Railroad Audit Circulars Training. March 18, 2010

Transcription

1 Railroad Audit Circulars Training March 18,

2 Presented By Marc A. Travis External Audit Supervisor Rail & Utilities Office of Audits Division of Finance and Forecasting Ohio Department of Transportation 2

3 Agenda 3 Introduction History The Development Process Federal Requirements The Basics The Circulars (lunch break 12:15-1:15PM) Circular Content Supporting Documentation Preparing Overhead Schedules Common Audit Findings Conducting an Audit Closing

4 Questions Answered Today 1. What are Circulars? 2. Why did ODOT choose to develop the Circulars? 3. What process was used in developing the Circulars? 4. What are the key elements of the Circulars? 5. What common audit findings are addressed in the Circulars? 6. How can I properly document my costs to be reimbursed and avoid these findings and cost recovery? 4

5 History Over the past few years, there has been minimal railroad billing oversight provided by the Office of Audits. The focus of Governor Strickland and ODOT Director Molitoris on multi-modal transportation has greatly enhanced the need for financial oversight. 5

6 History Audits has observed billing errors, inconsistent treatment of costs, and other railroad and subcontractor practices that may unfairly burden the State. Therefore, a need for concrete ODOT/ORDC policy has been established. 6

7 What Are Circulars? Circulars are official ODOT policy on the treatment of costs on State- and Federally-funded projects. A compilation from multiple sources into a single set of documents. Interpretation and amplification. Circulars were previously developed for Consultants and MPOs. Circulars go through an extensive vetting process, which culminates in approval by Executive Management and official implementation. 7

8 Circular Development Ongoing Review of all applicable rules, regulations, and standards relating to railroad reimbursement Extensive review of >50 railroad projects of varying types to identify billing practices, trends, common themes, and adherence to applicable regulations. April 2007 Took part in multi-state reduction rate audit of Class I railroad. 8

9 Circular Development March 2008 Conducted national survey of State DOT billing/auditing policies. Responses from 20 States. April 2008 Began first drafts of Circulars. Continuous revisions made through September, based on feedback from internal customers (ORDC and ODOT Rail). 9

10 Circular Development 8/29/08 through 10/31/08 Released Circulars to the railroad community for comment. Solicited comments from: All Ohio Class I, II, and III railroads Local entities owning/operating track Major railroad subcontractors Public Utilities Commission of Ohio Other State DOTs Internal customers 10

11 Circular Development Received comments from seven of the 50+ entities from which we solicited comments. Drafted additional revisions to address comments provided by railroad community. Discussed specific major issues with ODOT/ORDC Executive Management. Solicited Federal guidance regarding two major issues. Unworked labor and procurement card reports. 11

12 Circular Development 10/14/09 through 11/13/09 Released Circulars to railroad community for second and final comment period. Received comments from three entities. Similar responses to initial comment period. No additional changes made to the Circulars after second comment period. 12

13 Circular Development On 12/21/09, Office of Audits conducted final meeting with Executive Management of ODOT and the ORDC. All parties were in agreement on the policies proposed and vetted in the Circulars. ODOT Executive Management gave final approval to implement the Circulars on January 1,

14 Implementation 14 The Circulars are located on the ODOT website at: /Auditing/Pages/RailUtilities.aspx.aspx The Circulars are in effect for all projects authorized on or after January 1, Most policies in the Circulars are amplifications of Federal regulations, and thus apply to all projects, regardless of authorization date.

15 Authorization Means ODOT Authorization Letter PUCO Order 15

16 Federal Requirements The Basics 16

17 17 In a nutshell

18 The FAR Subpart 31.2 of Title 48 of the Code of Federal Regulations, the Federal Acquisition Regulation (FAR), governs contracts with commercial organizations. This is the primary regulation dealing with composition of total cost, allowability, reasonableness, allocability, assignment of costs as direct or indirect, and selected areas of cost. Railroads and their subcontractors are subject to the FAR, as a recipient of Federal funds. 18

19 The FAR States The total cost of a contract, is the sum of the direct and indirect costs allocable to the contract, incurred or to be incurred less any allocable credits. FAR : Total Composition of Cost 19

20 Direct and Indirect Costs Direct Costs Indirect Costs Direct Labor Non-Salary Direct Costs (Other Direct Costs) Overhead (Burden, Additive, Surcharge, etc.) 20

21 3 Types of Costs Direct Labor Labor costs incurred by the railroad specifically for the project. Cannot benefit other projects. Includes actual labor costs for engineering, construction, inspection, project management, and billing. 21

22 3 Types of Costs Non-Salary Direct Costs (Other Direct Costs) Direct costs attributable to the project other than labor. (not necessarily billable) Cannot benefit other projects, unless allocated to multiple projects. Includes employee travel costs, materials from railroad stores and company-owned equipment. Includes pass-through costs, such as subconsultants, subcontractors, material purchases, equipment rentals, etc. 22

23 Billable vs. Direct Costs Direct project costs must be allocated/costed/assigned directly to the project, regardless of whether it is billable. Direct does not necessarily mean billable. Whether a cost is direct is primarily determined by the organization s policies. Whether a cost is billable is determined by the terms of the contract and applicable regulations. 23

24 Billable vs. Direct Costs Unbillable direct costs cannot be moved to another project or shifted to overhead. Losses on projects cannot be shifted to overhead. Direct project costs must be allocated/costed/assigned to lump sum projects in the same manner as actual cost projects. 24

25 Examples of Unbillable Direct Costs Costs that do not comply with the contract Actual labor rates in excess of negotiated labor rates. Costs in excess of a negotiated maximum fee. Betterments not approved for reimbursement by ODOT/ORDC. Costs that do not comply with Regulations Costs in excess of the Federal Travel Regulation. Alcohol. 25

26 3 Types of Costs Indirect Costs (Overhead) Synonymous with burden, surcharge, additive. Costs benefitting multiple (or all) projects, but cannot be specifically linked to a single project. Fringe Benefits (eligible for reimbursement). Liability Insurance (eligible). General and Administrative (G&A) Overhead. In accordance with 23 CFR (a), ODOT has elected not to reimburse railroads for these costs. 26

27 The FAR Also States Costs claimed must be incurred and allowable. In order to be allowable, the cost must also be: Allocable, Reasonable, Within the terms of the contract, and Within any limitations established in Part 31 of the FAR. 27

28 Application of Federal Guidance Are transactions supported by source documents (incurred/exist)? Timesheets, expense reports, vendor invoices Are costs allocable to the project? Causal/beneficial relationship Direct, indirect, neither? 28

29 More on Allocability When a cost is incurred, does it benefit A single project? Direct project cost, 100% applied to that project. Multiple projects? Allocated to each benefitting project in proportion to the benefit received. All projects? Overhead 29

30 Allocation Examples Single project (direct) allocation Bob works 8 hours on project X Jeff is a paid a meal per diem associated with work performed solely on project X ABC Railroad purchases materials used solely on project X Consultant Y prepares plans for project X Contractor Z install new lights and gates on project X 30

31 Allocation Examples Multiple project (direct) allocation ABC Railroad rents a backhoe for a month, in which the backhoe was used on 4 projects. Consultant Y performs general engineering services for the month of January, and invoices ABC railroad for work performed on 12 projects. Stacie works 4 hours each on two projects today. Crew X is paid a weekly per diem for travel costs. Crew X works on 3 different projects during the week. 31

32 Allocation Examples 32 Overhead (indirect) allocation The CEO of ABC Railroad is paid a $150,000 salary for 20XX. ABC Railroad pays rent for its corporate headquarters. A leased Foreman s truck is delivered to ABC Railroad. ABC Railroad pays corporate taxes. ABC Railroad contracts with a marketing firm to conduct an ad campaign.

