For Audits of Architectural and Engineering (A/E) Consulting Firms UNIFORMUNIFORM AUDITAUDIT && ACCOUNTINGACCOUNTING GUIDEGUIDE 2012 Edition American Association of State Highway and Transportation Officials THE VOICE OF TRANSPORTATION Copyright © 2013, by the American Association of State Highway and Transportation Officials. All Rights Reserved. This book, or parts thereof, may not be reproduced in any form without written permission of the publisher. Printed in the United States of America. AASHTO Uniform Audit & Accounting Guide (2012 Edition) i EXECUTIVE COMMITTEE 2012–2013 OFFICERS: PRESIDENT: Michael P. Lewis, Rhode Island VICE PRESIDENT: Mike Hancock, Kentucky SECRETARY-TREASURER: Carlos Braceras, Utah EXECUTIVE DIRECTOR: John Horsley, Washington, D C REGIONAL REPRESENTATIVES: REGION I: James P. Redeker, Connecticut Chris Clement, New Hampshire REGION II: Eugene Conti, North Carolina Sheri LeBas, Louisiana REGION III: Mark Gottlieb, Wisconsin Paul Trombino, Iowa REGION IV: John Cox, Wyoming John Halikowski, Arizona IMMEDIATE PAST PRESIDENT: Kirk Steudle, Michigan AASHTO Uniform Audit & Accounting Guide (2012 Edition) ii AASHTO ADMINISTRATIVE SUBCOMMITTEE ON INTERNAL/EXTERNAL AUDIT Finance and Administration Subcommittee Chair Vice Chair Carri A. Rosti, CPA Judson D. Brown, CPA Manager, Office of Internal Review Director, External and Construction Audit Idaho Transportation Department Virginia Department of Transportation P.O. Box 7129 1401 East Broad Street, 14th Floor, Room 1403 Boise, ID 83707-1129 Richmond, VA 23219 (208) 334-8834 (804) 225-3597 [email protected] [email protected] Secretary AASHTO Liaison Dan Kahnke, CGFM Jenet Adem Audit Director Director of Finance and Administration Minnesota Department of Transportation American Association of State Highway and Transportation Officials 395 John Ireland Blvd. 444 North Capitol Street, N.W. Suite 249 St. Paul, MN 55155 Washington, DC 20001-1539 (651) 366-4140 (202) 624-5816 [email protected] [email protected] FHWA Liaison Dave Bruce FHWA National Review Team Leader Federal Highway Administration Program Management Improvement Team 12300 West Dakota Avenue Lakewood, CO 80228 (720) 963-3723 [email protected] AASHTO Uniform Audit & Accounting Guide (2012 Edition) iii Transportation Internet Links Alabama http://www.dot.state.al.us Missouri http://www.modot.org Alaska http://www.dot.state.ak.us Montana http://www.mdt.mt.gov Arizona http://www.azdot.gov/ Nebraska http://transportation.nebraska.gov Arkansas http://www.arkansashighways.com Nevada http://www.nevadadot.com California http://www.dot.ca.gov New Hampshire http://www.state.nh.us/dot Colorado http://www.dot.state.co.us New Jersey http://www.state.nj.us/transportation Connecticut http://www.ct.gov/dot New Mexico http://www.nmshtd.state.nm.us Delaware http://www.deldot.net New York http://www.nysdot.gov District of Columbia http://ddot.dc.gov/DC/DDOT North Carolina http://www.dot.state.nc.us Florida http://www.dot.state.fl.us North Dakota http://www.dot.nd.gov Georgia http://www.dot.state.ga.us Ohio http://www.dot.state.oh.us Hawaii http://hawaii.gov/dot Oklahoma http://www.okladot.state.ok.us Idaho http://itd.idaho.gov Oregon http://www.odot.state.or.us Illinois http://dot.state.il.us Pennsylvania http://www.dot.state.pa.us Indiana http://www.ai.org/dot Rhode Island http://www.dot.state.ri.us Iowa http://www.dot.state.ia.us South Carolina http://www.dot.state.sc.us Kansas http://www.ksdot.org South Dakota http://www.sddot.com Kentucky http://www.kytc.state.ky.us Tennessee http://www.tdot.state.tn.us Louisiana http://www.dotd.state.la.us Texas http://www.dot.state.tx.us Maine http://www.state.me.us Utah http://www.sr.ex.state.ut.us Maryland http://www.mdot.state.md.us Vermont http://www.aot.state.vt.us Massachusetts http://www.eot.state.ma.us Virginia http://www.virginiadot.org Michigan http://www.michigan.gov/mdot Washington http://www.wsdot.wa.gov Minnesota http://www.dot.state.mn.us West Virginia http://www.wvdot.com Mississippi http://mdotfcu.com Wisconsin http://www.dot.state.wi.us Wyoming http://dot.state.wy.us Federal Highway Administration (FHWA) http://www.fhwa.dot.gov/ AASHTO Uniform Audit & Accounting Guide (2012 Edition) iv CKNOWLEDGMENTS A Discussions among AASHTO members at the regional level and at annual AASHTO meetings led to the creation of the first edition of the Uniform Audit & Accounting Guide, as released in March of 2001. The guide was designed to assist engineering consultants, independent CPAs, and State DOT auditors with the preparation, and/or auditing, of Statements of Direct Labor, Fringe Benefits, and General Overhead (indirect cost rate schedules). Over the years, many people have contributed to the guide by providing input, conducting research, attending