Will Your Indirect Cost Rates be Accepted by Your State Department of Transportation?

December 22, 2016

In 2016, VDOT dedicated $483 million of its budget to Northern Virginia and Hampton Roads transportation projects. Whether you were recently awarded a contract by VDOT or are planning to submit an RFP in the near future, you may want to start putting all your ducks in a row for when that win does come in. Winning a contract is not the end of your journey, it’s only the beginning. All contracts awarded by state transportation departments must follow the cost principles contained in the Federal Acquisition Regulations (FAR), and indirect cost rate audits must be performed in compliance with Generally Accepted Government Auditing Standards (GAGAS). Firms are required to submit an indirect cost rate audit report to the Assurance and Compliance Office of their state Department of Transportation each year.

If you have an accounting firm doing an audit of your indirect cost rates, how can you ensure that the audit satisfies all the requirements and guidance of GAGAS and the guidance of the American Association of State Highway Transportation Officials Uniform Audit and Accounting Guide for Audits of Architectural and Engineering Consulting Firms (AASHTO Audit Guide)?

Do you know the answers to the following questions about your auditors?

  • Did your auditor conduct the audit in accordance with GAGAS issued by the U.S. Government Accountability Office (GAO)?
  • Did you ask questions such as:
    • Is your CPA independent?
  • Did your CPA receive a Peer Review Report of Pass?
  • Did the whole audit team meet the minimum requirements for Continuing Professional Education in government auditing or government environment?
  • Did you receive a report on Internal Controls and Compliance with Laws and Regulations as part of the audit of your indirect rates?
  • Did your auditor follow the guidance of the most recent AASHTO Audit Guide?
  • Did you receive an engagement letter specifically identifying the indirect cost rate audit, the period covered, the cost pools audited, and the reports to be prepared?
  • Was the format and the disclosures of your audit report adequate and in an acceptable format?
  • Have you reviewed your executive compensation for allocability and reasonableness using either nationally published salary surveys or the National Compensation Matrix, and did your CPA audit the results?
  • Are you following the cost principles and procedures as set forth in 48 CFR, Chapter 1, Part 31, of FAR?

If you have questions about Indirect Rate Cost Audits, please contact Teresa Flynn at TFlynn@Aronsonllc.com or 301.231.6247.