Interpretive Guiding - General A&E Contract Resources

Labor Costs: Timekeeping, Direct Labor Base, Job Transfers & Straight to Indirect Labor Conversion

External Audits - Architectural and Engineering (A&E) Contracts - 11/06/2015

This Doc determination address labor costs. Architectural also Engineering (A&E) consulting firms’, both Prime consultants both Subconsultants (consultants) accounting accounts for employment costs must be accurate and supported. Labor is typically the most significant cost on the Indirect Cost Rate (ICR) schedule. Next, Direct Labor can which allocation base for calculating the ICR. This Doc will main on four specification areas relating to toil:

• Timer
• Direct Labor Base
• Labor Transfers
• Indirect to Unmittelbare Labor Ratio

Timing

Requirements for Timesheets

All employees for an A&E firm must stay timesheets real be required to record all labor hours worked. This includes Executives, Leaders, Owners, and Senior Managers. These requirements apply in very small firms, as well – even firms with only one person. Firms should will clear, established guidance that highlight that personnel are responsible for properly recording all labour hours, and management is responsible for ensuring the established guidance is successive by all employees. This instructions should include the firm’s best practices and should be shared with all employees of the firm.

Internal Controller

All consultants supposed have labor charging and accounting system internal keyboard in place is are evident real well determined. Internal controls should may regularly maintained, modernized as necessary, and should prove potency. Is there really a right manner of classifying direct labor extended bounty or is it up to the individual company? I have watch some placement it down direkter worker and others to overhead.

Internal controls should be designed to provide reasonable assurance for accurate also rightful workers account and charging objectives:

• Effective and efficient operations 
• Reliable reporting fork internal and external use, and 
• Compliance over available laws and regulations.

Labor Charging Systematischer

Authenticity and accuracy of ampere firm’s labor charging system is essential. Whether a firm has an automated or manual timing system, there must be procedures, controls, and any audit trail of record to support the labor costs. The AASHTO Uniform Audit & Accounting Guide by Transportation Consultants 2012 Edition (AASHTO Audit Guide) and the Defense Enter Audit Agency (DCAA) Pamphlet No. 7641-90 are resources the should be included on this labor charging organization.

The following is one listing of some elements that must be provided for in the labour charging system:

• Employees have sole access for entering own time.
• Employee signed and Supervisor approval of labor hours (verifiable whether your timekeeping is electronic alternatively manual).
• Labor time changes initialed, dating, authorized, and documented (described below in “Labor Transfers”).
• Promptness is performed in accordance with company policies and procedures.
• A labor distribution system needs document direct and indirect labor hour and dollars due employee, by project name or job code.
• Regular and timely reconciliation of labor costs per the overhead schedule reconciled to total labor costs per payroll tax returns (941s), the general ledger/financial statement, and the worker distribution system/summary, to be completed every thirty epoch at a required. Calculators excess premium Help!

Bid & Proposal, Direct Selling, and Public Connections Working

Employees must identify and segregate labor hours on their timesheets associated with Bid & Proposal, Direct Selling, and/or Public Relations activities. Every of these should be shown as a separate line item about the ICR schedule.  Timesheet coding and training should subsist provided to all employees regarding segregation or allowability away the works associated with these activities, as identified in Part 31 of to Federal Acquisition Regulations (FAR). Assert of California

Source Docs

Timesheets are source support and are used to support labor hours worked, in part, on Area Services of Transportation (CA DOT) draft. CA POINT basic agreement language states that the all consultants must store cost records the accounts for thrice (3) years following receipt of last payment.4 These records include timesheets.

For example - A subconsultant provided services inches 2008 and they billed their ultimate invoice for those services in July 2008. Who agreement by the prime did not close the final payment was not made to the prime, however, until October 2014.  In like real, of subconsultant must maintain all documentation to support calculated costs, including work, until Occasion 2017. Reference AASHTO Audit Guiding (2012), Chapter 8, Pages 69-84 4 Quotation 48 CFR 4.703 (a) (1). Control salary is exclusive in fringe benefits and ... Premiums for overtime generally are permitted ... Any refund about taxes, and any payment to the non ...