33 Unallocable Costs Examples of costs which do not benefit government contracts in any way. Bob works on Project Y. Accordingly, Bob s labor is not allocable to project X. Costs associated with ABC Railroad s ownership of a trucking company. A $20 late fee for past due payment of vendor invoice. 33

34 Application of Federal Guidance 34 Are the costs allowable? 23 CFR 140 and 646 FAR Part 31 Railroad Audit Circulars Are the costs reasonable? Prudent person test Are costs equitably assigned to individual projects, or public vs. private? Have the costs been properly valued?

35 35 The Circulars

36 The Circulars No. 1 Definitions, Audit Authority, and Guidance on Computing Overhead Rates No. 2 Travel, Meal and Lodging Costs No. 3 Labor Costs No. 4 Subcontracted Costs No. 5 Final Invoicing Procedures No. 6 Equipment No. 7 Materials 36

37 Circular No. 1 Definitions, Audit Authority, and Guidance on Computing Overhead Rates 37

38 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead General Premise Provides definitions and general concepts used throughout the Circulars. Establishes ODOT s authority to conduct audits. Provides guidance on developing an overhead rate and establishes relevant regulations applicable to those rates. 38

39 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Important Regulations Title 23 of the Code of Federal Regulations: Highways 23 CFR 140, Subpart I: Railroad Reimbursement Outlines how railroads are reimbursed on Federal-Aid projects. 23 CFR 646, Subpart B: Railroads Outlines policies and procedures for advancing Federal- Aid railroad projects. Incorporates 23 CFR 140 by reference. 39

40 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Important Regulations Title 48 of the Code of Federal Regulations: The Federal Acquisition Regulation ( FAR ) 48 CFR 31: Contract Cost Principles and Procedures ( FAR Part 31 ) Discusses allowability, allocability, and reasonableness of cost; proper charging of costs as direct or indirect; and specific elements of cost. Applies to all Federal-Aid contracts when reimbursing commercial (for-profit) entities. Incorporated by reference into 23 CFR

41 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Important Regulations Cost Accounting Standards (CAS) Codified in 48 CFR 99. Included in FAR Appendix. Incorporated by reference into FAR Part 31. Some contracts subject to full CAS coverage, and some to partial CAS coverage. Allocating Costs. Overhead/Cost drivers. 41

42 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Important Regulations Federal Travel Regulation (FTR) The FTR is the regulation contained in 41 Code of Federal Regulations (CFR), Chapters 300 through 304, that implements statutory requirements and Executive branch policies for travel by federal civilian employees and others authorized to travel at government expense. Incorporated in FAR Part 31. FAR (a)(2)(i) 42

43 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead The DCAA Defense Contract Audit Agency (DCAA) The preeminent Federal agency that conducts audits and provides interpretive guidance of Federal regulations. Contract Audit Manual (CAM) Interprets provisions in the FAR, including 48 CFR 31. DCAA Pamphlet (DCAAP) : Information for Contractors Includes guidance on proper timekeeping procedures (Chapter 2-302). 43

44 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Additional Concepts For the purposes of the Circulars, all costs are treated the same, regardless of funding source. Therefore, State- and Federal-Aid projects must comply with the same standards. 44

45 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Ohio Rail Structure ODOT Grade separations and rail-related work incidental to highway projects. ORDC Economic development and safety. Grants, loans, other assistance to promote economic development. Safety (Crossbucks, signs/signals, closures, resurfacing). Section 130 and other Federal highway funds. 45

46 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Ohio Rail Structure Public Utilities Commission of Ohio (PUCO) Regulation. State-funded safety projects. Funded by Excise Taxes. Work in conjunction with local agencies. Orders grade crossing modifications, as required by the Ohio Revised Code. Other (Local) 46

47 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead ODOT, ORDC, and the MOU 47 The Ohio Rail Development Commission (ORDC) is an independent commission within ODOT, created in 1994 under Ohio Revised Code Chapter The Commission's mission is to plan, promote, and implement the improved movement of goods and people faster and safer on a rail transportation network connecting Ohio to the nation and the world. Grant, loans and other assistance to facilitate economic development. Safety projects/federal Funds.

48 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead ODOT, ORDC, and the MOU Through a Memorandum of Understanding (MOU), ODOT conducts certain services for the ORDC, including conducting audits. Accordingly, ODOT conducts audits of ORDC and ODOT projects, including Section 130 and other Federally-funded projects, grade separations, resurfacing, bridge rehabilitations, and others. 48

49 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Audit Authority ODOT is granted the authority to conduct railroad audits in accordance with 23 CFR (c). 23 CFR 140 also establishes an audit period of three years after receipt of final payment by the railroad. Therefore, the railroad must maintain adequate records to support any claimed costs for that period of time. 49

50 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead General Overhead Concepts ODOT/ORDC does not pay G&A Overhead to railroads. Costs included in overhead must be actually incurred. Overhead costs are subject to the cost principles in FAR Part 31. Records relating to overhead must be made available at a single location for auditor review. Rates must be adjusted annually. 50

51 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Eligible Overhead (for Railroads) Public Liability and Property Damage Insurance. Workers Compensation. Payroll Taxes (FICA, FUTA, SUTA, Medicare, etc.). Retirement. Other fringe benefits provided by company policy or union agreement. 51

52 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Calculating Overhead (Railroads) 52 Capture the account balances of all allowable fringe benefits and insurance from your railroad s general books of account. General ledger Trial Balance Income Statement (Detailed) Capture the total labor costs of the railroad or specific labor class. Above Financial Document Payroll Reports

53 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Calculating Overhead (Railroads) Review indirect costs to determine compliance with Cost Principles in the FAR. Allocable to Government work Allowable under the FAR Reasonable Remove costs which do not meet the above criteria. Generally, fringe benefits are allowable, with minor exceptions. 53