working sessions, facilitating meetings, editing, proofreading, and providing other support. The participants included representatives from State Departments of Transportation, the FHWA, the ACEC, public accounting firms, and AASHTO. Their knowledge, time, travel funding, and supplies were greatly appreciated in the nationwide team effort that led to this 2012 edition of the guide. Scot P. Gormley, External Audit Manager with the Ohio Department of Transportation, served as the primary designer and editor of this 2012 Edition of the guide, with additional support and assistance provided by Dan Purvine of A/E Clarity Consulting and Training, LLC. AASHTO Uniform Audit & Accounting Guide (2012 Edition) v Preface BOUT HIS UIDE A T G his Uniform Audit and Accounting Guide was developed by the American Association of State Highway and Transportation Officials (AASHTO) Audit Subcommittee with assistance from the American Association of State Highway and Transportation Officials, the Federal Highway T Administration (FHWA), and the American Council of Engineering Companies (ACEC). The AASHTO Audit Subcommittee is comprised of the senior audit representative from each State’s transportation or highway department. This guide was developed over several years and initially was approved by AASHTO at the organization’s 2001 annual meeting. During 2007, the members of the Audit Subcommittee approved the establishment of a Task Force to update the guide, which resulted in the release of the 2010 Edition. This was necessary to ensure that the guide was consistent with current auditing standards and procedures, accounting principles, and Federal regulations. The 2010 update also addressed questions and concerns expressed by various parties, including the FHWA, State DOT audit agencies, Architectural and Engineering design firms (hereinafter referred to as “A/E firms” or “engineering consultants”), and public accounting firms. These questions and concerns were brought about through current practice and, in part, through the findings and recommendations from an audit performed by the U.S. Department of Transportation’s Office of Inspector General (OIG).1 This 2012 Edition of the guide incorporates several updates, refinements, and clarifications necessary to reflect changes in the statutory and regulatory framework applicable to A/E contracts that have occurred since the publication of the 2010 update. This 2012 guide should be used as a tool by State DOT auditors, A/E firms, and public accounting firms that perform audits and attestations of A/E firms. The techniques presented herein primarily focus on examination, auditing, and reporting procedures to be applied to costs that are incurred by A/E firms for engineering and design related services performed on various Federal, State, and Local transportation projects. These costs normally are billed to applicable agencies through their State DOTs. The techniques discussed in this guide were designed to be applied to audit and attestation engagements performed in connection with engineering consultants’ Statements of Direct Labor, Fringe Benefits, and General Overhead (hereinafter referred to as “indirect cost rate schedules”), as well as the related accounting systems, job-costing systems, and labor-charging systems that serve as the basis for the indirect cost rate schedules. This guide is not intended to be a comprehensive auditing procedures manual but is instead a guide to assist users in understanding terminology, policies, procedures and audit techniques, and sources for applicable Federal Regulations. This guide provides only general guidance and is not meant to, and cannot, supersede either the Federal Acquisition Regulation (FAR) or any related laws or regulations.2 Users should be aware that the FAR Cost Principles change frequently; accordingly, please review the 1 See “Oversight of Design and Engineering Firms’ Indirect Costs Claimed on Federal-Aid Grants” (Report Number: ZA-2009-033), issued February 5, 2009. 2 Although use of this guide is not required by Federal law or regulation, most State DOTs expect engineering consultants, external CPAs, and other involved parties to comply with the minimum procedures and techniques illustrated and discussed herein. As recommended by the FHWA, most State DOTs have adopted risk assessment procedures to help determine engineering consultants’ compliance with FAR Part 31 and related laws and regulations. Consistency with this guide may be a key factor in assessing risk, and departures from the procedures recommended herein, lacking adequate justification, may lead to additional scrutiny by a reviewing State DOT. Accordingly, engineering consultants are strongly encouraged to adopt the uniform reporting procedures illustrated