Transcript
ODOT Draft Utility CircularsMarc A. Travis
Division of Finance and Forecasting
Office of Audits
Agenda
• Introductions
• Background
• Circular Development Process
• Overview of each Circular
• The Comment Period
• The Post-Comment Period/Implementation
• Utility Audits
• Wrap-Up
Important Note
• The ODOT Utility Audit Circulars, commonly referred to as “The Circulars,” are currently in draft format and do not represent official ODOT policy. Implementation will be discussed later in the presentation. However, please note that all required laws, rules, regulations and policies must be followed at all times, including prior to implementation as official ODOT policy.
Background
• In recent years, the ODOT Office of Audits has provided minimal oversight and support to the Utilities Section.
• At the request of ODOT Utilities, the Office of Audits has dedicated additional resources to assist Utilities in an effort to evaluate costs claimed by utilities on relocations, and ultimately, conduct project and overhead audits.
Background
• ODOT Auditors began conducting extensive reviews of project costs claimed by utilities on relocations.
• As part of this review, ODOT met with numerous large utilities to discuss:
– Accounting systems,
– Cost structures,
– Indirect (overhead) costs, and
– Specific Project Costs.
Background
• As a result of this due diligence, ODOT Auditors identified several major concerns, such as:
– Substantial inconsistencies in billing practices from one utility to another,
– Non-compliance with reimbursement regulations and policies established at the Federal and Agency level, and
– A general lack of awareness of reimbursement guidelines.
Background
• Accordingly, ODOT began the process of developing 7 Utility Audit Circulars.
• The Audit Circulars are designed to be a “one stop shop” for a multitude of rules, regulations, and standards with respect to how utilities are reimbursed on ODOT relocations.
• The Circulars do not address every possible reimbursement scenario, but provide guidance on common themes.
A “One-Stop” Shop
Utilities-FERC-PUCO-GAAP-Others
ODOT-23 CFR 645-48 CFR 31
-ORC-Others
ODOT Utility Audit Circulars
The Development Process
• Extensive review of numerous relocation projects to gain a feel for the reimbursement environment.
• Discussion with various major utilities to gain an understanding of accounting systems, overhead, etc.
• Utility reimbursement survey of other States DOTs.
• Utility reimbursement survey of utilities.
• Review of utility audit programs from other State DOTs.
• Correspondence with experienced utility auditors at other State DOTs.
The Development Process
• Discussion with ODOT Utilities Personnel at Central Office and District Utility Coordinators.
• Extensive review of all applicable laws, regulations, policies, guidelines, and Circulars already in effect in other ODOT programs.
• ODOT Audits began drafting the Circulars in July 2008, and several revisions have been made on a continuous basis for the past 16 months.
Major Applicable Regulations
• 23 CFR 645A: Utilities
• 48 CFR 31 (“FAR Part 31” – incorporated by reference in 23 CFR 645.117(d))
• The Federal Travel Regulation (incorporated by reference in 48 CFR 31.205-46)
• Cost Accounting Standards (incorporated into FAR Part 31)
• ORC §5501: Department of Transportation
Other Applicable Guidance
• ODOT Utility Manual
• ODOT Construction and Material Specifications Manual
• Federal Utility Relocation Program Guide
• Defense Contract Audit Agency Contract Audit Manual (DCAA CAM)
• DCAAP 7641.90: Information for Contractors
Authority to Create Policy
• ORC 5501.51(B): “The director of transportation may establish and enforce such rules and procedures as he may determine to be necessary to assure consistency governing any and all aspects of the cost of utility relocations.”
Authority to Conduct Audits
• ORC 5501.51(A): “The utility shall present evidence satisfactory to the state substantiating the cost of relocation. The director may audit all financial records which the director determines necessary to verify such actual costs.”
• 23 CFR 645.117(i)(3) : “All utility records and accounts relating to the project are subject to audit by representatives of the State and Federal Government for a period of 3 years from date of final payment has been received by the utility.”
The Draft Circulars
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
Circular No. 1
• Definitions, Audit Authority, and Guidance on Computing Overhead Rates
– Provides general definitions used in all Circulars
– Establishes audit authority (Federal and State)
– Provides guidance on overhead/indirect costs
• Compliance with FAR Part 31
• Actual Cost
• Preparation of overhead schedule– Sample schedule provided
Circular No. 1 – Key Elements
• Reimbursement of relocations are at actual cost. Use of estimates are not permitted.