54 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead ODOT Railroad Audit Circular Attachment 1-1: Sample Overhead Schedule Sample Railroad Company, Inc. Statement of Labor, Fringe Benefits, and Liability Insurance: Maintenance of Way For the Year Ended December 31, 2008 Total Costs Per Account No. Account Description General Ledger/Income Statement Unallowable Costs Note(s) Allowable Costs Percentage of Direct Labor 1000 Total Labor: Maintenance of Way 5,300,000-5,300, % Allocable Fringe Benefits and Other Allowable Overhead: Maintenance of Way 2001 Vacation and Other Paid Leave 237, , % 2002 Holiday Pay 165, , % 2003 Supplemental Sickness 47,000-47, % 3001 FICA 397, , % 3002 Workers' Compensation 565, , % 3003 FUTA 51,000-51, % 3004 SUTA 371, , % 4001 Health and Welfare Insurance 1,015,000-1,015, % 4002 Railroad Retirement and Unemployment Insurance 1,130,000 (200,000) 1 930, % 5001 Small Tools 61,150 (1,350) 2 59, % 5002 Training and Safety 72,350-72, % Total Fringe Benefits 4,112,800 (201,350) 3,911, % Allocable Liability Insurance: Maintenance of Way 5001 Liability Insurance Expense 848, , % Overhead Rates (as a percentage of total labor cost) Fringe Benefits 73.80% Liability Insurance 16.00% 54 Notes: (1) Pension costs assigned to the accounting period but not funded during the same accounting period are disallowed per FAR (J)(2)(i). (2) Small tools charged directly to projects are disallowed per FAR

55 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Calculating Overhead (Railroads) The railroad should always use rates based on actual costs developed from the most recently closed fiscal year. Rates should be update annually. Once a new rate has been developed and accepted, the rate should immediately be in effect. 55

56 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Calculating Overhead (Railroads) Class I Railroads are audited by their home state DOTs. No requirement to prepare or submit overhead rate(s) for ODOT approval. ODOT should be informed timely of rates approved by home state DOTs. Alternative overhead method to be discussed with Circular No. 4 material. Only to be used when a railroad or subcontractor cannot support its overhead rate(s). 56

57 ODOT Railroad Audit Circular No. 1 Definitions, Audit Authority, and Overhead Vehicles and Equipment Additives A railroad may elect to charge vehicle and/or equipment usage as an additive rate in lieu of actual cost. To be discussed further in Circular No

58 Circular No. 2 Meals, Lodging, and Transportation Costs 58

59 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Circ. 2 General Premise 59 Discusses allowability of costs for meals, lodging, vehicle mileage, and airfare. Costs must be reasonable. Costs must be in compliance with internal railroad policy, union agreement, or FTR (when applicable). Costs claimed must be equitable on all projects, public and private. Alcohol and tobacco are non-reimbursable.

60 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Railroad/Union Policies 60 Generally, ODOT will accept railroad/union policies for meals and lodging, however Costs must be reasonable. Employees must be in travel status. Policies lacking explicit cost limitations will be limited to the FTR CONUS rates. For audit purposes, receipts are required in conformance to the RR/union policy. Receipts are required for all transactions exceeding $75.00.

61 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation FAR (a)(2) costs incurred for lodging, meals, and incidental expenses shall be considered to be reasonable and allowable only to the extent that they do not exceed on a daily basis the maximum per diem rates in effect at the time of travel as set forth in the -- (i) Federal Travel Regulation, prescribed by the General Services Administration 61

62 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation No Railroad/Union Policies 62 Where the railroad has no formal travel policy for travel costs, ODOT will audit to the explicit requirements of the FTR. Must be in travel status. Lodging and meals are limited to the applicable CONUS rates. Adjustments are necessary for first and last day. Per diems may be fixed or actual cost. Receipts are required for any actual cost or amounts exceeding $75.00.

63 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Ohio Per Diem Rates NOTE: If neither the city nor the county is listed, the location is a standard CONUS destination with a rate of $70.00 for lodging and $46.00 for meals and incidental expenses (M&IE). Akron Summit Cant on St ark Cincinnat i Hamilt on and Clermont Cleveland Cuyahoga Columbus Franklin Dayt on / Fairborn Greene, Darke and Mont gomery Hamilt on But ler and Warren Ment or Lake Rit t man Wayne and Medina Sandusky / Bellevue Erie and Huron Toledo Lucas Youngst own Mahoning and Trumbull

64 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Meal Reimbursement Flowchart 64

65 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Vehicle Mileage Reimbursement of vehicle mileage is limited to The IRS/GSA mileage rate in effect at the time the travel took place. $0.50/mile effective January 1, The actual cost to own, operate, and maintain the vehicle(s). Requires documentation of costs and miles driven to support the costs. The terms of the Contract (if applicable). 65

66 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Airfare Airfare costs claimed must be the lowest available coach-class fare. First/Business Class is not permitted. 66

67 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Supporting Costs Signed and approved expense reports. Dates of travel. Name(s) of employees. Purpose of travel. Miles driven and rates. Source receipts. Summary receipts are not acceptable. Itineraries, e-tickets, boarding passes. 67

68 68 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation

69 ODOT Railroad Audit Circular No. 2 Meals, Lodging and Transportation Bad Example Good Example Shows tip and total amount paid. Shows items purchased. 69

70 70 Circular No. 3 Labor Costs

71 ODOT Railroad Audit Circular No. 3 Labor Costs A Little More Auditor Humor 71

72 ODOT Railroad Audit Circular No. 3 Labor Costs Circ. 3 General Premise 72 Interprets language of 23 CFR (a). Discusses types of labor reimbursable on railroad projects. Discusses development and allowability of labor additives (overhead). Addresses additional audit scrutiny of labor costs and upcharges by ODOT. Provides guidance on proper timekeeping procedures.

73 ODOT Railroad Audit Circular No. 3 Labor Costs 23 CFR (a) Salaries and wages, at actual or average rates, and related expenses paid by a company to individuals, for the time they are working on the project, are reimbursable when supported by adequate records. 73

74 ODOT Railroad Audit Circular No. 3 Labor Costs Salaries and wages, at actual or average rates Railroad/subcontractor employees may be paid salaries (salaried personnel) or wages (hourly personnel) at the employee s actual pay rate at the time the labor was incurred, or an average rate, representative of wages paid to all employees within a job classification. 74

75 ODOT Railroad Audit Circular No. 3 Labor Costs Example Salaried Personnel Assume Bob Smith, railroad supervisor, is paid an annual salary of $62,400/year, and Bob is paid bi-weekly (26 pay periods). Bob s bi-weekly salary is $2,400 ($62, bi-weekly pay periods). During the current pay period, Bob works 100 hours. Therefore, Bob s effective hourly rate is $24/hour ($2, hours). 75

76 ODOT Railroad Audit Circular No. 3 Labor Costs Example Average Rates Assume ABC Railroad employs 4 signalmen. Signalman A works full time (2,080 hours per year) and earns $25/hour. Signalman B works full time and earns $26/hour. Signalman C works full time and earns $23/hour. Signalman D works part time (1,040 hours per year) and earns $20/hour. 76

77 ODOT Railroad Audit Circular No. 3 Labor Costs Example Average Rates Signalman A: 2,080 x $25 = $52,000 Signalman B: 2,080 x $26 = $54,080 Signalman C: 2,080 x $23 = $47,840 Signalman D: 1,040 x $20 = $20,800 Total hours worked = 7,280 Total wages paid = $174,720 Average Rate = $24/hour ($174,720 7,280) Therefore, ABC Railroad charges $24/hour for all signalman labor on all projects. 77

