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Contract Audit Bureau - New York State Department of Transportation


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									An Introduction to the

          New York State Department of Transportation

                                    Joan McDonald

                         50 Wolf Road Albany, Suite 1CA, NY 12232
                             518-457-3180; 518-457-1675 (Fax)
Foreword The Department’s Contract Audit function provides an essential service to management in
contract processing and protects the public interest in providing assurance that costs submitted by
contractors are properly supported and reasonable. The purpose of this pamphlet is to explain how the
audits are conducted, how audit results are reported, and what information is needed to perform them.

An understanding of the audit function and process by those Departmental managers who require
audits of contractors and grantees prior to making final payment is beneficial so that required audits
can be effectively integrated into the Department’s contracting process.

Contract Audit conducts financial and compliance audits of contractors, grantees and other external
parties who participate in Department programs. Audits are performed to assure that contractors and
grantees are using State and Federal funds in compliance with applicable laws, rules and regulations
and in accordance with the specific contract or grant terms.

Audits are conducted in accordance with Generally Accepted Government Auditing Standards issued
by the United States General Accounting Office (GAO) to determine if reasonable assurance exists
that contractors and grantees are compensated for goods and services at fair and equitable amounts
pursuant to compliance requirements.

Contract Audit conducts some 11 separate and distinct types of audits affecting various program

Description of the major audit types are provided below:

Preaward Audits/Evaluations are performed to determine if consulting engineers (professional
service firms) proposing to provide services to the Department maintain accounting systems which are
adequate to support billings under cost reimbursement type agreements and to establish a fair and
equitable indirect cost rate for contract pricing and billing purposes.

CPA Indirect Cost Audit Workpaper Reviews are performed in order to meet our responsibility as
cognizant agency as defined in 23 U.S.C. § 112 (b) (2)(c) (Brooks Act) and 23 C.F.R. §172 (Code of
Federal Regulations implementing provisions of Federal Law pertaining to Federal aid for highways.
Workpapers supporting a CPA firm’s independent audit of an architect/engineer firm’s indirect cost rate
are reviewed to determine that the work was performed in accordance with Government Auditing
Standards as promulgated by the Comptroller of the United States and in accordance with Cost
Principles contained in the Federal Acquisition Regulation, 48 CFR Part 31.

Post Audits of Professional Service Contracts and Related Overheads are performed to review,
test and evaluate compliance with contract terms and applicable policies and regulations. Audits are
conducted to provide reasonable assurance that only eligible costs are reimbursed.

Railroad and Utility Audits consist of relocation and grade crossing elimination project audits of work
advanced on the Department’s construction program.

Snow and Ice Audits are performed to review compliance of municipalities participating in contracts
for the control of snow and ice on State highways.

Federal Single Audit Report Monitoring - The Bureau monitors grantee compliance with OMB
Circular A-133 and other Federal-aid requirements through reviews of Federal Single Audit reports and
performing other limited scope audit procedures.

Mass Transit and Aviation Audits consist of reviews of grantee compliance with provisions of
contracts for State projects or for State matching agreements on Federal grant projects and State
Transit Operating Assistance audits.

Other Audits include audits of legislative member item projects, assistance in claims cases and
termination settlements, Industrial Access Program audits, DBE program support audits, and other
audits performed on an as-requested basis.

Development of an Annual Work Plan
Contract Audit develops an annual plan based on input received from Department program managers
and the annual planning cycle. These projections serve as the basis for forecasting resource needs
for the upcoming year.

During this planning process, priorities are established based on risk associated with various audit
areas and with specific projects in each area. Consultant preaward audits are given top priority in
scheduling in order to meet the Department’s agreement processing requirements. Closeout audits are
generally advanced on a first-in, first-out basis. Other audits such as BPAs, mass transit operating
assistance and snow and ice contract audits are generally scheduled on a one to three year cycle.
Priority will also be given to audits where risks are known to be high.

A listing of all audit requests received from the program areas is maintained. This inventory serves as
the basis for assigning work to auditors and also provides a methodology for monitoring specific
assignments and progress, in general.

Types of Audit Procedures
Once an audit is assigned, the auditor must decide what minimum level of audit effort is required to
provide reasonable assurance that costs submitted are properly supported and reasonable.

Desk reviews are performed when recent field audit experience confirms the existence of adequate
accounting and control systems or for smaller dollar contracts.

Field audit procedures are followed where risks are assessed as moderate or high. Approximately 70
percent of Contract Audit resources are committed to audits which require field work.

Field Audit Procedures
The auditor must determine what has to be audited, such as the number of contracts/grants, overhead
years, or snow and ice seasons. Then, costs billed must be summarized, contractual provisions noted
and a review made of prior audit experience with the auditee. The auditor also must determine to what
extent internal accounting controls can be relied on.

Based on this initial research, an audit plan is developed which defines and focuses on areas of
materiality (amounts) and risk (those areas where there is a greater likelihood of errors or
misstatements). This plan specifies what attributes are to be tested. Appropriate sampling plans are
then developed.

At this point, the auditor is ready to make a site visit to the auditee’s offices. A site visit typically
consists of the following key activities:

An entrance conference is conducted with the auditee. The auditor explains the purpose of the audit
and in general terms describes the audit procedures to be used. Arrangements are made to have
access to appropriate records, information and personnel.

Field testing is performed in accordance with the audit procedures developed during the planning
process. The designed tests are conducted and documented. The auditee is made aware of any
questioned costs, so that they have an opportunity to provide necessary documentation supporting this
cost prior to the issuance of a draft report. Audit findings, if any, are developed and documented.

An exit conference is held with the auditee to discuss tentative audit findings in order to achieve a
better understanding of issues involved and to allow the auditee an opportunity to provide input before
the audit report is prepared.

The Audit Report
The audit report is the final step in the audit process. Its primary purpose is to clearly communicate
audit scope, conclusions, and findings gathered during the audit.

A draft report is prepared and sent to the auditee upon completion of desk or field work. The auditee
then has 7 days to either provide comments or request an additional 14 days to prepare appropriate
comments. Comments received are reviewed and considered in preparing the final report. Contract
Audit then responds to the auditee’s comments by letter and issues a final report.

If no comments are received within the prescribed period, the draft report is issued as final.

Audit Resolution
Official Order 1631 delegates to the Office of Proceedings the responsibility to hear and determine an
appeal by a prime contractor or a consultant (appellant) who wishes to appeal from the findings of the
final audit report (audit) made by the Contract Audit Bureau..

Audit Relationship
The Contract Audit Bureau is a service oriented organization and seeks to maintain an open
communication with Department program managers and auditee groups.

We are active participants in the American Association of State Highway and Transportation Officials
(AASHTO) Audit Subcommittee, including the AASHTO Audit Peer Review Program.

With this pamphlet, we have attempted to provide general information as to why and how we perform
required audits of the Department’s contractors and grantees. We will be glad to furnish any additional
information you may need to ensure that this process is delivered efficiently and effectively.

If you have any questions or would like additional information, please call our office at (518) 457-3180.

                                            Joseph Stuhlman

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