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  • Most Frequent Issues: Most Frequent Issues: Certified Public Accountant (CPA) ( )

    Workpaper Reviews of Indirect Cost Rate (ICR) AuditsRate (ICR) Audits

    forA hit t d E i i (A&E)Architecture and Engineering (A&E)

    Consulting Firms

  • TRAINING PURPOSE & GOALTRAINING PURPOSE & GOALTRAINING PURPOSE & GOALTRAINING PURPOSE & GOAL

    PURPOSE: To highlight frequently To highlight frequently identified issues encountered during a identified issues encountered during a ggReview.Review.

    GOAL: Ensure A&E and CPA firms are successful in developing and auditingsuccessful in developing and auditing A&E firms ICRs, respectively.

  • APPLICABILITYAPPLICABILITYAPPLICABILITYAPPLICABILITY

    Issues Discussed TodayIssues Discussed Today Currently Applicable toCurrently Applicable to Issues Discussed Today Issues Discussed Today Currently Applicable to Currently Applicable to Department A&E Contracts.Department A&E Contracts.

    High Probability That Similar Issues Will Be Found High Probability That Similar Issues Will Be Found During Reviews of Local Agency A&E Contract CPA During Reviews of Local Agency A&E Contract CPA g g yg g yWorkpapaper Reviews.Workpapaper Reviews.

    Reviews performed on Department or Local Agency Reviews performed on Department or Local Agency A&E Contracts of $3.5 Million or more. A&E Contracts of $3.5 Million or more.

  • COGNIZANCECOGNIZANCECOGNIZANCECOGNIZANCE DETERMINES WHO CONDUCTS REVIEWDETERMINES WHO CONDUCTS REVIEW

    Cognizant State determined by where financial records Cognizant State determined by where financial records are maintained.are maintained.C i S h C HQC i S h C HQ Cognizant State not necessary where Corporate HQ Cognizant State not necessary where Corporate HQ residesresides

    M ltiM lti St t i b i t f lSt t i b i t f l MultiMulti--State review may be appropriate for large State review may be appropriate for large Consultants.Consultants.

    Review may involve transfer of Cognizance.Review may involve transfer of Cognizance.(Refer to 23 CFR 172(Refer to 23 CFR 172----Administration of Engineering and Design Related Administration of Engineering and Design Related

    Service Contracts for more information.)Service Contracts for more information.)

  • CPA WORKPAPER REVIEWS CPA WORKPAPER REVIEWS (REVIEW)(REVIEW)

    Performed by Caltrans Audits and Investigation (A&I) Performed by Caltrans Audits and Investigation (A&I) y g ( )y g ( )Auditors.Auditors.

    Review Independent CPAs Audits of ICRs.Review Independent CPAs Audits of ICRs. Review to ensure CPAs work performed in accordance Review to ensure CPAs work performed in accordance

    with all applicable standards and the American with all applicable standards and the American Association of State Highway and Transportation Association of State Highway and Transportation Officials (AASHTO) Uniform Audit & Accounting Officials (AASHTO) Uniform Audit & Accounting G id (A dit G id ) d d p dG id (A dit G id ) d d p dGuides (Audit Guide) recommended procedures Guides (Audit Guide) recommended procedures ((Chapter 10, AASHTO Audit GuideChapter 10, AASHTO Audit Guide), as well as, to verify ), as well as, to verify the accuracy of the audited ICR.the accuracy of the audited ICR.the accuracy of the audited ICR.the accuracy of the audited ICR.

    Review Objectives.Review Objectives.

  • REVIEW OBJECTIVESREVIEW OBJECTIVESREVIEW OBJECTIVESREVIEW OBJECTIVES

    Function as a REGULATOR.Function as a REGULATOR. Provide a cognizant approval of the ICRs.Provide a cognizant approval of the ICRs.

    May result in May result in rejectionrejection rather than an approval.rather than an approval. May require additional work by the CPA/A&E firm.May require additional work by the CPA/A&E firm.

    ifi i h C i A ( ACifi i h C i A ( AC Notification Letter to the Contracting Agency (DPAC Notification Letter to the Contracting Agency (DPAC or Local Agency) & Contract/Project Manager.or Local Agency) & Contract/Project Manager.M L CPA d/ A&E fiM L CPA d/ A&E fi Management Letter to CPA and/or A&E firm.Management Letter to CPA and/or A&E firm.

    May result in CPA being referred to Board of May result in CPA being referred to Board of A nt nA nt nAccountancy.Accountancy.