78 ODOT Railroad Audit Circular No. 3 Labor Costs and related expenses Related expenses include Travel costs necessitated by the project. Meals, lodging, vehicle mileage, airfare, as provided by union agreement or formal company policy. Other labor-related payments made to employees directly related to time worked on the project, per union agreement or formal company policy. Labor differentials, calamity pay, etc. More discussion to come 78

79 ODOT Railroad Audit Circular No. 3 Labor Costs for time they are working on the project Generally, the following types of labor are reimbursable Engineering labor Field labor (signalmen, flaggers, etc.) Supervisory labor Inspection Project management Billing labor 79

80 ODOT Railroad Audit Circular No. 3 Labor Costs for time they are working on the project Note that any labor charged should be included in project estimates and/or preapproved by ODOT/ORDC. ODOT Audits places additional scrutiny on types of labor not included in the estimate, unexplained deviations in expected hours worked, or unanticipated overtime. 80

81 ODOT Railroad Audit Circular No. 3 Labor Costs for time they are working on the project Minimum Shift Pay Minimum number of labor hours paid in a day, regardless of actual number of hours worked on project. Paid in accordance with Union-negotiated agreement or formal company policy. For example, signalmen are paid a minimum of 8 hours per day, even if the project was completed in 4 hours. 81

82 ODOT Railroad Audit Circular No. 3 Labor Costs for time they are working on the project 82 Minimum Shift Pay Generally, these costs are allowable, if the compensation is established under an arm s length labor-management agreement. However, because these labor hours were not worked directly on the project, they do not meet the standards of a direct cost, per FAR Part 31 and 23 CFR 140. Accordingly, these costs must be classified as indirect labor, and placed in general and administrative overhead.

83 ODOT Railroad Audit Circular No. 3 Labor Costs when supported by adequate records. Timesheets, timesheets, timesheets! Labor without supporting timesheets cannot be reimbursed. Timesheets may be completed manually or electronically. Daily diaries do not supplant the need for timesheets. The source document that should be used by payroll is the employee s signed and approved timesheet. 83

84 ODOT Railroad Audit Circular No. 3 Labor Costs Timekeeping Guidance DCAAP : Information for Contractors Chapter 2-302: Labor Charging System The definitive Federal guidance on timekeeping procedures and controls on labor charges. Addresses issues such as timecard preparation and recommended timekeeping policies. 84

85 ODOT Railroad Audit Circular No. 3 Labor Costs DCAAP Highlights Organizations should always have formal timekeeping procedures. Time should be recorded daily in ink (manual timesheets). Time should be distributed to specific projects or activities (general office, marketing, sick leave, etc.). The organization should make these project or activity numbers available to employees. 85

86 ODOT Railroad Audit Circular No. 3 Labor Costs DCAAP Highlights When correcting timesheets, errors should be lined through, with the employee s initials next to the correction. The employee must make his/her own corrections. All hours worked, whether paid, must be recorded. Not recording all hours can adversely affect pay rates and overhead. 86

87 ODOT Railroad Audit Circular No. 3 Labor Costs DCAAP Highlights Timesheets should be signed by the employee and cosigned (approved) by his/her supervisor. Supervisors should not complete employee timesheets unless the employee is on a prolonged absence. The employee should submit a timesheet upon return to work. 87

88 ODOT Railroad Audit Circular No. 3 Labor Costs Sample Timesheet Employee ID#: Employee Name: Tom Smith Pay Period Ending: 3/12/2010 ABC Railroad Bi-Monthly Timesheet Project Work Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Project Project # Description Code 4/1/09 4/2/09 4/3/09 4/4/09 4/5/09 4/6/09 4/7/09 4/8/09 4/9/09 4/10/09 4/11/09 4/12/09 4/13/09 4/14/09 4/15/09 Subtotal FRA GRE CUY ADMIN Meeting MOT-Main ADMIN Other LEAVE Sick AUG-SR Daily Subtotal Timesheet Signed By: Tom Smith Date: 4/16/09 Timesheet Approved By: Brooke Hill Date: 4/17/09 Timesheet Processed By: Adam Johnson Date: 4/19/09 88

89 ODOT Railroad Audit Circular No. 3 Labor Costs Evaluating Labor Costs Was the use of labor the most cost-efficient method to complete the project? Were labor costs necessary to complete the projects? Is the use of labor hours/overtime equitable, when comparing public and private projects? Are overtime costs equitably assigned to multiple projects during the week? 89

90 Circular No. 4 Subcontracted Costs 90

91 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Synonymous Terms For the purpose of this Circular, the following terms refer to organizations performing work on behalf of the railroad (Sub)Contractor (Sub)Consultant Vendor 91

92 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Circ. 4 General Premise Selection and procurement of subcontracted engineering and construction services. Alternative methods for labor rates and overhead (including examples). General audit considerations low bids and continuing contracts. Fixed Fees Reasonableness. 92

93 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Engineering Services 23 CFR (b) requires that engineering be accomplished by one of the following: Use of State or Railroad engineering forces; Use of a consultant selected by the State (with railroad concurrence) in which the contract is administered by the State; or Use of a consultant selected by the Railroad (with State concurrence) in which the contract is administered by the Railroad. 93

94 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Engineering Services When the railroad selects a consultant to perform engineering services on its behalf, it is important that the State approves the consultant because The consultant may be barred from working on Stateor Federally-funded contracts. The rates proposed by the consultant may be unreasonable or in excess of Federal regulations. When the Railroad selects a consultant without State approval, the Railroad runs the risk of not being reimbursed for certain costs. 94

95 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Engineering Services Amounts paid to consultants must mirror what the State would pay the consultant, as if it was under contract directly with the State. Pre-qualified consultants must use ODOT accepted overhead rates or loaded labor rates that produce similar results. Consultants who are not pre-qualified with ODOT must use overhead rates in compliance with the cost principles in FAR Part 31, as required by 23 USC

96 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Construction 23 CFR (f) requires that engineering be accomplished by one of the following: Railroad forces; Contracting with the lowest qualified bidder; Existing continuing contract, at reasonable cost; or Contract without competitive bidding, for minor work, at reasonable cost. Minor work = $5,000 per vendor per project 96

97 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Low Bids Low bids must be for a lump sum amount. No actual cost or unit rates are permitted. The railroad may select a bidder other than the lowest bidder; however, the reimbursable amount is limited to the lowest bid cost. Any cost in excess of the low bid amount will be borne by the Railroad. A minimum of three qualified bidders is required. A template with cost detail should be used by the railroad. 97

98 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Low Bids Ineligible costs cannot be included in the bid package. The subcontractor to whom the contract is awarded should perform a majority of the work. 98

99 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Continuing Contracts Must be billed as cost-plus fixed-fee or unit rate agreement. ODOT will hold the Railroad to the explicit terms of the contract. Ineligible costs incurred by the subcontractor will not be reimbursed by ODOT. Subcontractors, as a for-profit recipient of Federal-Aid, are subject to FAR Part

