Audit

Frequently Asked Questions

May a firm that is eligible for “Exempt” classification have an opportunity to register and use the “Exempt” criteria for audit purposes?

All firms classified as “Exempt” by November 1, 2008 may apply this status retroactively. Otherwise, the firm will need to hire a Certified Public Accountant (CPA) firm to perform the required Overhead and Direct Cost audits. Firms must file for “Exempt” status by January 1 of each subsequent year to retain the “Exempt” status for the calendar year.

More information is available about the procedures necessary for qualification as an Emerging Small Business Enterprise (ESBE) and Small Business Enterprise (SBE).

Will NJDOT provide any consideration for firms that lack Federal Acquisition Regulations (FAR) audits and have to perform "catch-up" audits for several years?

All firms are subject to the criteria, which is based on whether a firm has “Exempt” status, or whether it exceeds the $50,000 threshold of incurred New Jersey Department of Transportation (NJDOT) Direct Labor in any one fiscal year.

Will a review of the firm-prepared Overhead Rate submissions be performed before they are used in completing the Direct Cost Audits?

Yes. Those “Exempt” and non-exempt consultants with less than $50,000 of Direct Labor in a fiscal year, that do not hire an independent CPA firm to prepare their Overhead Rate, must submit their firm adjusted and prepared Overhead Rate for review and acceptance by the NJDOT Bureau of Auditing prior to submission of the Direct Cost audit and “Settle-Up Schedule”. Additionally, a Compliance Certification Form must be submitted with the overhead statement certifying that all required audit criteria was met.

These requirements apply to both prime and sub consultants.

The NJDOT Bureau of Auditing will evaluate these submissions on a sample basis, and reserves the right to retroactively adjust the submitted rates if it is determined that material adjustments were not reflected in the overhead schedules provided. The firm will be notified of the approval of the Overhead Rate submission.

What about the audit of the Direct Costs for firms who prepare Overhead Rates?

The firm will apply the approved Overhead Rate to the un-audited Direct Costs and submit adjustments via the “Settle-Up Schedule”.

What happens if I do not submit the required audits, or firm derived Overhead Rates, according to this schedule?

Failure to submit to the NJDOT within nine months of the close of the firm’s fiscal year (or within the noted time frames for prior period and 2007 costs) will result in the suspension of new contracts or Consultant Agreement Modifications (CAM’s) awarded to the firm. This will remain effective pending the firm’s compliance.

Will a FAR audit done by a cognizant Federal agency, or another State DOT, be acceptable to NJDOT?

Yes, as long as the required cognizant agency letter of concurrence is provided.

Is there a recommended list of CPA firms who do this type of work?

The Department cannot legally provide a recommended list of CPA firms. However, any independent licensed CPA firm who has experience performing audits according to the above noted criteria (Generally Accepted Government Auditing Standards and FAR, Subpart 31) would be qualified.

Are there any rules regarding the procurement or selection of CPA firms to perform this work? Is there any limitation on cost?

A licensed and experienced firm must be selected, as noted above. There are no specific rules regarding the procurement of a CPA, except that one cannot use a firm currently under contract with NJDOT. There are no restrictions regarding the location of the CPA firm, and it is acceptable to use a firm that already performs its financial statement audits. It would be prudent to hire a CPA firm that has undergone the required peer review before enlisting its services, given that this is required per the Generally Accepted Government Auditing Standards. Overall, the cost must be reasonable in relation to the services performed.

Is reimbursement allowed for the cost of these audits?

Yes, the cost of the overhead audits is allowable in the consultant’s overhead rate calculation and can be billed through increased charges across all contracts. Reimbursements for the cost of direct cost audits are also eligible against the individual contracts being audited. If there are more than one consultant agreements, the CPA audit cost will be distributed among the audited agreements proportional to the total agreement expenditures to date. The NJDOT will modify the agreements to reflect the actual auditing cost allocable to each project.

What amount should be included in future proposals for Direct Cost audits?

Consultants should include a separate line item of $1,000 for Direct Cost audits on future proposals. In addition, $1,000 should be added for each sub consultant. This amount may be revised if consultants prove that actual costs are much higher.

If jobs are closed but the costs have not yet been audited, can they be reopened for the purposes of charging these costs?

Yes. Jobs that are reopened for this purpose will not be included on the Professional Services database of active projects.

Can I still be audited by the NJDOT-hired CPA firms, if I prefer to do so?

No. Once a consultant or sub consultant reaches or exceeds the NJDOT Emerging Small Business Enterprise ($6.5 million in annual gross revenues), or State of New Jersey Small Business Enterprise Categories 1 and 2 ($5 million in annual gross revenues) thresholds, an NJDOT-hired CPA firm will not perform the required Overhead and Direct Cost audits.

I am currently being audited by an NJDOT-hired CPA firm, but I have not yet received a final audit report. How does this new policy affect my firm?

