questions:CPA Work Paper Review questions:

4.4. If so, do you use the checklist in the Audit Guide?If so, do you use the checklist in the Audit Guide?

Response – Response –

Most states responded YesMost states responded Yes

One state responded “not yet” One state responded “not yet”

One state responded that did in past but with One state responded that did in past but with Agency reorganization process has changedAgency reorganization process has changed

Respondent QuestionsRespondent Questions

14.14. Questions Questions

ReferencesReferences

The Guide: The Guide: http://audit.transportation.org/Pages/default.aspx

OIG Audit: http://www.oig.dot.gov OIG Audit: http://www.oig.dot.gov DCAA Audit Manual: http://www.dcaa.mil/ DCAA Audit Manual: http://www.dcaa.mil/

Contact InformationContact Information

AASHTO:AASHTO:

Darrin Player – playerjd@scdot.org Darrin Player – playerjd@scdot.org

Bruce Kalland – Bruce Kalland – bruce.kalland@state.mn.usbruce.kalland@state.mn.us

Gerald Dobek – gerald.dobek@ct.govGerald Dobek – gerald.dobek@ct.gov

Vickie Murphy – vmurphy@mt.govVickie Murphy – vmurphy@mt.gov FHWA:FHWA:

Dan Parker – danial.parker@dot.govDan Parker – danial.parker@dot.gov

Dave Bruce – david.bruce@dot.govDave Bruce – david.bruce@dot.gov