100 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Continuing Contracts Copies of continuing contracts may be requested by ODOT or ORDC and kept on file, as needed. To determine compliance with terms of the contract. To ensure unreasonable and/or ineligible costs are not included in the contract. 100

101 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Fixed Fees As a general premise, fees (profit) earned under unit rate/cost-plus contracts must be reasonable. ODOT has determined that fees on actual cost contracts should not exceed 10% of direct labor and overhead. This policy is in alignment with fees paid to consultants, as stated in the Specifications for Consultant Services. 101

102 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Sample Approved Estimate 102

103 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Sample Final Invoice Note Assume one final invoice reflecting all project costs. The fixed fee is predetermined at the estimating stage. This fee is a guaranteed, fixed amount paid to the subcontractor pending completion of the project. If the subcontractor completes the project under budget, its effective rate of profit will exceed 10%. 103

104 ODOT Railroad Audit Circular No. 4 Subcontracted Costs FAR Part 31 Title 48 of the Code of Federal Regulations: The Federal Acquisition Regulation ( FAR ) 48 CFR 31: Contract Cost Principles and Procedures ( FAR Part 31 ). Discusses allowability, allocability, and reasonableness of cost; proper charging of costs as direct or indirect; and specific elements of cost. Applies to all Federal-Aid contracts when reimbursing commercial (for-profit) entities. Incorporated by reference into 23 CFR

105 ODOT Railroad Audit Circular No. 4 Subcontracted Costs FAR Part 31 Indirect (Overhead Costs) Include: Fringe Benefits (see Circular No. 1) Payroll taxes, retirement, paid leave, etc. Public Liability Insurance General and Administrative (G&A) Overhead Costs incurred that are necessary to the overall operation of the organization Management labor Occupancy Costs Others 105

106 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Circ. 4 Calculating Overhead (Sub) 106 Capture the account balances of all allowable indirect costs from the subcontractor s general books of account. General ledger Trial Balance Income Statement Capture the total direct labor costs of the company. Above Financial Document Payroll Reports

107 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Circ. 4 Calculating Overhead (Sub) Review indirect costs to determine compliance with Cost Principles in the FAR. Allocable to Government work Allowable under the FAR Reasonable Remove costs which do not meet the above criteria. Most unallowable costs are within General and Administrative (G&A) Overhead. 107

108 ODOT Railroad Audit Circular No. 4 Subcontracted Costs ODOT Railroad Audit Circular Attachment 4-8: Sample Overhead Schedule Sample Subcontractor/Subconsultant Company, Inc. Statement of Direct Labor, Fringe Benefits, Liability Insurance, and General and Administrative Overhead For the Year Ended December 31, 2008 Direct Labor Total Costs Per Account No. Account Description General Ledger/Income Statement Unallowable Costs Note(s) Allowable Costs Percentage of Direct Labor 1000 Direct Labor 7,150,000-7,150, % Fringe Benefits and Other Allowable Overhead 2001 Vacation and Other Paid Leave 235, , % 2002 Holiday Pay 146, , % 2003 Supplemental Sickness 43,000-43, % 3001 Health and Welfare Insurance 685, , % 3002 Retirement and Unemployment Insurance 525, , % 3500 FICA 397, , % 3600 Workers' Compensation 565, , % 3700 FUTA 51,000-51, % 3800 SUTA 371, , % 4001 Small Tools 511, , % 4002 Training and Safety 62,350-62, % Total Fringe Benefits 3,592,000-3,592, % Liability Insurance 5001 Liability Insurance Expense 875, , % General & Administrative Overhead General and Administrative Overhead (Note: Only subcontractors are eligible for reimbursement) 6001 Indirect Labor Expense 2,365,000 (118,000) 1 2,247, % 6002 Rent Expense 412, , % 6003 Maintenance and Repairs Expense 108, , % 6004 Travel Expense 97,465-97, % 6005 Telephone Expense 119,785 (3,000) 2 116, % 6006 Other Utility Expense 178, , % 6007 Printing Expense 165, , % 6008 Tax Expense 179,645 (150,000) 3 29, % 6009 Depreciation and Amortization Expense 216,000 (15,000) 4 201, % 6010 Advertising Expense 88,650 (67,500) 5 21, % 7001 Employee Training and Recruiting 117, , % 7002 Professional Development Expense 38,900-38, % 7003 Interest Expense 900,000 (900,000) % 7004 Bad Debt Expense 47,500 (47,500) % 7005 Legal Fees 112,300 (78,000) 8 34, % 7006 CADD Expense 675,250 (50,000) 9 625, % 7007 Automobile Expense 170,600 (11,850) 4 158, % 7008 Fuel Expense 89,250 (6,200) 4 83, % 7009 Office Supplies Expense 600,000 (18,000) , % 7010 Miscellaneous Expense 375,450 (75,000) , % Total General and Administrative Overhead 7,057,285 (1,540,050) 12 5,517, % Overhead Rates (as a percentage of direct labor cost) Fringe Benefits 50.24% Liability Insurance 12.25% General and Administrative Overhead (Railroad Ineligible) 77.16% 108 Notes: (1) Executive salaries in excess of the $612,196 benchmark compensation amount are disallowed per FAR (p). (2) Direct telephone expenses are disallowed from the indirect cost pool per FAR (3) Federal income tax expense is disallowed per FAR (b)(1). (4) Costs associated with personal use of vehicles is disallowed per FAR (m)(2). (5) Advertising costs associated with the image enhancement of the corporation is disallowed per FAR (f). (6) Interest costs are disallowed per FAR (7) All costs associated with bad debt expense are disallowed per FAR (8) Costs associated with settlements are disallowed per FAR (9) Direct CADD expenses are disallowed per FAR (10) Direct office supplies expenses are disallowed per FAR (11) Miscellaneous expenses associated with employee entertainment are disallowed per FAR (12) Per 23 CFR (a), ODOT has elected not to reimburse the railroad for G&A overhead. However, if the railroad contracts with a subcontractor to perform necessary railroad work, subcontractor G&A overhead is permitted if included in the provisions of the railroad-subcontractor agreement. All applicable regulations still apply.

