Ohio Department of Transportation, Office of Audits: Frequently Asked Questions Regarding the Supplemental Accounting System Questionnaire (SASQ ) and Related Processes

Q1: What is the due date for submitting overhead cost documentation and the ODOT Supplemental Accounting System Questionnaire (SASQ)? A1: Updated cost information must be submitted no later than six months after the close of your company’s fiscal year; accordingly, the due date is July 1 for calendar-year companies.

Q2: My operating costs remain fairly consistent from year to year. Why am I required to submit overhead cost information and the ODOT Supplemental Accounting System Questionnaire (SASQ) every year? A2: ODOT’s primary contracting method calls for reimbursement using the Actual Costs Plus a Net Fee (cost-plus) method; accordingly, ODOT must perform an annual review of your company’s actual costs to ensure that the overhead rates being charged to ODOT contracts are representative of your company’s current costs. Additionally, ODOT must perform an annual Cost Accounting System Evaluation of your company annually to determine the proper contracting status (i.e., Limited or Unlimited). For more details, see Part III of the Consultant Prequalification Requirements and Procedures.

Q3: Where do I submit my overhead cost documentation? A3: Documents must be submitted either electronically via email to [email protected] or via fax to (614) 887-4010. The documents should be submitted in Microsoft Excel, Microsoft Word, or Adobe PDF format, when possible. Please include your company’s name in the subject line of the email message. Note: Please do not submit documents in hard copy via U.S. Mail or commercial carrier.

Q4: What is “Limited Contracting Status,” and how does ODOT use it? A4: Limited Contracting Status is granted to Consultants that do not maintain a cost accounting system that is fully compliant with FAR Part 31 and/or have not submitted a FAR-compliant overhead schedule for the ODOT’s inspection. ODOT also may grant Limited Contracting Status when the Consultant business is newly formed (a start-up firm), and no historical data are available upon which to develop an overhead rate. Under these circumstances, ODOT has no basis for issuing an opinion of the Consultant’s cost accounting system.

Generally, Consultants with Limited Contracting Status may only enter into contracts using the unit- cost or lump-sum methods. A Consultant approved for the Limited contracting status is not permitted to enter into any contract proving for payment under the Actual Costs Plus a Net Fee (cost-plus) method. As the vast majority of ODOT contracts are structured as cost plus, Consultants are encouraged to implement FAR-compliant cost accounting systems so that an acceptable overhead rate can be determined.

FAC-1 Ohio Department of Transportation, Office of Audits: Frequently Asked Questions Regarding the Supplemental Accounting System Questionnaire (SASQ ) and Related Processes

Q5: What is “Unlimited Contracting Status,” and how does ODOT use it? A5: Consultants with Unlimited Contracting Status may perform work under any type of reimbursement method, including cost-plus, unit-cost, or lump-sum. Unlimited Contracting Status is required by ODOT for any Consultant that either: (a) currently is a party to any contract providing for payment under the cost-plus method, or (b) anticipates entering into a contract using the cost-plus method in the current year.

Q6: What is the primary difference between an Unlimited and Limited Contracting Status? A6: Unlimited Contracting Status is granted to Consultants that maintain a Cost Accounting System with the requirements set forth in FAR Part 31. The accounting system must have the capability to segregate and remove unallowable contract costs from billings and to assign allowable contract costs to specific contracts/projects. An acceptable cost accounting system documents both direct and indirect labor costs through payroll, timekeeping, and cost records by contract and work activity. The system also must document direct non-labor costs by contract and accumulate allowable indirect costs to provide for timely determination of allowable indirect cost (overhead) rates.

Q7: How does the Cost Accounting System Evaluation performed by the ODOT Office of Audits relate to the engineering prequalification performed by the ODOT Office of Consultant Services? A7: The ODOT Office of Consultant Services prequalifies companies for the following design services:  Roadway Design

 Interchange Justification/Modification Study

 Safety Study

 Right of Way Plan Development

 Subsurface Utility Engineering

 Bridge Design

 Soils/Geotechnical Services

 Traffic Signal Design

 Highway Lighting Design

 Environmental Services

 Right of Way Acquisition Services

The Consultant’s engineering prequalification is based on the knowledge, skills, and experience of the company’s key employees. Certification as a Professional Engineer also is required for specific prequalification categories. Engineering prequalification must be renewed every two years.

