2014 AASHTO Subcommittee Annual Meeting Audit Guide Task Force

1. 2014 AASHTO Subcommittee Annual MeetingAudit Guide Task Force Audit Guide Survey Results

2. 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

3. 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

4. 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.

5. 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

6. 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.

7. 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

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 2014 Survey Results Cognizance – Bruce Kalland, MN Audits – Vickie Murphy, MT CPA Work paper Reviews – Gerry Dobek, CT

14. 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? Response – Multi-state joint cognizant reviews are the preferred solution.

15. 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.

16. 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?

17. 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.

18. 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?

19. 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.)

20. Audits • Audit Questions: 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

21. 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

22. Audits • Audit Questions: 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

23. Audits • Audit Questions: 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.

24. 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

25. 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

26. Respondent Questions 14. Questions

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

28. 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