109 ODOT Railroad Audit Circular No. 4 Subcontracted Costs General Issues Indirect costs cannot be included in multiple indirect cost pools. Vehicle maintenance costs cannot be included in the General and Administrative overhead rate and vehicle cost-per-mile rate. Warehouse management salaries cannot be included in the handling/stores rate and General and Administrative overhead. 109

110 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Common Unallowable Costs : Public Relations and Advertising Any costs incurred related to enhancement of the organization s image are unallowable. Allowable: Help-wanted ads to fill specific positions, direct selling, bid and proposal costs : Bad Debts (Unallowable) : Compensation Executive compensation in excess of the Benchmark Compensation Amount (BCA). 110

111 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Common Unallowable Costs : Contingencies (Unallowable) : Contributions/Donations (Unallowable) : Employee Morale/Gifts Gifts, company-paid recreation, parties, tickets to events, are unallowable : Entertainment (Unallowable) 111

112 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Common Unallowable Costs : Fines and Penalties (Unallowable) : Interest (Unallowable) : Organization Costs Costs associated with reorganization, restructuring, mergers and acquisitions are unallowable. 112

113 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Common Unallowable Costs Rental Costs Rent paid under common control may only be claimed at actual cost of ownership Taxes Federal and excess profits taxes are unallowable Travel Invokes limitations of Federal Travel Regulation. 113

114 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Common Unallowable Costs : Legal Costs Costs associated with unsuccessful defenses of lawsuits, settlements, personal legal costs, reorganization, mergers and acquisitions, and defense of antitrust lawsuits are unallowable : Goodwill (unallowable) : Alcoholic Beverages (unallowable) Directly associated costs 114

115 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Circs. 1/4 Overhead Alternative 115 If the railroad (or subcontractor) is unable to support its actual fringe benefits, ODOT will apply the rates used in the ODOT Construction and Material Specifications Manual. Still required the railroad to support actual fringes for non-payroll tax items, such as leave pay, health and welfare, and retirement. Pre-determines rates paid for payroll taxes (22%). May result in less fringes than amount actually paid.

116 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Sample Application of C&MS (C)(2) Example 1: Using Actual FICA, Workers' Compensation, FUTA, and SUTA Name Hours Rate Amount Note John Smith , A April Flowers B Tom Johnson C Jessica Anderson D Total Direct Labor Cost 3, E = A + B + C + D Fringes* 30% 1, F = 30% x E Subtotal: Labor and Fringes 4, G = E + F FICA 7.65% H = 7.65% x G Workers' Compensation 10% I = 10% x G FUTA 0.80% J = 0.80% x G SUTA 9% K = 9% x G Subtotal: Payroll Taxes 1, L = H + I + J +K Overhead (Railroad Ineligible) 38% 1, M = 38% x G Total Labor and Overhead 7, N = G + L + M 116 *Note: Actual incurred Fringe Benefits costs including union mandated benefits such as leave pay, health and welfare, and retirement.

117 ODOT Railroad Audit Circular No. 4 Subcontracted Costs Sample Application of C&MS (C)(2) Example 2: Using 22% for FICA, Workers' Compensation, FUTA, and SUTA Name Hours Rate Amount Note John Smith , P April Flowers Q Tom Johnson R Jessica Anderson S Total Direct Labor Cost 3, T = P + Q + R + S Fringes* 30% 1, U = 30% x T Subtotal: Labor and Fringes 4, V = T + U FICA Workers' Compensation FUTA SUTA 22.00% W = 22% x V Overhead (Railroad Ineligible) 38% 1, X = 38% x V Total Labor and Overhead 7, Y = V + W + X *Note: Actual incurred Fringe Benefits costs including union mandated benefits such as leave pay, health and welfare, and retirement. 117

118 ODOT Railroad Audit Circular No. 4 Subcontracted Costs An Example of What Not to Do - Estimate Becomes Lump Sum Cost Category Estimate Actual (Invoiced) Construction Labor 30,000 28,000 Engineering Labor 8,000 7,500 Administrative Labor Purchased Materials 68,000 70,000 Stock Materials 13,000 3,000 Company-Owned Equipment Equipment Rentals 3,500 3,000 Travel/Per Diem 1,000 1,200 Subcontracted Costs Freight 1, Material Handling (5%) G&A Overhead (70%) 26,810 25,046 Fringe Benefits (45%) 17,235 16,101 Liability Insurance (15%) 5,745 5,367 Subtotal 176, ,944 Fixed Fee 8,809 24,055 Total Costs 184, ,999 In this example, the actual costs were less than the estimated amount. The subcontractor increased its fee such that the actual invoiced costs matched the estimate, effectively tripling its profit. The continuing contract between the Railroad and subcontractor called for actual cost plus a fixed fee. Thus, the terms of the contract were violated. 118 Quoted Fee (per estimate) 10.00% Actual Fee 29.23%

119 119 ODOT Railroad Audit Circular No. 4 Subcontracted Costs An Example of What to Do - Proper Application of the Fixed Fee Cost Category Estimate Actual (Invoiced) Construction Labor 30,000 28,000 Engineering Labor 8,000 7,500 Administrative Labor Purchased Materials 68,000 70,000 Stock Materials 13,000 3,000 Company-Owned Equipment Equipment Rentals 3,500 3,000 Travel/Per Diem 1,000 1,200 Subcontracted Costs Freight 1, Material Handling (5%) G&A Overhead (70%) 26,810 25,046 Fringe Benefits (45%) 17,235 16,101 Liability Insurance (15%) 5,745 5,367 Subtotal 176, ,944 Fixed Fee 8,809 8,809 Total Costs 184, ,753 Quoted Fee (per estimate) 10.00% Actual Fee 10.70% In this example, the fixed fee from the estimate carries through to the invoice, per the terms of the continuing contract. Because the subcontractor was able to complete the project under budget, the actual fee earned (as a percentage of direct labor and overhead) increased from 10% to 10.7% due to project efficiencies.

120 Circular No. 5 Final Invoicing Procedures 120

121 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Circ. 5 General Premise Establishes requirement to submit an audit packet directly to ODOT audits for ODOT and ORDC projects with total invoiced project costs exceeding $200,000. Discusses and provides examples of adequate documentation to support various types of costs. 121

122 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Audit Packet No audit packet is necessary for projects under $200,000. Submission of partial invoices to ODOT Districts or ORDC is business as usual. ORDC or ODOT District reviewers may request additional documentation, as needed. 122

123 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Audit Packet Components Job Cost Report Labor Details Overhead Rates Additional detail may be required for rates not previously approved. Source documents to support non-salary direct costs (travel, subcontractors, materials, rentals, etc.) Copies of continuing contracts or bids, if necessary. 123

124 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Job Cost Report Typically generated by the organization s accounting system. Outlines all costs incurred on the project. Transaction level (not summarized data). 124

125 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures A Job Cost Report Should Show Labor details, by employee and day. Individual materials requisitioned from stores. Company-owned equipment usage, by day. Per diems, by employee and day. Individual transactions for pass-through costs. Subcontracted work, purchased materials, rented equipment, travel costs, freight, etc. Application of overhead to labor or materials. 125

126 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Job Cost Report A Bad Example Summary Report Does not show individual transactions assigned to the project. ABC Job Cost Report (Simplified Example) Project: #12345 Labor $ Stock Materials $ 12, Construction Subcontractors $ 60, Total $ 73,

127 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Job Cost Report A Good Example 127 Detailed Report Shows individual transactions assigned to project. Each transaction can be vouched to supporting documentation, such as an invoice or timesheet. ABC Job Cost Report (Simplified Example) Project: #12345 Labor Qty. Invoice Units Rate Ext. 3/1/10 Eddie Van Halen 10 Hours $ $ /1/10 David Lee Roth 10 Hours $ $ /1/10 Michael Anthony 10 Hours $ $ /1/10 Alex Van Halen 10 Hours $ $ Subtotal: Labor $ Stock Materials 3/8/10 6' X 6' Signal House 1 Each $ 8, $ 8, /8/10 GCP 1 Each $ 4, $ 4, /8/10 Conduit 250 Feet $ 0.85 $ Subtotal: Stock Materials $ 12, Construction Subcontractors 3/15/10 DB Construction 1 123JAD Each $ 18, /16/10 SF Construction 1 456DFW Each $ 40, /17/10 MW Trenching 1 789AJF Each $ 2, Subtotal: Construction Subcontractors $ 60, Total Project Costs - Project #12345 $ 73,632.50