FAC-2 Ohio Department of Transportation, Office of Audits: Frequently Asked Questions Regarding the Supplemental Accounting System Questionnaire (SASQ ) and Related Processes

The ODOT Office of Audits (Audits) requires the annual submission of financial information, including a Supplemental Accounting System Questionnaire (SASQ). The financial information includes documents necessary for Audits to: (1) determine and classify a Consultant’s allowable contracting status as either Unlimited or Limited, and (2) review and approve an overhead rate for use in proposals and billings. Note: The ODOT Office of Consultant Services makes all determinations regarding engineering prequalification. Consultants are responsible for renewing engineering prequalification every two years, and this process is independent of cost submissions made to the ODOT Office of Audits. For details regarding prequalification requirements, see http://www.dot.state.oh.us/Divisions/ProdMgt/Consultant/Pages/default.aspx. Q8: My company’s headquarters is not located in Ohio, but my company seeks ODOT prequalification. What is required? A8: The process is identical for both in-state and out-of-state companies. You will be required to complete and submit:  A prequalification packet to the ODOT Office of Consultant Services; and

 A Supplemental Accounting System Questionnaire (SASQ), and related documents, to the ODOT Office of Audits.

Q9: A CPA firm already has performed an audit on my company’s overhead schedule. What do I need to submit to ODOT? A9: Complete and submit:  The AASHTO Internal Control Questionnaire (ICQ).

 The ODOT SASQ.

 All additional documentation required by the AASHTO ICQ and ODOT SASQ. (This process is streamlined for firms that have had a cognizant audit performed. See the SASQ for details.)

Q10: Is my firm limited to the compensation amounts listed in ODOT Contract Audit Circular 2 – Executive Compensation? A10: It depends. As discussed in Chapter 7 of the AASHTO Uniform Audit and Accounting Guide, all Consultants are required to demonstrate the reasonableness of claimed compensation costs. The Guide provides that a Consultant is responsible for: (a) completing its own compensation analysis in compliance with Chapter 7 criteria and guidance, and (b) presenting the analysis to the cognizant State Department of Transportation (DOT) for review and concurrence.

If the Consultant does not prepare its own compensation analysis, or fails to comply with the AASHTO guidance, then by default, the DOT may use all available tools to determine reasonable executive compensation. In this situation, ODOT will apply the Circular 2 compensation matrix as a gauge of reasonableness.

Q11: Where can I find guidance regarding internal controls over labor-charging systems?

FAC-3 Ohio Department of Transportation, Office of Audits: Frequently Asked Questions Regarding the Supplemental Accounting System Questionnaire (SASQ ) and Related Processes

A11: Chapter 6 of the AASHTO Audit Guide, Labor-Charging Systems, contains guidance regarding internal controls necessary to produce accurate and reliable costs. Chapter 6 references Defense Contract Audit Agency Pamphlet No. 7641.90 (DCAAP 7641.90), Information for Contractors. The DCAAP is referenced in FAR 31.002 and provides extensive guidance regarding labor charging systems. Specifically, DCAAP sections 2-301 through 2-302.2 provide guidance regarding the –  Accounting system,

 Labor-charging system,

 Timecard preparation methods, and

 Timekeeping policy.

FAC-4 Ohio Department of Transportation, Office of Audits: Frequently Asked Questions Regarding the Supplemental Accounting System Questionnaire (SASQ ) and Related Processes

Q12: My firm calculates several overhead rates – Corporate, Home Office, and Field. Which rate may I use with ODOT? A12: It depends on your firm’s accounting policies. You must disclose the various rates to ODOT at the time you complete and submit your ICQ and SASQ. You must define the conditions that determine when the various rates are to be used and must apply the methodology consistently. If your firm calculates several rates but does not provide this information to ODOT during the submittal of the ICQ and SASQ, your firm will be required to use the Corporate overhead rate for all proposals and invoicing.

