County Engineers Association of Ohio ODOT Reimbursement Requirements

Stephanie Wagenschein, CFE External Auditor, ODOT Topics

• Options for Recovery of Direct Labor, , and Overhead • De Minimis Rate • Fringe Rate • Cost Allocation Plan (CAP) • Rate Presentation/Requirements • Compliant Timekeeping • Top Audit Findings Why the change from Safe Harbor?

• 2 CFR 200 presented the option of a de minimis rate application. • The State of Ohio was the only state applying a Safe Harbor rate. • Safe Harbor provided a 30 percent fringe rate and a 38 percent overhead rate. • For all states, de minimis is a opportunity for additional recovery. • The de minimis rate application replaced Safe Harbor. • LPAs, who have an approved fringe rate, generally have a much higher recovery than Safe Harbor provided. • De minimis applies the specific LPA’s approved fringe rate and a 10 percent overhead rate. Quick Overview of Options

• LPA Agreement View: LPA Agreement 15.1Options Detailed

• Direct Labor – reimburses only the base labor rates paid (and documented by payroll records) to employees. • Direct Labor plus the de minimis rate – reimburses Direct labor + (direct labor multiplied by the approved fringe rate* multiplied by the indirect rate of 10%. ) • Direct Labor plus approved fringe benefit rate. – reimburses Direct labor + (direct labor multiplied by the approved fringe rate.*) • Direct Labor plus indirect cost rate* – reimburses direct labor, fringe and overhead costs. • Each LPA calculation is based upon the specific LPA’s plan. • No cost recovery of labor, fringe or overhead costs – provides no reimbursement of the LPA’s labor, fringe and overhead.

* Annually, the LPA shall submit an updated rate for review and approval by the ODOT Office of External Audits. De minimis Application

• De minimis was defined in 2 CFR 200 as being applied to modified total direct cost (MTDC). • MTDC was defined as all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel and subawards and subcontracts up to the first $25,000 of each subaward and subcontract. MTDC excludes equipment, capital expenditures, rental costs…. • MTDC was defined as all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel and subawards and subcontracts up to the first $25,000 of each subaward and subcontract. MTDC excludes equipment, capital expenditures, rental costs…. De minimis Costs per FHWA

• Definitions: • Direct Salaries and Wages – These are the direct salaries and wages of the Local Agency’s employees charging their time to a project. • Fringe Benefits – This is the application of the the fringe benefit rate approved by ODOT.¹ • Materials and Supplies - These are the costs of materials and supplies purchased from a vendor by the local agency which are used up in the project (e.g. pens, paper, asphalt, concrete.) (This does not include project bid items or subcontracted items.)²

¹Office of External Audits ²Bid items are considered a subcontract. De minimis Costs per FHWA (continued)

• Definitions: • Services - This includes work such as testing or lab work that is completed by a company. • Keep in mind that if the services are considered “capital expenditures” you would not be able to apply the de minimis rate. (Cannot include time-tracking software.) • If the work is a subaward, or contracted consultant, the costs cannot be included as MTDC. • Travel – This includes costs incurred by the local agency which is project specific (travel to a meeting on the project which may require overnight lodging.) This travel would probably include an equipment charge (vehicle mileage).*

* It is generally unlikely that LPAs will have a travel cost to include as the projects are in the LPA’s geographic area. Approved Fringe Rate

• An approved Fringe Rate is necessary to apply a De minimis, Fringe or CAP (overhead) rate. • The LPA must use the Fringe Rate Form found on the ODOT External Audit’s Webpage.

Example of fringe rate form:

All blue formula cells are protected(not accessible). Instruction Tab – General Information Fringe Sample – How does it work?

LPA will update “LPA” to its agency name.

Most LPAs will not be separating its costs between direct and indirect, but will simply include labor in the third row.

Note: LPAs that can designate direct and indirect labor costs will most likely opt for a CAP Rate, rather than a Fringe Rate. LPAs that identify time separately must provide its data for the complete year from a project time-tracking system that systematically recorded direct and indirect time. (Example provided later with CAP Form information) Fringe Benefits - Leave

Actual LPA ODOT Costs 2014 Expenses ADJUSTMENTS ADJUSTMENTS ALLOCABLE

Each LPA will update The LPA populates its costs ODOT Fringe benefit per its financial support. LPA may make names to the adjustments match the fringe will populate actual expenses benefits specific and then it will populate for to the LPA. Each LPA adjustments. Adjustments unsupported can also add additional may be made for items the or ineligible benefit leave line LPA cannot support or for costs. It may items. ineligible costs. also make adjs. for Many LPAs include leave errors. time in the labor costs. We want to remove those costs as they are not work time. The costs will remain in Fringe so that the costs will be included in the fringe Rate. Fringe Benefits (other than leave)

Actual LPA ODOT Costs 2014 Expenses ADJUSTMENTS ADJUSTMENTS ALLOCABLE

Each LPA will The LPA populates its costs update per its financial support. LPA Fringe benefit will populate actual expenses Adjustments (as names to the and then populate any detailed on prior slide) match the fringe adjustments. Adjustments may benefits specific be made for items the LPA may be made. to the LPA. cannot support or for Each LPA can ineligible costs. also add additional benefit leave line items. Fringe Calculation