128 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Labor Details If not already provided on the job cost report, the Railroad must provide records to show the daily hours worked by employee, including pay rate. Summaries of hours worked is not sufficient. It is NOT necessary to provide timesheets in an audit packet. 128

129 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Labor Details - Example For the Week of 3/8/2010 Labor Details - Bad Example Name Hours Amount Bob Smith 45 $ Labor Details - Good Example Date Name Hours ST/OT Rate Amount 3/8/10 Bob Smith 8 ST $ $ /9/10 Bob Smith 8 ST $ $ /10/10 Bob Smith 8 ST $ $ /10/10 Bob Smith 2 OT $ $ /11/10 Bob Smith 8 ST $ $ /11/10 Bob Smith 3 OT $ $ /12/10 Bob Smith 8 ST $ $ Totals 45 $

130 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Overhead Rates 130 Overhead rates charged by Class I Railroads are audited by their home state DOTs. A copy of approved rate(s) should be made available to ODOT Audits. Overhead rates charged by Class II and III Railroads should be submitted for review to ODOT Audits and approval prior to invoicing ODOT or ORDC. This includes labor rates that are loaded with overhead.

131 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Loaded Labor Rates - Example Assume: Bob Smith s pay rate is $25/hour. ABC Railroad s accepted overhead rate is 60%. Bob s Loaded Rate = $40/hour $25 * 60% = $15/hour for overhead. $25 (wages) + $15 (overhead) = $40/hour. 131

132 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Drilling Down Project Invoice(s) to ODOT/ORDC Total Costs, by Category (labor, materials, equipment, etc.) Job Cost Report Individual transactions, whose totals match invoice Source Documents Material invoices, subcontractor invoices, expense reports, etc. 132

133 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Detailed Records Source documents for non-salary direct costs that demonstrate the what, when, and where, and amount of the purchase. Copies of original, detailed vendor invoices. Signed and approved detailed expense reports. Electronic Data Interchange (EDI). Acceptable provided that an audit trail exists within the Railroad s accounting system. 133

134 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Examples of Inadequate Documentation Unsupported Costs. Summary Invoices. Do not detail what was purchased or what services were provided. Consolidated Labor Charges. Timesheets or Expense Reports that were not signed by the employee and approved by management. 134

135 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Examples of Inadequate Documentation Internally created documents. Requests for payment Transaction Reports Screen shots from an accounting system. Ask yourself What documentation exists that leads me to conclude that we should pay these costs? That is the source document. 135

136 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures The Screen Shot EDI transaction printed from the auditee s accounting system. Does not establish business purpose of transaction. Also does not establish allocability to a project. 136

137 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Unsupported Allocation Invoice in which costs were allocated to multiple projects. Does not show Allocability to project. Methodology used to allocate costs. Support for correct allocation based on methodology. 137

138 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Internally Created Reports Transactions manually entered into auditee s accounting system based on review of credit card statement. Does not establish existence, allocability to the project, allowability, or reasonableness. 138

139 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Unsupported Rental Allocation Allocation of rental costs to multiple projects. Does not show Allocability to project. Methodology used to allocate costs. Support for correct allocation based on methodology. 139

140 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Supported Allocation Similar to previous example; however, provides an analysis to support the amount allocated to various projects. Although the actual days used on the project were not shown, ODOT auditors were able to establish that the allocation was reasonable based on number of days worked by railroad employees during the billing cycle. 140

141 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Poorly Supported Time Records Support provided by auditee for claimed labor costs. Does not show Hours worked per day, by employee. Assignment of hours to a specific project. Employee signatures and supervisor approvals. In addition, this information does not qualify as timesheets. 141

142 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Not A Timesheet Supplied by auditee as timesheets. Does not Provide employee names or numbers which coincide with labor data from job cost report. Show hours assigned to specific projects (no project numbers). Show labor rates. Provide employee signatures or management approval. 142

143 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Inequitable Distribution of Overtime On several instances, the employee s straight time hours were assigned exclusively to internal projects, whereas overtime was assigned strictly to the ODOT project. 143

144 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Supporting Materials 144 In-House Material distribution report Line item detail of quantities, rates, and descriptions Handling Fee Purchased Copies of Original invoices Line item detail of quantities, rates, and descriptions Freight

145 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Supporting Equipment 145 In-House Report showing dates, rates, and types of equipment used. Rented Copies of Original Invoices. If rented equipment is used on multiple projects, costs for the invoice should be allocated equally to all benefitting projects. Allocate by Day/Hour Support allocations

146 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Supporting Travel Expenses Expense Reports Signed by employee and approved by supervisor. Copies of Original receipts Hotel bills, restaurant receipts with line-item detail, e-tickets, airline itineraries. Summary restaurant receipts are not acceptable. Refer to Circular No. 2 for additional guidance on dollar thresholds for documentation. 146

147 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Supporting Travel Expenses Fixed Per Diems No special documentation is required for per diem payments (meals, lodging), provided that It can be demonstrated that the employee was eligible for the payment, per formal Railroad policy or unionnegotiated agreement; The payment amount agrees with formal Railroad policy of union-negotiated agreement; and The cost is allocable to the project. 147

148 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Allocating Travel Costs For this example, assume the following Bob works four 10-hour shifts per week, Monday through Thursday. Bob and his crew typically travel to a project site the night preceding work on a project. Bob is not entitled to labor wages for the travel on the preceding night (Sunday). Bob is entitled to a meal payment on the preceding night (Sunday). 148

149 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Allocating Travel Costs Scenario Bob travels from home to Columbus on Sunday night to begin working on an ORDC project on Monday. Bob works on the ORDC project on Monday and Tuesday. Bob is eligible for a per diem for Sunday, Monday, and Tuesday. Are all three nights allocable to the project? 149

150 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Allocating Travel Costs Answer: IT DEPENDS! If Bob is not working the following day, the Tuesday per diem is allocable to the project. The more likely scenario is that Bob is working on another project the next day. In this case, Bob s per diem is allocable to the project started on Wednesday. The Railroad must allocate costs to projects in a consistent manner. Specifically, because Bob incurred a per diem the night preceding Monday s work, Tuesday night s per diem should be allocated to Wednesday s project. 150

151 ODOT Railroad Audit Circular No. 5 Final Invoicing Procedures Supporting Vendor Costs Copies of Original Invoices Must show detail of services provided. Unit rates must match what is stated in continuing contract (if applicable). When costs are allocated to multiple projects, the Railroad must be able to support the methodology for the allocation. 151

152 152 Circular No. 6 Equipment Costs

153 ODOT Railroad Audit Circular No. 6 Equipment Circ. 6 General Premise Discusses methods for procuring and pricing equipment. In-house equipment Rented equipment Pricing Actual Cost Blue Book Rates Reasonableness 153

154 ODOT Railroad Audit Circular No. 6 Equipment Railroad-owned Equipment Average or actual cost of operation Cost per unit (hour/mile) to operate specific equipment, based on actual costs and hours/miles used. Requires accounting data and accurate tracking of equipment usage. Industry Rates Blue Book. Additive Rate representative of actual cost 154

155 ODOT Railroad Audit Circular No. 6 Equipment Equipment Charge Rate 155 What indirect costs were incurred to own and operate a pool of similar vehicles (eg., Case 580M Backhoe)? Depreciation (if applicable) Rental costs (if applicable) Fuel Maintenance Other Labor costs are typically a direct charge and would not be included in the rate.

