2014 AASHTO Subcommittee Annual Meeting Audit Guide Task Force Audit Guide Survey Results

Agenda Panel members: AASHTO Panel members: Darrin Player (SC), Bruce Kalland (MN), Gerald Dobek (CT), Vickie Murphy (MT) FHWA Panel members: Dan Parker and Dave Bruce (FHWA) History: AASHTO Task Force, USDOT OIG Audit 2014 Survey Results: 29 States responded Questions and Discussion

The Audit Guide Taskforce Members include representatives from 26 State DOTs and DC. Also, 2 AASHTO and 4 FHWA representatives. 2010 issued Audit Guide update; updated 2012 2012 issued National Compensation Matrix; updated annually 2013 Risk Assessment Framework 2013 Audit Guide Suggestion Form Current: CPA Work paper review training Issues/Clarifications as submitted by SDOTs, task force members, and ACEC For historical purposes, it may be worth noting that the original audit guide was issued in 2001 and there was an update in 2005 before the current audit guide task force was formed back in 2007.

AASHTO Taskforce-Key Outcomes Clarity in roles and responsibilities related to validation, cognizance and acceptance of A/E firm indirect cost rates. Promote consistency and ensure compliance with FAR cost principle interpretations and applications by State & local government and A/E firms. Overall, improve the procurement, management and administration of A/E consultant services. Increased CPA audit quality.

U.S. DOT OIG AUDIT U.S. DOT OIG AUDIT: Executive Compensation and Other Overhead Costs Billed to the Federal-aid Highway Program. Report issued February 2009. Report ID: ZA-2009-033 Significant finding : Excessive executive compensation. Develop a task force and update the AASHTO Uniform Audit and Accounting Guide to address the audit findings OIG Audit was a catalyst for action.

OIG Audit Recommendations Revise 23 CFR 172: Require A&E firms to certify cost allowability. Provide States penalty assessment authority. Assign responsibility & accountability for overseeing CPA audits of A&E firms. Issue guidance for A&E firm procurement of CPAs. Cost Recovery on unallowable executive compensation costs and other unallowable expenses identified. Establish a process for monitoring & ensuring State implementation of NHS Section 307. For the 4th bullet, I would note for the audience that the language from the NHS Act was codified in 23 USC 112(b)(2) and is no longer a separate statutory reference.

OIG Audit Outcomes- Have we met them? Improved consistency Increased quality Greater reliance on work by others Efficient and effective oversight Compliance with laws and regulations Improved guidance

FHWA Responsibilities Potential involvement in dispute resolution process, after exhausting state procedures. Proposed rulemaking for 23 CFR 172 enhancements. OIG audit cost recovery effort. Evaluation of State procedures. Increased monitoring and assurance of FAR cost principle compliance.

State DOT’s Responsibilities In order to provide FHWA assurance of compliance with statutes, regulations, cost principles, toolbox of controls include: Cognizant approvals through use of CPA work paper reviews. State DOT-performed audits of A/E firm indirect cost rates. Reviews, analytical procedures, other tools. Awareness/oversight of local public agency practices. We will discuss these issues further during the survey results section.

Cognizance Cognizance and Oversight The underlying guidance concerning cognizant audits is contained in 23 CFR 172 and 23 U.S.C. 112 and supporting documents published by FHWA.

State DOT audit Develop and maintain effective risk management framework, internal controls. Provide assurance over State and A/E firm compliance with the FAR cost principles. Use of CPA work papers to evaluate quality of work and to use in acceptance of indirect cost rates. Determining/communicating cognizant audit agency issues for firms crossing State lines.

National Risk Management: Team Audit Concept Anecdotally, less than 100 firms represent more than half of Federal-aid dollars on State and local contracts. 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.

2014 Survey Results Cognizance – Bruce Kalland, MN Audits – Vickie Murphy, MT CPA Work paper Reviews – Gerry Dobek, CT

Cognizance Cognizance Questions: 1. List top 10 cognizant firms in your state. Explain the reasons why a cognizant was not performed. Response – Most states listed their cognizant firms but some said they are not performing cognizant reviews because of liability and/or limited/untrained staff. 5. If no cognizant is being performed, what ideas do you have for getting them completed? Multi-state joint cognizant reviews are the preferred solution.

Cognizance Cognizance Questions: 6. Would you transfer cognizance? Response - Trust appears to still be an issue. 7. What would make it more likely for you to issue a cognizant letter of concurrence? Response - Lack of training and staffing most cited.

Cognizance Cognizance Questions: 8. What would make it more likely for you to transfer cognizance? Response - Most states would agree to transfer cognizance. So what’s holding states back from issuing cognizance? Is there a need for training on the CPA Work paper review checklist?

Cognizance Questions: 9. Would you be interested in having other states assist you in performing a cognizant review using the CPA work paper review checklist? Response - Mostly yes; however, some states cited workload and out-of-state travel issues.

Cognizance Questions 10. Questions asked about Cognizance: How do states select the firms who get a free audit by the DOT? What information would be useful to have in cognizant letters? (standards followed, adjustment specifics, project specific rates, construction management, etc.) Guidance on types of documentation? Protection and release policies?

Cognizance Questions 10. (cont.) Does FHWA have a list of consultants who need cognizance and which states are assigned to those? What are the liabilities for the DOT in issuing a cognizant letter? Are there significant differences between states that are not being addressed in cognizant reviews? (OT Premium, G&A rates, allocation issues between field/home etc.)

Audits Audit Questions: Response - 2. Does your state perform audits of overhead rates in accordance with the Yellow Book? Response - 11 respondents noted that they perform AICPA audits of Indirect Cost Rates in accordance with GAGAS. Some noted that their states require audited rates which they perform reviews over

Audits Audit Questions: 11. What, if any, standards do you follow when performing cognizance/audits/desk reviews? Response - Audits were Yellow book or IIA Reviews: 8 Yellow book 5 Attestations/Agreed upon Procedures 2 IIA standards 4 Non-audit services (no standards) 2 AASHTO Guide

Audits Audit Questions: you implement with the 2011 revisions? 12. If your shop follows Yellow book, what changes did you implement with the 2011 revisions? Response - 12 No changes 2 Attestations, no changes necessary 2 Trained and made changes 4 Still determining impacts 2 Issues and made changes

Audits Audit Questions: Response - 13. If you follow Red Book, what changes do you see when rulemaking is complete? Response - Most states don’t use IIA. Respondents indicated no major impact.

CPA Work Paper reviews CPA Work Paper Review questions: 3. Does your shop perform CPA work paper reviews? Response – Mostly yes responses were received 75% of respondents doing reviews issued Cognizant Letters Some states indicated performing work paper reviews but did not issue Cognizant Letters

CPA Work Paper reviews CPA Work Paper Review questions: 4. If so, do you use the checklist in the Audit Guide? Response – Most states responded Yes One state responded “not yet” One state responded that did in past but with Agency reorganization process has changed

Respondent Questions 14. Questions

References The Guide: http://audit.transportation.org/Pages/default.aspx OIG Audit: http://www.oig.dot.gov DCAA Audit Manual: http://www.dcaa.mil/

Contact Information AASHTO: Darrin Player – playerjd@scdot.org Bruce Kalland – bruce.kalland@state.mn.us Gerald Dobek – gerald.dobek@ct.gov Vickie Murphy – vmurphy@mt.gov FHWA: Dan Parker – danial.parker@dot.gov Dave Bruce – david.bruce@dot.gov