The Fringe Rate is calculated using fringe costs/labor. Because of this calculation, the fringe is then applied to Labor each period. Checklist Tab Checklist Tab Checklist Tab “Fine Print” What cost support is needed to complete the form and support the costs?* • Per 2 CFR 200 Appendix VII, the following must be provided: • Rates proposed, including subsidiary work sheets – cross referenced and reconciled to the financial data noted. • The rates that the LPA is proposing must be supported by financial reporting from the same time period (fiscal year or calendar year – to match the LPAs’ audit period) • The LPA must identify how the support matches up to the Cost Allocation Plan (Excel form) • Allocated Central Service Costs will be supported by the Central Service Cost Allocation Plan • Costs that are allocated to the department/division/office must be supported. For example, Mailroom costs, IT Costs or other allocated costs must have a central cost allocation plan that identifies the rates charged - including when and how the costs were calculated. • Copy of financial data (financial statements, comprehensive annual financial report, executive budgets, accounting reports) upon which rate is based. • Since we are often working with a specific office (Engineer, Public Works, Public Safety), we can accept a cost center report – such as a cash expenditure report or general ledger.

*for de minimis, fringe or CAP methods. What cost support is needed to complete the form and support the costs?* (continued)

• Per 2 CFR 200 Appendix VII, the following must be provided: • Amount of direct labor base costs • Detailed support must be provided for the direct labor costs included in the plan. • Chart showing the organization structure of the agency during the period for which the costs were incurred. • This allows us to better understand the office structure and reporting of cost centers. • Signed certificate of costs.

*for de minimis, fringe or CAP methods. Now about that support…. Any thoughts on the following samples of support recently received… Example 1 Example 1 Example 2 Example 2 Example 3 Example 3

We requested additional support, as the focus of this documentation is the budget and encumbrances. We are looking for detailed expenditure reporting. Example 3

LPA is able to provide actual expenditure detail to document individual payments.

Verification of actual payment made to Bureau of WC. LPA is not self-insured. (Usually identified by a Transfer, rather than a payment.) LPA provides coding information to allow us to understand the report. Example 4 This is good support! Provides dates – provides bi-weekly payroll data. Specific to Engineer’s Office. This LPA had several categories of payroll data that totaled for its total labor. Example 4

Ended with 12/26 payroll.

No distinction between direct or indirect costs.

Total Labor Cost applied to CAP in Total Labor line. Fringe Sample – How does it work?

Fringe Form amount = Supported amount CAP Rate Support

Additional information needed. Most LPAs currently will not have the labor detail necessary for a CAP rate. Full Labor Detail is Required (system generated time tracking )

Labor detail must be determined to be direct or indirect based upon the project and task system determination. Examples of Indirect Costs

All costs must be supported just like the fringe costs are supported – full expenditure detail. Cost Allocation Plan - Review

• Ensure no project costs are included. • Ensure the LPA is not including project costs that should have been charged to an LPA, but completed work no –charge for the other LPA. • Ensure all allocated costs are equitable. • Sometimes more costs are allocated to departments that can support the costs. • Ensure no LPA costs for LPA processes are included • Snow and ice; road maintenance, street lighting, etc. Certificate of Costs Time Tracking

LPA Cost Recovery Guidance provides detailed instruction. CE Invoice District Documentation

• Please note as we discuss CE invoicing: • Some Districts may require full documentation with each invoice. • Some Districts may review full documentation periodically. • Some Districts may not have requested this information in the past. • LPA Cost Recovery Guidance provides detailed instruction. Full documentation is a Federal requirement and the Local must have support for all costs reimbursed. I don’t always put in my time entry. But when I do, its because I got an email about it. CE Invoice Testing

• Be sure to: • Track all time for employees working on a Federal project. • This is a Federal requirement. • Provide timesheets to support time on a job. • A project report does not meet the Federal requirement for time tracking. • Provide proof of (payroll and project time) approval. • The Federal Rule is that all time is approved at each payroll cycle – or at a minimum monthly. (30 days from payroll period end date) • If the payroll system and project tracking system are not integrated, data for both must be approved. The LPA must reconcile these systems monthly. Time Sheet Information

• Timesheets should include: • Printed name of employee • Printed name of supervisor • Signatures for both employee and supervisor • Dates for both employee and supervisory approvals • All hours paid through payroll should be tracked in timesheet.

Per April 1, 2015 ODOT memo –County Engineers are not required to have supervisory approval of timesheets. Payroll Data

• Be sure to: • Provide support for hourly rates. • A Payroll register is needed to verify the rate charged. • Data needs to be from the Local’s actual payroll system, rather than an excel spreadsheet. • Apply the rate the employee was paid at the time the work was completed, not a current rate. • Allocate time/costs to 100 percent Locally-funded work products. Payroll Data – Non-Local Employees

• Be sure to : • apply fringe and indirect costs only to employees receiving benefits. • Some “employees” who may not be receiving benefits: • Contract Employees (Consultants) • Interns • Temporary Employees • If the Local is not paying the employee benefits, the Local cannot apply Safe Harbor Rates to the employee’s wages. • If the employee is a Consultant or Contract Employee, the Local cannot apply Safe Harbor Rates to the employee’s wages. Recovery Options

• Be sure to: • select a recovery method on each agreement. • apply the selected method to invoices • apply the approved (fringe or overhead) rate of reimbursement. • request rate approval each calendar year.

