Caltrans AE Financial Documents Review

A&E Financial Documents Review
Calmentor Program Quarterly Meeting
Caltrans District 4 Office
January 26, 2017
Workshop #2, Park View Room, 15th Floor

Item	Description	Presented By
	Welcome and Introduction Background Financial Documents Review Questions	A&I Staff Linda Laubinger, External Audit Manager - Department A&E Unit Mohammad Eslamian, Audit Specialist - Department A&E Unit

Caltrans Audits & Investigations Architectural & Engineering (A&E) Unit

A&E Financial Documents Review

Cognizant Approval/Acceptance Letters

If a cognizant approval or acceptance letter is available, Consultant must submit the letter with their financial documents. 

If a cognizant approval letter is submitted, it is optional to provide:

• Executive Compensation Analysis 
• Post closing Trial Balance (Financial Statement)
• Chart of Accounts
• Example Timesheet
• Vacation & Sick Leave policy

If an acceptance letter is submitted, all documents identified above must be submitted.

Indirect Cost Rate (ICR) Schedule

• CPA audited ICR schedule is required for the Prime Consultant and encouraged for the Sub-consultants, and it must be for the most recently completed financial fiscal year end(FYE). 
• For contract advertisement date prior to June 30, 2017, the FYE ICR of 2015 must be applied to the contract or the FYE 2016, if available. If the contract advertisement date is after June 30, 2017, the FYE 2016 ICR must be applied (CPA audited ICR is not required for contracts under $3.5 million).
• Non CPA audited ICR schedule must be prepared according to Federal Acquisition Regulation (FAR) Subpart 31.2, and the American Association of State Highway and Transportation Officials Uniform Audit & Accounting Guide (AASHTO Guide). 
• ICR schedules must include FAR References and the indirect cost pool must not include any billable or non-billable direct project costs or any unallowable costs. See list of expressly unallowable costs in the AASHTO Guide, Chapter 8.30, Table 8-1.
• Consultant must provide a separate home office and field rate if the scope of work requires a field rate, as specified in the contract advertisement.
• The AASHTO Guide, Chapter 5-Cost Accounting, Table 5-4 and 5-5 includes examples of ICR schedules with and without a separate field rate. 

Contractor Cost Certificate

• Consultants (Prime and all Subs) must provide a Contractor Cost Certificate (CCC) to certify each ICR.
• ICR on the CCC should be the same as the cost proposal, supported by the ICR schedule.
• Signed by an executive or financial officer at a level no lower than a VP or CFO, or equivalent, who has authority to represent the financial information in the ICR. 

Executive Compensation Analysis

• Executive Compensation Analysis must support reasonableness of claimed compensation costs in accordance with FAR 31.205-6 (see AASHTO Guide Chapter 7). 
  •  National Compensation Matrix (see AASHTO website for NCM tools @ audits.transportation.org, under External Audit)
  • Salary survey method

Cost Proposal

• Cost proposal (ADM 2033) should be complete and accurate.
• All personnel working on project should be properly identified and there should be no vacant classifications. 
• Should not include employees with administrative related classifications.
• If the contract requires prevailing wage work, cost proposal should include prevailing wage rates and prevailing wage determination number.

Prevailing Wage Policy

• Prevailing Wage Rates are set by the California Director of Industrial Relations (DIR), for the various categories of work, to protect all workers on public work projects. 
• If Consultant will perform prevailing wage tasks on the contract, a written prevailing wage policy is required.
• The written policy must be presented on the company’s letterhead, signed and dated by a company official.
• Prevailing Wage Policy should explain the Consultant’s accounting treatment of the delta base and delta fringe. 
• Delta base is the difference in prevailing wage base hourly rate established by the DIR and employee’s actual hourly rate for non-prevailing wage work.
• Delta fringe is the difference in prevailing wage fringe amount per DIR and employee’s actual fringe benefits per hour.
• Delta base and delta fringe could be accounted for as: DL, Indirect Cost (OH), or ODC. 
• In the near future, there will be a Prevailing Wage Interpretive Guidance Document @ dot.ca.gov/audits/, under Interpretive Guidance Documents for A&E Consultants. 

