In early October 2016, I had the opportunity to travel to Chicago, Illinois to interact with some of the authorities responsible for aiding in development of the most current American Association of State Highway and Transportation Officials (AASHTO)-Audit Guide. Speakers, Dan Purvine and Jerry Jones, ensured no state Department of Transportation members were present so A/E firms and CPAs could voice their concerns so Dan and Jerry could bring them up at future AASHTO Audit Subcommittee meetings.
According to Federal Acquisition Regulations (FAR) guidelines, any firm that receives Federal or State monies to work in the transportation-sector is required to submit an overhead rate to be considered during the proposal process. If you are an architectural or engineering firm that works with any state’s Department of Transportation (DOT), it is recommended by state DOTs to obtain an independent auditor’s opinion on your overhead rate. According to the speakers, it is getting more difficult to get rate approvals in some states without obtaining an audit from an independent auditor.
Compliance with FAR: Policies & Procedures
The speakers brought up many helpful tips for A/E firms to implement to be in compliance with FAR. The most significant point that the speakers drove home was that A/E firms are responsible for being compliant with FAR and therefore should have written policies as support for their stance on allowable/unallowable indirect costs. Sound policies and procedures should always be written where possible as the policies provide a foundation for strong internal controls. Further, having a written policy supports consistency, which is an item many state DOTs are looking at regarding allowability.
Travel Cost Documentation & Reimbursements
Travel costs are another hot issue of discussion. It was brought to the attention of attendees that most A/E firms fail to have proper documentation on expense reports which often results in increasingly more unallowable costs. Expense reporting affects all employees who travel.
For an indirect cost on an employee’s expense report to be considered allowable for FAR purposes the business purpose must be documented, similarly to elementary story-writing, “who, what, when, where, why,” and should also include an itemized receipt. According to FAR 31.205-46(a)(7): “Costs shall be allowable only if the following information is documented – (i) Date and place…of the expense, (ii) Purpose of the trip; and (iii) Name of person on trip and that person’s title or relationship to the contractor.” As mentioned above, the submission of expense reports must be congruent with company policy and it is recommended that expense reports are reviewed frequently (for proper documentation).
Another recommended policy for many A/E firms should be to not reimburse employees travel costs in excess of the Federal Travel Regulations (FTR) rates which establish allowable daily rates for lodging, meals, and incidentals for overnight travel. The applicable rates by travel destination may be accessed at www.gsa.gov and clicking on Per Diem Rates and then entering the city and state.
It is important to note that meals and incidentals for the first and last day of travel are limited to 75% of the stated per diem rate. For travel costs to be considered allowable for FAR purposes travel costs must be within the per diem rates and it is recommended that an A/E firm has a strict written policy in regards to exceptions to per diem rates (i.e. discussions with a home state DOT that considers it reasonable to allow travel costs in excess). For many state DOTs, cost are presumed to be reasonable if within appropriate FTR limits.
Reasonable airfare reimbursement was also discussed. FAR notes that, “Airfare costs in excess of the lowest priced airfare available to the contractor during normal business hours are unallowable…” It is the responsibility of the A/E firm to develop a policy to manage travel costs and monitor for consistency. As an auditor, I look for inconsistencies and test those to help form my opinion.
Also, beyond travel meals the concept of non-travel meals was brought up as there is substantial inconsistency among state DOTs regarding allowability. Non-travel meal costs are allowable if there is documentation substantiating an allowable business purpose, itemized receipt submission, and the amount is reasonable based on the parameters set forth by an A/E firm’s written policy.
Should you have any questions on information in this blog post or FAR audits, contact BSSF today!
ABOUT THE AUTHOR
Alex is a Staff Accountant with Brown Schultz Sheridan & Fritz. He specializes in providing audit services to for-profit organizations across various industries.