• Overhead/indirect costs must comply with the cost principles in FAR Part 31 (23 CFR 645.117(d)).
• It is very unlikely that all indirect/overhead costs charged to internal projects are eligible for Federal-Aid.
– Adjustments necessary for FAR Part 31.
Circular No. 1 – Key Elements
• Overhead Calculation/Application
– Utilities use many different cost drivers to allocate indirect costs to overhead.
– ODOT is advocating that utilities use direct labor cost as the cost driver, which is supported by Cost Accounting Standards and DCAA CAM 8-418.2(h)(1).
– Although use of direct labor cost is not required, use of other cost drivers must be pre-approved by ODOT.
– Generally, a total cost input base is not appropriate for Federal-Aid, because utilities subcontract work.
Circular No. 1 – Key Elements
• Overhead – an example.
• Recently, a utility company submitted a final bill in the amount of ~$2.1MM for reimbursement. Under this scenario (based upon rates known to ODOT), the following amounts would be added to the bill to recover overhead in the following amounts.
Circular No. 1 – Key Elements
• For each of the following publicly traded utilities, the amount of overhead charged would be:
– Utility A: $0.00
– Utility B: $0.00
– Utility C: $126,445.81
– Utility D: $164,337.69
– Utility E: $233,212.98
– Utility F: $795,520.03
Circular No. 2
• Meals, Lodging, and Transportation
– Provides general outline on allowability and limitations on travel costs, and documentation required to meet the burden of proof.
– Provides some latitude in certain circumstances if travel costs exceed the limitations set forth in the Federal Travel Regulation.
Circular No. 2 – Key Points
• Airfare costs are limited to coach class.
• Mileage is limited to the maximum allowable by the U.S. General Services Administration.
– GSA rates and IRS rates may not be the same.
• Written company policies with explicit meal and lodging limitations is recommended.
• Costs must be reasonable and meet the intent of the regulation.
• Costs should be documented by receipts and signed and approved expense reports.
Circular No. 3 - Labor
• Observations by Audits of substantial amounts of overtime on projects which were not explicitly disclosed in the estimate.
• Increased audit scrutiny with respect to overtime, labor paid-but-not-worked (such as standby), and other “upcharges.”
• Guidance on proper timekeeping in order to meet audit scrutiny.
• Discusses alternative methods of labor costing, such as man-day rates, effective hourly rating, and loaded labor rates.
Circular No. 3 – Key Elements
• ODOT cannot accept direct labor charges without signed, approved timesheets.
– Recommend criteria in DCAAP 7641.90, Chapter 2-302.
• Overtime must be assigned equitably to time charges within the pay period.
– Effective hourly rating
– Assignment of OT to the project(s) which caused the overtime.
– Assignment of OT to projects at the end of the week after 40 hours worked is unacceptable.
Circular No. 3 – Key Elements
• Employees are eligible for reimbursement for time actually worked on the project. If an employee is eligible for a full day’s pay if less than a full day’s work, the time actually worked is a direct cost. Unworked labor cannot be directly charged and must be classified as overhead.
• Use of alternative labor charging methods is acceptable provided that those rates are based on actual cost and are supportable by company records.
• Use of overtime, pay rates, etc., must be equitable for government and non-government work.
Circular 4 – Subcontracted Costs
• Amplifies Federal requirements for procuring engineering and construction contractors
– Selection and approval of engineers
• State approval
– Construction
• Low bid
• Continuing contract
• Minor dollar amounts
Circular 4 – Subcontracted Costs
• Contract Terms, Rates, and Markups
– Loaded labor rates
– Overhead
– Multipliers
– Markups on non-labor/”pass-through” costs
• ODOT Requirements for low bid and continuing contracts.
Circular 4 – Key Elements
• Continuing contracts may be requested an kept on file at Central Office
– Needed to verify rates, establish reasonableness, and ensure that contract terms ineligible for reimbursement are not claimed on relocations.
• Low bids must be lump sum
• Bid documents may be requested
– Needed to verify that the lowest bidder was selected, no ineligible costs were included in the bid package, and the amount charged matches the amount of the bid.
Circular No. 5 – Invoicing Procedures
• All projects are subject to audit.
• Requires utilities to submit an “audit packet” directly to ODOT Audits upon completion of the project, if the claimed costs on the project exceed $500,000.