Most audits in process will be issued in the near future. In cases in which audits are not near completion, the firm should provide audits from the point of the most recently completed audit. Firms in question will be contacted individually regarding this matter.

Where do I send the completed Overhead Audit Reports and “Settle-Up Schedules” related to Direct Cost Audits?

The Overhead Audit Reports and Direct Cost Audits should be submitted to the NJDOT Bureau of Auditing, 1035 Parkway Avenue, PO Box 600, Trenton, NJ 08625 within nine months of the completed fiscal year. The direct cost portion of the audit should include a summary schedule of all contracts with incurred costs in the audit period, both as prime consultant and as sub consultant. Separate schedules (“Settle-Up” documents) should be submitted for each contract, reflecting any direct cost adjustments identified by the CPA firm, or based on the firm-prepared Overhead rates approved by the NJDOT Bureau of Auditing, as well as adjustments to Overhead costs, by CAM, to reflect the audited/approved Overhead rates. The “Settle-Up Schedule” for each contract should be submitted to the appropriate NJDOT Contract Manager (for prime consultants), or to the appropriate prime consultant (for sub consultants), at the same time as submission to the NJDOT Bureau of Auditing. An invoice for any monies due to the firm, within the contract ceiling, should be forwarded to the NJDOT contract manager. Payment for any monies due to NJDOT should be sent with a copy of the supporting schedule to the New Jersey Department of Transportation, Cashier, 1035 Parkway Avenue, PO Box 600, Trenton, NJ 08625. This is required for both current and prior period audits.

When the consultant determines that an overpayment situation exists, can the overpayments be reimbursed to the Department on an installment basis? Can adjustments be combined?

NJDOT will consider proposals for installment payments. Proposals must be submitted to the Manager of Agreement Accounting for approval. Requests should include the total amount due and a schedule for repayment, and provide for a concurrence signature. One check can be sent for all amounts owed NJDOT, but the firm must provide a schedule detailing separately the amounts owed by contract and CAM.

How will the “Settle-Up” process deal with sub consultants?

“Settle-Up” documents should be submitted by the sub consultants to the appropriate prime consultant. The prime consultant will then submit the schedules for itself and for each of the cost basis sub consultants that incurred cost on each individual contract. Documentation should then be forwarded to the appropriate NJDOT Contract Manager along with the appropriate invoice. Alternatively, payment should be sent to the Department Cashier.

What happens if the sub consultant does not perform the required audits in any given year, or does not meet the deadline, or has a different due date?

If the sub consultant does not submit the required audits, that firm will not receive any new contracts or CAM’s, pending compliance. If the sub consultant submits the audits after the deadline and the “Settle-Up Schedule” has already been submitted by the prime consultant, then the prime consultant must resubmit the “Settle-Up Schedule” and include the sub consultant’s cost. If the sub consultant’s schedule and the prime consultant’s schedule do not coincide, their cost can be included in next year’s “Settle-Up Schedule.”

Can the consultant bill for additional hours if, as a result of the audit, the adjusted cost is below the contract ceiling?

All hours must be negotiated and approved by the Contract Manager. The consultant’s firm should identify all costs currently incurred on a project, rather than inform the contract manager years later of additional costs.

What constitutes a Quality Assurance Review? Will NJDOT formally approve the audited overhead rate and notify the consultant?

NJDOT Bureau of Auditing staff and CPA firms work together on behalf of NJDOT to review the reports and working papers of the consultant-hired CPA firms. We assure that the audits have been performed in accordance with Generally Accepted Government Auditing Standards, Title 48 Part 31 of the Federal Acquisition Regulations, the specific contract provisions, as well as the applicable State of New Jersey Circular Letters.

The recommended Audit Work Program should be used by the consultant-hired CPA firms to assure that all of the required steps are performed. For further guidance, The American Association of State Highway Transportation Officials (AASHTO) Audit Guide should be used. If the audit meets the requirements of the established audit criteria, the consultant will be notified by the NJDOT Bureau of Auditing that it has been accepted.

What happens if a consultant receives notice of a failed Quality Assurance Review?

The consultant will be required to correct all deficiencies noted in the Quality Assurance Review within 90 days. Additional costs related to the correction of these deficiencies will not be eligible for reimbursement.

What happens if a consultant fails to resolve Quality Assurance Review deficiencies within the timeframe allowed?

If a consultant fails to resolve the deficiencies within the 90 day period, it will not be in compliance with the Department’s audit requirements, and is ineligible for reimbursement on any NJDOT Contracts/CAM’s until all cited deficiencies are corrected.

Can I send the firm prepared Overhead Rate to NJDOT Bureau of Auditing by e-mail?

No. Since the Compliance Certification Form requires an original signature for audit verification, both documents should be hand delivered to NJDOT or sent through US mail.

Where can I view the current Treasury requirements for contracted Auditing Services?

The current Auditing Services contract is available on the New Jersey Department of the Treasury Web site. To access this information, use the “Search Term Contract(s) by Key word” and enter the words “Auditing of Contract.”