Certified Payroll

• Used to verify the hourly rates for all personnel shown in the cost proposal.
• Consultant must provide certified payroll information for all employees containing: 
  • Employee’s name
  • Pay period
  • Hours worked
  • Rate of pay
  • Deductions and net pay
• If applicable, provide fringe benefit statements for prevailing wage personnel.
• If payroll record is not available for newly hired employees, provide copies of offer letters and available pay stubs.

Overtime & Uncompensated Overtime

• Overtime (OT) Policy should include Consultant’s accounting policy for overtime pay and how it applies to exempt and non-exempt employees.
• OT Policy should identify if Consultant accounts for overtime premium as: DL, OH, or ODC.
• OT Policy should be consistent with response in the Internal Control Questionnaire (ICQ), and if applicable, CPA ICR Audit Report Disclosure Notes.
• If OT premium is accounted for as OH, then the loaded hourly billing rate for overtime should be the same as the loaded hourly billing rate for straight time. 
• Uncompensated OT should be accounted for using the Standard Rate Method and adjustments per AASHTO Guide should be made to the ICR pool.
  • If Consultant accounts for Uncompensated OT using the Effective Rate Method, the ICR should be converted to Standard Rate. For guidance, see the Uncompensated Overtime Interpretive Guidance Document @ dot.ca.gov/audits/.
    • Hourly Labor Rates must be proposed at Standard Hourly Rates and the ICR should be prepared in line with the Standard Rate Methodology. 

Other Direct Costs (ODC)

• ODCs are costs other than Direct Labor that can be identified specifically with a project or final cost objective (48CFR, Chapter 1, Part 31.202 and 31.203).
• All ODC Items, vehicles, equipment , etc. must be identified and itemized on the Schedule of ODC Items.
• Consultant must provide justification/support for any direct cost items that contain an in-house unit rate. 
• ODCs that are not supported or appear to be included in the overhead should not be included on the Schedule of ODC Items.
• Items such as Cellphones, Computers, Cell Phone Monthly Rates, Internet Service, etc. should not be on the Schedule of ODC Items, as these are considered “Tools of the Trade”. 

AASHTO Internal Control Questionnaire (ICQ) for Consulting Engineers

• See example in the AASHTO Guide, Appendix B.
• Consultant must accurately complete the ICQ.
• The information contained in the ICQ and the accounting period (i.e. fiscal year) should be consistent with the fiscal year ICR proposed by each Consultant.

ICQ Attachments

Per the AASHTO Guide ICQ requirements, the following items must be provided:

• Post closing Trial Balance reconciled to the ICR and financial statements (balance sheet, income statement, profit and loss statement) for the most recent fiscal year
• Chart of Accounts (should include direct, indirect and unallowable accounts) that ties to financial statement and ICR schedule 
• Sample of Consultant’s Timesheet (see AASHTO Guide, Chapter 6-Labor Charging Systems and Other considerations) 
• Consultant’s Vacation and Sick Leave policy
• Consultant’s Bonus Policy (see AASHTO Guide, Chapter 7.11-Bonus and Incentive Pay Plans)

Other Considerations

• Firms electing to use the SHR are required to submit the following:

1. Questionnaire for Evaluating Consultant’s Financial Management System
2. Consultant’s Certification of Eligibility; Contract Costs and Financial Management System (See https://dot.ca.gov/programs/procurement-and-contracts/ae-contract-information)

• Sole proprietors who cannot support an hourly rate with a payroll register, must provide invoices for previous work billed to other clients, and current cost proposal. 
• If Consultants have submitted financial documents to any other agency for review/audit, then identify the agency, period, type of review/audit, and outcome.
• Provide details of the vendor rate sheets, if applicable.