– Threshold based on materiality, staffing resources, and volume of projects.
Circular No. 5 – Invoicing Procedures
• Establishes criteria for acceptable documentation for various types of claimed costs.
– Based upon standard audit guidelines used by State DOTs.
– Consistent with the documentation requirements of other audit programs at ODOT.
Circular No. 6 – Equipment
• Established allowability and procurement guidelines for use of company-owned and rented/leased equipment.
• Strictly adheres to 23 CFR 645.
Circular No. 6 – Key Elements
• Rented/leased equipment costs should be charged to the project in a rational, systematic manner that allocates costs to multiple projects equitably.
• Company-owned equipment charges must be supported by reliable actual cost data.
– Rental Rate Blue Book rates may be used in lieu of actual cost to the utility.
Circular No. 6 – Key Elements
• Equipment purchased and used on the project cannot be fully charged to the project unless the equipment is placed in service on the project or has no useful life once the project is completed, and the item is scrapped.
– The utility may depreciate the purchase price of the equipment consistent with the time used on the project and its expected useful life.
– Rental Rate Blue Book rates are acceptable.
Circular No. 6 – Key Elements
• Equipment repairs and regular maintenance cannot be charged directly to a project because the derived benefit of the expense cannot be identified with a single project.
• Equipment rental rates must be reasonable.
Circular No. 7 - Materials
• Procurement
• Pricing
• Temporary use materials
• Salvage, scrap and betterments
• Handling costs
• Accrued Depreciation
• Inter-company profits
• Gas loss
Circular No. 7 – Key Elements
• Materials pulled from company stock must be at actual costs to the utility
– Inter-company profits are prohibited
• Materials purchased under low bid or continuing contract are acceptable, provided that the costs are reasonable and at actual cost to the utility
Circular No. 7 – Key Elements
• Material handling charges must be based on actual costs incurred during the accounting period or 5%.
• Accrued depreciation is required on replaced facilities, such as buildings, pumping stations, filtration plants, power plants, substations, etc.
• Amounts claimed for gas loss must be adequately supported and at the cost to the utility to acquire the gas. Market rates are prohibited.
Major Circular Themes
• Actual costs
• Compliance with 23 CFR 645 and FAR Part 31
• Timesheets
• Consistent, equitable treatment of costs
• Reasonableness
• Document, document, document!
The Draft Utility Audit Circular Comment Period
Comment Period
• As of today, November 13, 2009, the Draft Utility Audit Circular Comment Period is now open.
• The Circulars are available online for download and review at:
http://www.dot.state.oh.us/DIVISIONS/FINANCE/AUDITING/Pages/RailUtilities.aspx.aspx
Comment Period
• You are encourage to provide the circulars to your constituents/individuals within your utility who may provide constructive feedback.
• We are requesting that comments be sent directly to Marc Travis at ODOT (contact info on slide at end of presentation).
• Please limit comment submissions to one per utility.
Comment Period
• Any questions may be directed to Marc Travis, External Audit Supervisor – Utilities (contact information to follow).
• The comment period ends on Thursday, December 31, 2009.
• Please provide all comments in writing no later than the deadline date.
The Next Steps in the Audit Circular Process
Post-Comment Period
• Comments from the utilities will undergo an internal review. Revisions will be made.
• Prior to implementation, the internal review period may also include:
– Further discussion with associations/utilities
– A second and final comment period
• Final approval by ODOT Executive Management
• Implementation
• Full-day training session held at Central Office
Implementation
• The planned implementation date of the Circulars is July 1, 2010.
• The circulars will be effective for all projects authorized on or after July 1.
• Prior to implementation, all applicable utility reimbursement regulations will be in effect, including 23 CFR 645, FAR Part 31, and the ODOT Utility Manual.
Current Audit News
• ODOT is currently conducting desk projects audits of utility relocations.
• Beginning in 2010, ODOT will start expanding the scope of utility audits to include detailed audits of indirect costs rates (fringe benefits, storage handling, and general & administrative overhead).
– Current audits only include cursory reviews of overhead rates.
– May include site audits
Questions, Comments, Concerns?
• Please direct all correspondence, including comments on the circulars to:
• Marc Travis, Office of Audits
• 614-728-0318 (w)
• 614-887-4115 (efax)
• Marc.Travis@dot.state.oh.us
Thank You!
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