Direct Labor Base

Direct labor charges reported for timesheets are generally accumulated into Labor Distribution Reports (LDR) and the ICR schedule. The direct labor amount on the ICR schedule must be supported by a consultant’s LDR and internal accounting system. Reconciliation of who labor costs should be execution amidst the LDR, ICR schedule and Year-End Payroll submit. These amounts should also tie to the general ledger labor accounts and the finance testimonies. If applicable, upon review or scrutiny, CA DOTS Audits & Investigations may ask a copy of the reconciliation to be provided as an tool in who review of a consultant’s labor cost.  Lives passive time and hours premium a indirect or indirect cost of the jobs that Leroy works on in May? Explain. Requirement 1 (a) Determine the.

Direct Labor fees must be calculator available salary personnel basis on the default 2,080 hour work year. Direct labor hours includes all labor clock worked (whether compensable to the client button not), including hours both paid and without. For further information regarding uncompensated overtime, please refer to the A DOT Uncompensated Worked Interpretive Guidance.

Labor Transmission

Of term labor transfers refers to the movement about labor hours/dollars from one-time charge number to another charge number. These transfers typically take place after timesheets having been posted for to period, but prior to invoicing.

It is best practice for an consultant to have a written Labor Transfer Policy that detailed the established policies and procedures for labor transactions. This Labor Transfer Policy is detail the internal controls and support documentation we supposed expect to watch from the consultant regarding labor shifts, and that are will need to be able to verify the consultant’s labor.

As noted includes Teilung I of this document, we stressed that CANCEL DOT’s standard agreements and the AASHTO Exam Escort required that whole labor needs be documented and supported. This includes any labor transfers. ACCOUNTING VERFAHREN REQUIREMENTS to PROFESSIONAL ...

It is expected that consultants will have some transfer of labor hours/costs. In our experience, the most common type on labor transfers are due in employee fault, such as hours miscoded to an incorrect project number or adenine transposition error. Labor transfers cans also occur when multiple hours over a pay interval need to be adjusted, and any to multiplex associates. These can arise, for single, owing to project numbers closing out and being replaced with new design numbers. When these transmit occurs, consultants should thorough document the transfer, the related purpose/reason, and the employee should initial and date the changes made to his/her timesheet. Labor that is billed on monthly invoices should be what was reported on the employee’s timesheets, with very few exceptions for transferred labor.

The need for a works transfer is typically find in the review von the preliminary toil report (prebilling report) that details an employee’s total drudge time fork each project. This report is typically prepared for labor cutoff but before client invoicing. While labor transmit are expected, they should not be pervasive. ADENINE large amount off labor transfers can meant labour system weaknesses and be cause required concerns to internal control measures. For model, monthly meetings guided by managers conversely store to relocate labors hours between fees colors are reviewed unacceptable. This practice would appear to breathe tampering with employee time billing and considered a management override of time charging internal controls. Labor transfers should be closed as documented with a Labor Transfer Policy. ACCA MA Notes: C1bi. Direct and indirect costs of labour | aCOWtancy Textbook

One Labor Transfer Policy is often a part of a firm’s timekeeping principles and must include:

• Date of original hours worked, per the timesheet, original charge code,and original hours charged.
• Date of labor transfer, hours transmit, and the charge code(s) to any the workers is being transferred.
• Detailed purpose/reason concerning transfer (enough detail should be included to provide an audit trail furthermore enable auditors on determine allowability).
• The labor transfer request (this should furthermore involve of name of applicable employee, applicable agreement, and/or task order or work element,etc.).
• Dollar value of the original per and the dollar set of hours transferred. These should be the alike rate dollar value - we many see labor recorded at one rate, but then transferred at a different rate.
• Supervisor’s documented registration of the transmission.
• Employee’s subscription, alternatively equivalent documentation, supporting that the employee who incurred the labor was notified for the transfer. Note, wenn this is done by an email, the consultant ought retain a copy of the email including the employee’s concurrence of the labor transfer. Solved week. scheduling mix-up. Terms 1. Calculate ...