156 ODOT Railroad Audit Circular No. 6 Equipment Equipment Charge Rate What is the cost driver? Equipment operating hours Miles driven The entity must be able to accurately capture these costs by equipment type. The entity must accurately track equipment usage. (hours of operation, miles driven, etc.) 156

157 ODOT Railroad Audit Circular No. 6 Equipment Equipment Charge Rate, FY Backhoe Depreciation - $100,000 Maintenance and Repairs - $75,000 Fuel - $50,000 Hours of operation 15,000 Hourly Rate = $15/hour ($100,000 + $75,000 + $50,000) 15,000 hours 157

158 ODOT Railroad Audit Circular No. 6 Equipment Equipment Additive Rate 158 Similar to overhead rate. Requires accurate tracking of equipment costs and labor. Unrelated piece of equipment may be pooled into one rate. Must be fairly representative of actual costs to own and operate equipment on projects. Must be allocable. Cannot use rate if equipment is not regularly used on projects.

159 ODOT Railroad Audit Circular No. 6 Equipment Equipment Additive Rate Depreciation - $100,000 Maintenance and Repairs - $75,000 Fuel - $50,000 Maintenance of Way Labor - $1,125,000 Equipment Rate = 20% ($100,000 + $75,000 + $50,000) $1,125,

160 ODOT Railroad Audit Circular No. 6 Equipment Rented Equipment Lowest qualified bidder Minimum of 3 bids. Continuing Contract At reasonable cost. Minor dollar amounts By negotiation when impractical to solicit bids and no continuing contract exists. 160

161 ODOT Railroad Audit Circular No. 6 Equipment Allocating Rented Equipment When rented equipment is used on multiple projects, the cost of the equipment must be allocated equitably to all benefitting projects. Labor hours/days. Machine hours. Miles. Other basis which accurately reflects the benefits received by individual projects. 161

162 ODOT Railroad Audit Circular No. 6 Equipment Allocating Rented Equipment 162 For this example, assume the following A four man signal crew rents a backhoe for the month. The monthly rental charge is $1,000. The crew works twenty 8-hour shifts during the month. The crew worked on ORDC project for 8 days during the month. ABC Railroad allocated equipment costs by days used.

163 ODOT Railroad Audit Circular No. 6 Equipment Allocating Rented Equipment - Analysis The daily charge rate for the Backhoe is $50. $1, days = $50/day The amount allocable to ORDC project is $ days * $50/day 163

164 164 Circular No. 7 Materials

165 ODOT Railroad Audit Circular No. 7 Materials Circ. 7 General Premise Discusses methods for procuring and pricing materials. Materials pulled from Railroad stock Materials purchased from external vendor Pricing Handling Temporary Use Materials Betterments 165

166 ODOT Railroad Audit Circular No. 7 Materials Stock Materials If available, materials should be furnished from company stock. Materials may be priced at any generally acceptable method of pricing. FIFO, LIFO, Average Cost, Specific Identification, etc. Must be at actual cost (no markups). Inter-company profits are not allowed. 166

167 ODOT Railroad Audit Circular No. 7 Materials Purchased Materials Low Bid Existing continuing contract, at reasonable cost Materials of minor cost (less than $5,000) or proprietary items are exempted from the requirements above. No markups on purchased materials (pass-through cost). 167

168 ODOT Railroad Audit Circular No. 7 Materials Recovered Materials Temporary Use - Credits to the project and current stock prices, less: 10% for rails, angle bars, tie plates, and metal turnouts. 15% for all other materials. Materials recovered from the permanent facility returned to stock must be credited at current stock price. 168

169 ODOT Railroad Audit Circular No. 7 Materials Handling Charges 169 In accordance with 23 CFR (e), the railroad may elect to charge a material handling fee on materials pulled from company stock. The railroad may apply 5% to the stock price of materials used or an additive rate based on actual costs. Material handling fees may not be applied to any materials purchased and shipped directly to the project site.

170 ODOT Railroad Audit Circular No. 7 Materials Handling Charges The calculation of the handling rate is similar to that of fringe benefits. Capture indirect costs incurred in the storage and handling of materials. Capture the total value of outflow materials stored during the period. Remove any unallowable costs (FAR Part 31) from the indirect cost pool. Divide. 170

171 ODOT Railroad Audit Circular No. 7 Materials Handling Example Assume the following Handling Labor: $100,000 Warehouse Depreciation: $200,000 Warehouse Utilities: $25,000 Other Handling Costs: $75,000 Total value of outflow stock materials: $6,400,

172 ODOT Railroad Audit Circular No. 7 Materials Outflow and the Inventory Equation Outflow is the dollar value of materials pulled from Railroad stores and placed on projects during the fiscal year. Beginning Inventory + Purchases Outflow = Ending Inventory Outflow is the cost used in the denominator of the Material Handling Rate Calculation. 172

173 ODOT Railroad Audit Circular No. 7 Materials Handling Example $100,000 + $200,000 + $25,000 + $75,000 $6,400,000 = $400,000 $6,400,000 Handling Rate =6.25% 173

174 ODOT Railroad Audit Circular No. 7 Materials Betterments If the Railroad elects to improve a facility solely for the benefit of the Railroad, a betterment must be credited to the project, unless The betterment is required by the project; Materials are not identical, but are of equivalent standard; or Identical replacement is not possible. Next highest grade is permissible 174

175 ODOT Railroad Audit Circular No. 7 Materials Betterments An Example ABC Railroad installs lights and gates on Woody Hayes Drive, as required by PUCO Order. ABC elects to test a new warning device technology at the crossing, which is not required by the PUCO Order and is not part of ABC s current standards. ORDC has approved the design, but will not participate in the additional costs for the new technology. 175

176 ODOT Railroad Audit Circular No. 7 Materials Betterments An Example ABC has estimated that the upgraded materials will cost $75,000. The cost of the materials for an ABC standard-build warning device are $70,000. $2,000 in additional labor costs and overhead will be incurred due to overtime and more costly expert labor used for the installation. 176

177 ODOT Railroad Audit Circular No. 7 Materials Betterments An Example Analysis The additional $5,000 in material costs and $2,000 in labor and overhead must be credit to the project as a betterment. 177