Accounting Guide for. Engineering (A/E) Consulting Firms

Transcription

1 The Uniform Audit and Accounting Guide for Audits of Architecture and Engineering (A/E) Consulting Firms

2 The Guide is a Tool for: State Auditors. A/E Firms. CPA Firms.

3 Focus The Guide s focus is on auditing and reporting procedures applied to costs incurred by A/E firms for engineering and design related services on various federal, state, and local transportation projects.

4 Intention The Guide is not intended to be a detailed auditing procedures manual. A guide to assist users in understanding terminology, policies, procedures, and audit techniques, along with Federal Regulations and their source. Users should be aware that the FAR Cost Principles change frequently and the applicable version should be referenced in conjunction with the use of this Guide.

5 Establishment The Audit Subcommittee approved the establishment of the Uniform Audit and Accounting Guide Task Force to update the Guide during the 2007 Annual Meeting.

6 The Purpose of the Guide Update: Assure the Guide is consistent with current auditing standards and procedures, accounting principles, and Federal Regulation. Strengthen the Guide by providing additional guidance and clarification in regard to policy and procedures set forth in the Federal Regulations.

7 Uniform Audit and Accounting Guide Task kf Force Representatives from fourteen state DOT audit agencies. AASHTO FHWA

8 Audit Guide Steering Committee Representatives from five state DOT agencies. Six A/E firms. AASHTO. ACEC. FHWA.

9 Identification of the Guidelines and Procedures that required updating Solicited input from: Task Force members. AASHTO Audit Subcommittee. ACEC A/E Member Firms. Public Accounting Firms. AASHTO FHWA AICPA

10 The Task Force summarized the input received into nine primary categories: Management and CPA Responsibilities Labor and Compensation. Cognizance. Selected Areas of Costs. Risk & Materiality. Cost Accounting. Generally Accepted Government Auditing Standards. CPA Quality Work Program. Internal Control Questionnaire

11 Management and CPA Responsibilities To provide additional guidance in regard to management and CPA responsibilities including, disclosures, representations, CPA firm selection, engagement performance, and fraud. Additional guidance on management and CPA s roles and responsibilities. The CPA s responsibilities for fraud detection. Factors for consideration in the selection of a CPA Firm for an Overhead Audit.

12 Labor & Compensation To provide additional guidance in the determination of reasonable compensation costs. The Proposed Revisions Include: A model for reasonableness that A/E firms can follow to prepare their own, independent compensation analysis, in a consistent manner. Procedures that may be applied di in determining i reasonable compensation for firms that do not prepare p their own independent compensation analysis. Currently, the Guide recommends the creation of a National Compensation Matrix (NCM) to set parameters for reasonableness. The Task Force recommended that the NCM should be owned and controlled by the FHWA.

13 Labor & Compensation Continued Differentiating between the processes required to determine reasonable compensation paid to Senior Executives, as defined in FAR (p)(2)(ii)(B), and other employees. The development and application of a NCM was being discussed by a joint compensation subcommittee (AASHTO, FHWA, and ACEC). The comprehensiveness of compensation survey data as a fair representation of realistic, reasonable compensation for the A/E industry, is an area of concern expressed by ACEC.

14 Labor & Compensation Continued Another component of the Compensation audit framework is related parties. The consultant is to provide al list of all related employees along with pertinent employee information including the employees names, position titles or job classifications, duties, total wages or salaries, bonuses paid, and total taxable fringe benefits. Auditors should review this information and evaluate whether there is a risk that the compensation paid to the related party is unreasonable and whether additional audit procedures and or adjustments are necessary.

15 Labor Charging System and Other Considerations To provide additional guidance and specific information regarding the characteristics and criteria necessary to establish and maintain a Labor-Charging System. This Chapter includes guidance on: Accounting System Internal Controls Lb Labor Charging System Controls Timecard Preparation Timekeeping Policy Compliance and Review also are discussed A Labor Charging Checklist to evaluate the critical elements of the Labor Charging g System is also included.

16 Selected Areas of Cost To provide clarification, guidance, and tools to assist in determining allowable or unallowable costs, resulting in increased consistency in FAR cost interpretations nationwide. A noteworthy component of this effort is that some State DOTs have indicated d they plan to give up individual id State t DOTP Policies i in favor of consistent interpretations of the various FAR cost principles, resulting in a FAR compliant audit. Clarifications and/or additions in a number of areas, including: Directly Associated Costs, Reasonableness, Direct Costs, and Burden of Proof. Depreciation, Employee Welfare, Gains & Losses on Depreciable Property, Idle Facilities and Idle Capacity Cost, Precontract Cost, Insurance, Losses on Other Contracts, Retainer Agreements, Relocation Costs, Rent/Lease, Taxes, Travel, Goodwill, and Business Combination Costs. The listing of common unallowable costs was updated

17 Risk and Materiality Provides additional guidance in regard to internal controls, estimating and proposal systems, cost accounting systems, audit risk, and materiality and sampling.

18 Risk and Materiality Provides additional guidance regarding g minimum audit requirements and minimum transaction testing. A minimum sample size of 75 line items or transactions for labor costs. A minimum sample size for high risk accounts of 20 transactions per account, with testing of other accounts left to auditor judgment. All unallowable costs identified during an audit will be removed. Deviations from the minimum testing requirements may be allowable, provided the deviations are discussed and adequately justified in the CPA s audit workpapers.

19 Cognizance To provide clear guidance on 23 CFR Revisions include: An example cognizant letter. Questions and answers relating to cognizant and FAR compliant audits. Includes Q&A relative to steps that may be included in dispute resolution processes.

20 Cognizance, Continued Reference to the CPA Workpaper Review Program that was developed and included in Appendix A of the Guide, was added. Reference to a standardized Internal Control Questionnaire that was developed and included in Appendix B of the Guide, was added. d A risk management framework is also discussed: Assuring compliance with FAR cost principles is a primary objective Achieving compliance using a mix of tools and risk criteria: FAR compliant audits, desk reviews, other alternate procedures. Dollar thresholds. Past history/reputation. The number of states the firm operates in. Audit frequency ( date of last FAR compliant audit). CPA firm experience. Internal Control Questionnaire.

21 Cost Accounting To provide additional guidance on cost accounting with an emphasis on consistency and to clarify field rate accounting. Revisions: Consistent cost accounting of labor and direct cost. Accounting for unallowable costs in allocation bases. Methodologies for the treatment of uncompensated overtime for salaried employees. Additional guidance for the use and calculation of field office rates. Cost acct considerations to assure consistent treatment & allocation of costs per FAR & CAS. Description of common types of field offices, including a preferred methodology, with examples, to allocate costs between a home office and field office overhead pools.

22 Generally Accepted Government Auditing Standards (Yellow Book) To update the Audit Guide to reflect the most recent revisions to the Generally Accepted Government Auditing Standards. References updated to the latest Standards. GAGAS Matrix updated.

23 CPA Quality Control Work Program To provide a tool for use by all State DOTs to evaluate work performed by Certified Public Accountants to assure audited overhead reports comply with GAGAS, FAR and CFR expectations/requirements. ti i t This tool will also serve as a resource to A/E Firms and CPAs in procuring and conducting FAR compliant audit. Appendix A of the Guide.

24 Internal Control Questionnaire To standardize the primary Internal Control Questions and provide consistency in the approach. An Internal Control Questionnaire was added to the Guide as Appendix B.