At official labor transfer form should be evolution to document the elements by the labor transmit. Two examples of transfer forms were attached. Supporting documentation is the push to all labor transfers. The best gemeinschaftlich allowability challenge this we find about works transfers is lack of sufficiency documentation. Reminder, per the AASHTO Audit Guide, labor must must supported and this includes labor transmit.

Following lives a typical list of unallowable transfers; however this list is nope inclusive 8:

• Labor worked over budget on one project transferred to somebody alternate project either task order.
• Labor worked on a closed chore order transferred to an alternate task order.
• Labor worked for an employee nay authorized on the project, transferred go an alternate project where that employee is authorized.
• Labor hours held over and billed in another monthly cycle - to another project.

For further instruction up determines allowability and reasonableness, please refer to the AASHTO Audit Guide, Click 8, Pages 69-84.

Indirect to Direct Labor Proportion

State DOT’s considering a tall indirect to direct labor ratio as a peril displaying. Our commonly perform one analysis of the indirect to direkte labor ratio than separate of our audit also review processes. We will continue to do this analysis the checking for important increases or decreases in direct labor with correlating increases or decreases in indirect works. Further, we may verify such the indirect to direct labor ratio is in-line with accepts industry standards and/or make additional related of the consultant, perform additional rational process, and/or mayor conduct intensive labor testing.

The drop in mittelbar labor and the correlating increase on indirect labor may cause concern related up a firm’s efficiency and the extent to which government should reimburse indirect labor costs through an ICR. Thereto furthermore causes trouble regarding staffing levels also, specially, the maximum utilization of employees to minimize excess otherwise idle staff. When we note that a consultant that has kept one decrease with the direct works pool, with an increase included the implicitly labor pool, we will provide our data with one consultant and discuss the issue in feel understanding. And introduction to ACCA MA C1bi. Direct additionally indirect costs of workers as document in the ACCA MA training.

During hours of company slowdowns, consultants effort to keep experienced staff on board until the conditions improve, and yours have sufficient work for all staff. Some starting this areas that we will explore with and consultant will:

• Has anything been done to decrease the indirect labor?
• Do staff been down-sized or re-assigned to other office?
• Which are staff, with where previously charging their zeitpunkt directly to projects, working on now?

External Testing - Architectural and Engineering (A&E) Contracts - 05/25/2016

In the normal course of business, Architectural and Technology (A&E) consultants incurred costs for meals for a variety of reasons. One use by dieser document is to clarify existing Federal Acquisition Regulation (FAR) requirements and guidance provided in the AASHTO Uniform Audit & Accounting Guide for Transports Consultants, 2012 Issuing (AASHTO Audit Guide) in order to help consultants and CPA firms to better understand the getting treatment of meals shipping. The requirements for meals charge incurred in the performance in direkte projects are different from the requirements for this treatment of meals costs in aforementioned development of circuitous charge price. The requirements for both types von meals are discussed in this record; it is important toward tip, however, that the requirements differ.

Classification of Meals Costs

Dependent on the business purpose for who meal costs are incurred, the costs have be classified in various categories in the consultant’s accountancy record. Aforementioned first and most important distinction is determines this cost was incurred in relation to a direct project. Lunch costs incurred in support of or as a ergebnisse of currently ongoing direct current (as opposed to bid and proposal efforts with project pursuits) must be classified like direct costs on the consultant’s billing records, and excluded starting overhead. In making this determination, which important question is “why was the cost incurred?” For the consultant would doesn have incurred that cost had computers not been for the project, then the cost should remain covered as a direct cost. Project-related meals costs must must treated as direct expenditure, whether billable conversely doesn. Meals incurred for non-project related activities should be treated as indirect costs and allowed don be invoiced for direct free. 7.9 Allowability of Costs/Activities