Q13: What is Facilities Capital Cost of Money (FCCM)? Does ODOT permit Consultants to charge FCCM? A13: FCCM is an imputed cost related to the cost of a Consultant’s capital committed to facilities. FCCM is determined without regard to whether the source of funds is owners’ equity or borrowed capital. FCCM is not a form of interest on borrowing by the firm. FCCM may be considered to be an indirect expense associated with the general indirect cost pool; however, FCCM should be computed as a charge rate separate from the overhead rate.

FCCM is allowable if proposed during the submittal of the SASQ/overhead schedule. If a Consultant calculates an FCCM rate, but does not provide this information to ODOT during the submittal of the ICQ and SASQ, the firm will not be permitted to use FCCM for purposes of proposals or invoicing.

Q14: My firm generally receives MPO and/or LPA work. What overhead rate may my firm use? Does it matter if my firm only performs work as a subconsultant? A14: Your firm is required to consistently use the ODOT-approved overhead rate (and FCCM rate, if applicable) for all proposals and project billings that are funded with Federal and/or State sources. This requirement also applies to MPO or LPA projects. This requirement also applies to work received as a subconsultant.

Q15: Does ODOT require financial statements and overhead rates to be audited by a CPA? A15: No. However, if a CPA does perform a compilation, review, or audit, then the Consultant must provide the CPA’s report to ODOT.

Q16: What guidance and tools are available to assist a CPA with the completion of an audit in compliance with FAR Part 31? A16: CPAs should refer to the AASHTO Audit and Accounting Guide and additional references specifically cited in the Guide. ODOT may perform a CPA workpaper review to determine if the audit procedures performed by the CPA materially comply with the Guide. ODOT performs reviews of CPAs’ work in accordance with AASHTO Guide Appendix A – Review Program for CPA Audits of Consulting Engineers’ Indirect Cost Rates.

FAC-5 Ohio Department of Transportation, Office of Audits: Frequently Asked Questions Regarding the Supplemental Accounting System Questionnaire (SASQ ) and Related Processes

Q17: My firm wishes to offer a voluntarily-reduced overhead rate. Is this permissible? A17: Yes. The consultant must provide written documentation that specifically states that the reduction is voluntary, how the reduced rate will be applied (e.g., to proposals and invoicing), and the duration of the rate reduction. The consultant also must acknowledge that it will not seek cost recovery for any resulting variance between the actual costs incurred overhead rate and the proposed, reduced overhead rate. Q18: When should my firm begin using updated rates for overhead and Facilities Capital Cost of Money (FCCM)? A18: The new rate(s) may not be billed or used for cost proposals until approved by ODOT. All overhead and FCCM rates will be reviewed by the ODOT Office of Audits, regardless of whether such rates are higher or lower than rates submitted in the prior year. Q19: My firm does not make annual adjustments to overhead and FCCM on all projects; instead, throughout the life of each project, we bill the overhead and FCCM rates that were submitted in the project cost proposal. Is this allowable? A19: No. You must discontinue this practice and begin using your most recently approved overhead and FCCM rates for all cost-plus contracts. This will help minimize project variances due to fluctuation in overhead rates at the time of project reconciliation and close-out. Note: ODOT may seek cost recovery in cases where billed rates exceed the most recently approved overhead rates. Q20: What happens if my firm’s overhead rate increases significantly over the life of the project, thereby causing the maximum fee to be recovered before the end of the project. Will ODOT approve a contract modification to allow for an increase in the maximum fee to accommodate the changes in the overhead rates? A20: The ODOT Office of Consultant Services will consider these requests on a case-by-case basis. Before making any such request, the Consultant should perform an interim project-cost reconciliation to match labor costs with the actual overhead costs incurred in the years the work was completed.

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