The DOT Overhead Rate Review Process
If your firm has a calendar year-end, you’ve probably recently received approval of your overhead rate from the DOTs who are responsible for reviewing your rate.
You might even still be working through the review process now. Most states have a June 30 overhead rate submittal deadline for A/E firms with calendar year-ends, so the summer is their busy time for overhead rate reviews. For me, while the spring is audit busy season, in the summer I spend a lot of time working with firms – both audit and consulting clients – to help them navigate the DOT review process.
At the recent AASHTO Audit Conference in Montana, we spent a lot of time discussing how to facilitate more efficient DOT reviews of A/E firm overhead rates. This included a session on cognizant reviews that I presented along with Randy Knoche of Wisconsin DOT and Scot Gormley of Ohio DOT. We described a number of actions that firms can take to make the review process go more easily, regardless of whether your firm gets a cognizant review, a CPA audit with no cognizant review, or even if you don’t have a CPA audit.
Here are a few ideas that can make the state DOT review of your overhead rate go more smoothly:
- Coordinate with your state DOT in advance of the review – close coordination between the A/E firm, CPA firm, and state DOT, as early as the audit planning process, can be critical to a successful review. This is especially true in the case of a cognizant review.
- Understand the state DOT’s review process – each state has their own process and requirements, including the list of documents they will require you to provide. Get to know those requirements and prepare a package of the required documents in advance of submitting your overhead schedule / audit report.
- Review and update your AASHTO ICQ – you should thoroughly review and understand the AASHTO Internal Control Questionnaire (ICQ) that is Appendix B of the AASHTO Audit Guide. Almost all state DOTs require this to be submitted along with your overhead rate schedule, so you need to be sure you have completed it properly. Review the list of attachments included in the ICQ, as many states will ask you to submit the attachments as well.
- Document your policies and procedures in writing – many states will question costs that are not supported by written policies and procedures. It’s critical to document your policies in writing. One policy I would consider especially important – your bonus plan. While FAR Part 31 does not REQUIRE bonus plans to be in writing, many state DOTs will question bonuses that are not supported by a written plan. I can’t overemphasize how important it is to put your bonus plan in writing.
I hope these tips will help to make your next state DOT review go more smoothly. As always, if there is anything I can do to help, please don’t hesitate to contact us.