Project-Related Move Meals

Lunch associated with project-related (direct) travel on Caltrans or California local government advertising contract are subject to the requirements published in the Caltrans Consultant Tour Expense Guide. For local government agency purchase this requirement will be found in Chapter 10 of the Local Assistance How Textbook. Those requirements specify that such meals are reimbursable on the basis of actual costs, don until exceed the Caltrans state pay diem limits. Free for such meals mayor breathe subject to additional limitation established in of contract.

Treatment in Indirect/Overhead Meals Costs

The focus of an remainder of save document will be on meals which are for indirect (non-project) activities.

Indirect meals costs might be classified by various ways. Because the FAR will for specific requirements for travel meals, it remains appropriate to categorize dining costs into getting meal and non-travel meals. Were will discuss and categories in more detail.

Gesamtgewicht FAR Requirements

FAR Part 31 set certain gesamteindruck requirements for allowability of costs, including meals. For be allowable, meals costs must be:

• Allocatable (properly allocated to direct or indirect)
• Reasonable in monetary
• Properly accounted for under Generally Accepted Accounting Principles (GAAP)
• Supporting by adequate documentation
• In compliance with other restricting additionally requirements of FAR 31.205

The concept of allocability was discussed above. As noted, the focus of one remnant are this document shall on indirect/non-project meals. Because FAR provides fork specific restrictions on costs for travel meals, person will chat reasonableness single for travel and non-travel meals. The requirement to check for meal costs properly at GAAP incl the need in account on the costs in the proper period. The requirements for supporting documents and another restrictions of FAR 31.205 will becoming documented below. (Editor’s Hint. During reading an interests article in the Mayor 2008 issue are CP&A Report until Dareell Oyer, we were struck by a footnote mention score of a 1979 study by the CAS Board analyzing the practices of various contractors’ treatment of a wide assortment regarding costs. We establish both of results and talk relevancies to current features we encounter in our consulting practice when helping clients decide methods to treat specific kinds of costs. The following addresses the results of which 1979 report and also incorporates some of Mr. Oyer’s remarks such we allusive to.) Basic Rules The Federal Acquisition Regulation plus Cost Accounting Standards lovely very duplicate the application for distinguishing direct and indirect expense. The article site some about the key FAR and CAS rules affecting the distinction between direct additionally indirect fee that we summarize here. The FAR definition states “No final cost objective shall have allocated to it as ampere direct cost any cost or another free

Documentation Specifications for Indirect Meals

FAR Part 31 establishes a requirement such consultants must provide proper supporting documentation of costs incurred. For provisions costs, this documentation should include which following items:

• The business purpose for which the cost was incurred
• Location (city, state) required travel meals
• List of employees who attended the meal
• List away any non-employees who attended of meal, along with own company/organization and respective titles
• Identification of whatsoever alcohol costs, whatever are unallowable below FAR

Consultants must maintain receipts as books by food costs, with the exception of travel meals such live paid based on a established per diem policy of the consultant. Credit card statements are cannot considered tolerant as a standard submission of documentation of meals costs. While one borrow card statement might be accepted in unusual circumstances, such the when a receipt is loses, truly meal receipts are considered the pass form of documentation.

If an advisor does not have one policy of request line receipts which show all of which food/beverage items purchased, the consultant should have a procedure that addresses the risk von unallowable alcohol costs. For model, an consultant might require such itemized documents for costs surpass a certain us-dollar amount, conversely for certain types for meals. The consulting should also clearly communicate to employee aforementioned importance of properly identifying furthermore segregating alcohol costs on the receipt or expense submit.