• Prior year’s rate was only applicable to that year. • apply approved rate to hourly base rate

• Do not use OT rate or “loaded” rate Questions? Audit Resources/Feedback LPA Program “Audit” Resources

• ODOT Local Public Agencies (LPA) Cost Recovery Guidance http://www.dot.state.oh.us/Divisions/Finance/Auditing/Pages/LocalPublicAgencies-LPA.aspx

• Locally Administered Transportation Projects Manual of Procedures http://www.dot.state.oh.us/Divisions/Planning/LocalPrograms/Pages/Manual_of_Procedures.aspx Finance – Audit – LPA Finance – Audit – LPA Finance – Audit – LPA Audit Testing

• Pre-Award • Post-Award • Daily Diaries • Change Order • Project Close-Out • Construction Invoice Reconciling • CE Invoicing • Consultant

What the Locals are doing well from an audit perspective Pre-Award Testing

• LPAs have been successful in: • designating person in responsible charge. • having authority for executing the project. • advertising adequately. • having Federal Authorization prior to bid advertising Post-Award Testing

• LPAs have been successful in: • selecting the lowest bid for the award. • awarding the project within 60 days of the bid date. Change Order Testing

• LPAs have been successful in: • Documenting significant change orders • Having significant change orders reviewed by ODOT District Project Personnel. Project Completion Testing

• LPAs have been successful in: • Notifying the District to ensure participation in final inspection. • Documenting adjustments for final pay quantities. Audit - Learning opportunities for the locals

Pre-Award Testing

• Be sure to: • Incorporate FHWA 1273 Language in bid documents and contract • Incorporate the ODOT bid template • Sometimes a Local believes it has received State funding, rather than Federal funding. • Review Agreement to determine funding sources. • Clearly identify and separate 100 percent Locally-funded pay items from Federal/State funded pay items on the bid.* http://www.gpo.gov/fdsys/pkg/CFR-2011-title23-vol1/pdf/CFR-2011-title23-vol1-sec633-102.pdf

*Also separate items/time on invoice and timesheets (discussed later) Pre-Award Testing

• Be sure to: • Have a documented process for ensuring the Prime Contractor retains 30 percent of the original contract costs. • Create a process for ensuring the 30 percent requirement is met. • Follow the process and document review of this requirement throughout the project. • Requiring intent to sublet is only the start • Completing this review only at the end of the project is not sufficient. Prime Contractor -30 percent* How-to

• Ensure that Prime Contractor provides completed intent to sublet forms (with amounts) • Follow-up through project. • Prime has requirement to provide support. • Local must indicate review of support. • May require periodic documentation for invoice processing.

*Some Locals use a higher rate than 30 percent. Pre-Award Testing

• Be sure to: • Establish a procedure for the effective use of the List of Parties Excluded from Federal Procurement • https://www.sam.gov/portal/SAM/ • Document/date review prior to award. • Establish a procedure for the bid, review, and award of projects. • Retain all bid estimates when there are updates/corrections. Daily Diaries Testing

• Be sure to: • Track daily project activity to include: • All work performed • List of equipment used • Project personnel and hours worked • Pay quantities • Inspections • Prevailing Wage, EEO, DBE • Retain a daily diary for each day of the project. Change Order Testing http://www.gpo.gov/fdsys/pkg/CFR-2011-title23-vol1/xml/CFR-2011-title23-vol1-sec635-120.xml http://www.dot.state.oh.us/Divisions/Planning/LocalPrograms/Locallet%20Manual/LPA%20Participation%20Requirements.pdf

• Be sure to: • Establish a procedure for change orders. • Retain support to document ODOT concurrence with the Change Order procedure. • Retain documentation for ODOT review and concurrence for all significant change orders. • Prior to change order work • Retain documentation for all non-significant change orders.* • Be sure to follow the Local’s documented policy for change orders. *Districts may have communicated more restrictive requirements – Please maintain the District requirements. Consultant Testing

• Be sure to: • Apply ODOT approved overhead rates as applicable to consultant contracts. • Review time-tracking records of consultants. • Same process as time-tracking for Locals. • Periodically match daily diaries to consultant invoices rather than looking for “reasonableness”. • Discrepancies often indicate • invoice issues • lack of detail in daily diaries Construction Invoice Testing ODOT External Auditor will reconcile to ensure balancing. (original bid +/- change orders) = invoices.

• Be sure to: • Verify quantities. • Review mathematical calculations. • Verify funding source percent application. (80/20) • Exclude the costs for the allocable portion of any overriding costs (when there is a Locally funded work product): • Premium Bid bond, Insurance Premium or other overriding costs. • The Local must pay its share of the overriding costs. Questions??

Contact Information Stephanie Wagenschein (wagon-shine) 614-387-0390 [email protected]