  • PARTNERING AND OVERSIGHTPARTNERING AND OVERSIGHTPARTNERING AND OVERSIGHTPARTNERING AND OVERSIGHT

    PARTNERING: Is wIs working cooperativelyorking cooperativelyPARTNERING: Is wIs working cooperatively orking cooperatively in association with others outside of in association with others outside of C lt ffi it Di t i t t tC lt ffi it Di t i t t tCaltrans or your office, unit, District, etc. to Caltrans or your office, unit, District, etc. to reach a common goal.reach a common goal.

    OVERSIGHT: Is being vigilant and remaining objective and independent when managingobjective and independent when managing contracts, projects, and the work of others for which you are responsiblewhich you are responsible.

  • PARTNERING AND OVERSIGHTPARTNERING AND OVERSIGHTPARTNERING AND OVERSIGHTPARTNERING AND OVERSIGHT

    PARTNERING: Is critical to gain trust and a Is critical to gain trust and a good understanding of the needs of all partiesgood understanding of the needs of all parties..g g pg g p

    OVERSIGHT: Is critical to protect state, f d l d l l f di d i dfederal and local funding; and required to perform your job effectively.

    The Two are NOT Mutually Exclusive!

  • A&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms Responsibility

    Ensure your Financial ManagementEnsure your Financial Management (Project/Job(Project/JobEnsure your Financial Management Ensure your Financial Management (Project/Job (Project/Job Cost Accounting) System is adequate to segregate Cost Accounting) System is adequate to segregate reasonable, allowable and allocable costs.reasonable, allowable and allocable costs. A labor distribution system that properly segregates A labor distribution system that properly segregates

    direct and indirect labor to the appropriate contract/cost direct and indirect labor to the appropriate contract/cost bj ibj iobjectives.objectives.

    Proper segregation of other direct costs by contract/cost Proper segregation of other direct costs by contract/cost objectiveobjectiveobjective.objective.

    Segregation of indirect costs, and removal of Segregation of indirect costs, and removal of unallowable costs pursuant to 48 CFR Part 31 and unallowable costs pursuant to 48 CFR Part 31 and ppcontract provisions.contract provisions.

  • A&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms Responsibility

    Development of a FAR Compliant InDevelopment of a FAR Compliant In--House ICRHouse ICRDevelopment of a FAR Compliant InDevelopment of a FAR Compliant In House ICR House ICR (whether you have your CPA perform an ICR Audit (whether you have your CPA perform an ICR Audit or not): or not):

    A Column for Unallowable Amounts Should be A Column for Unallowable Amounts Should be Included on the InIncluded on the In--House ICR ScheduleHouse ICR Schedule

    FAR References for all Unallowable Amounts FAR References for all Unallowable Amounts Should be IdentifiedShould be Identified

    Notes to the InNotes to the In--House ICR Schedule Should be House ICR Schedule Should be Completed.Completed.

    (Refer to Tables 5(Refer to Tables 5--5 & 55 & 5--6 6 -- AASHTO Audit Guide)AASHTO Audit Guide)

  • A&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms Responsibility

    Policies (preferably written) for Bonuses,Policies (preferably written) for Bonuses,Policies (preferably written) for Bonuses, Policies (preferably written) for Bonuses, Uncompensated Overtime, Requiring All Employees Uncompensated Overtime, Requiring All Employees (Hourly & Salaried) to Record (Hourly & Salaried) to Record AllAll Hours Worked.Hours Worked.

    Document work performed for Executive Document work performed for Executive Compensation (EC) Analysis to substantiate allowableCompensation (EC) Analysis to substantiate allowableCompensation (EC) Analysis to substantiate allowable Compensation (EC) Analysis to substantiate allowable ECEC Simply using the Benchmark Amount or National Simply using the Benchmark Amount or National S p y us g t e e c a ou t o Nat o aS p y us g t e e c a ou t o Nat o a

    Compensation Matrix without documenting work is not Compensation Matrix without documenting work is not adequate.adequate.

  • A&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms ResponsibilityA&E Firms Responsibility

    InIn--House Unit Rates: Should be based onHouse Unit Rates: Should be based on InIn House Unit Rates: Should be based on House Unit Rates: Should be based on general ledger accounts (actual costs).general ledger accounts (actual costs).

    Once established, these Unit Rates should be Once established, these Unit Rates should be offset to the Indirect Expense Pool as credit offset to the Indirect Expense Pool as credit backs or cost recoveries as utilized on projects.backs or cost recoveries as utilized on projects.

    U it R t h d di t t b iU it R t h d di t t b i Unit Rates, when used on a direct cost basis, Unit Rates, when used on a direct cost basis, must be supported by accounting records and must be supported by accounting records and

    t b dit dt b dit dmust be audited must be audited (5.3 (5.3 Cost Centers, p.29, 2012 AASHTO Guide.)Cost Centers, p.29, 2012 AASHTO Guide.)

  • A&E Firms ResponsibilityA&E Firms Responsib

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