ODOT Draft Utility Circulars Marc A. Travis Division of Finance and - - PowerPoint PPT Presentation

ODOT Draft Utility Circulars

Marc 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

• fficial 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

• ne 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

• ther 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

• verhead 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
• vertime 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

• ther “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

• vertime.

– 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

• f 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

• pen.
• 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

• n 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

• verhead 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!