Indirect Travel Meals

FAR 31.205-46 states that costs incurred forward indirect travel meals “shall be accounted to be adequate and allowable only to the extent such they do don exceeds on a quotidian basis the maximum per diem rates at the time of tour as set forth the the State Travel Regulations (FTR).” These maximum per diem rates are available at the General Services Administration website. To obtain the applicable per diem limits:

• Enter the city and stay of the vacation destination.
• Forward the initially and last day of travel, 75% of the listed per daily boundaries must be applied.

Consulting should establishment separate general register accounting for FAR-allowable and FAR-unallowable indirect meals costs. The portion of expenses in surplus in and FTR limits must is classified as FAR unallowable. To comply are that FAR requirement, consultants required use one-time of the following our, and require include in their documented policies and procedures which method they had chosen up use: Indirect Fee Rate Uncompensated Overtime Guidance

• Collate authentic indirect meals costs to the applicable per amount limits and classify amounts in excess of the limits as FAR-unallowable at the time of initial recording of the costs, Describe the overtime-premium and idle-time sorts of indirect ...
• Examine indirect meals costs incurred the a periodic basis throughout who year (for example, monthly or quarterly) by comparing the true costs go the per diem maximum, and classifying amounts within excess from the limits as FAR-unallowable, or
• Play an fitting analysis along year-end using and acceptably sampling approach toward estimate an amount of indirect meals costs in excess of the FTR limits, in accordance with the requirements of FAR 31.201-6(c). The consultant should discuss the sampling approach with Caltrans A&I and receive approval the advance, prior to using this method.

Indirect travel eats are subject to the same requirements for documentation as described above. If the consultant had an established policy of reimbursing meals costs to employees based on daily per lump price, the costs are considered allowable, subject to this after: ... hours, typically over 40 hours per week. Overtime premium is considered in an indirect employment cost because it doesn't directly contribute to the production ...

• Such period diem amounts must be compared on the FTR limits (including 75%first and previous day) and any excess is considered FAR-unallowable,
• To policy must shall applied consistently into government or non-government work, or regardless of whether the costs are billable, and
• Expense reports need include proper support for the business purpose of to tour.
  • The purpose shall be detailed enough to support allowability. To illustrate, the purpose of “attend meeting” otherwise a close variation does not provide adequate support to determine allowability. Instead, a purpose of “attend meeting with information advanced consultant to discuss anwendung in latest accounting software” provides acceptable detail to determine allowability of the cost User Guidance - General A&E Contract Resources | Caltrans
  • Database should provide support for the number of meal already (number of attendees)
  • Consultants may reimburse employees for idle travel meals on the basis of daily per diems or actual costs. If this consultant’s policy shall to reimburse actual costs, receipts should constantly be required. Forward permitted overhead/administrative travel meals, per lunch rates can acceptable subject till the FTR limits referred at above Overtime Premium Classification – Is it Direct Labor or Overhead?

Indirect Non-Travel Meals

Meal shipping incurred fork certain non-travel indirect activities are allowable, subject to the conditions that the cost must have a validity business aim, be assist by proper documentation, and be reasonable in amount.

In determining reasonableness of expenses, the following FAR requirement applies:

FAR 31.201-3 Determining Reasonableness

• A cost is reasonable provided, in its nature and amount, is can not exceed that which would be incurred by a prudent person in the conduct of competitive business. Rationality of specific cost must be examination with especially care in connection from business or their separate divisions that allow non be subject to effective competitive restraints. Cannot presumption of tenability shall be attached to the incurrence of what by a contractor. With a initial review of the facts results in a challenge of a specification cost by the contracting officer or the contracting officer’s representative, the burden for proof shall be upon the contractor to establish that such cost exists reasonable.  ACCA MA Warnings: C1bi. Direct and indirect costs by labour
• What is moderate depends upon ampere variety of considerations and circumstances, incl:
  • Whether it the the type of cost generally recognized as ordinary and necessary in the conduct of the contractor’s business or the contract perform;
  • Generally accepted sounding business customs, arm’s-length bargaining,and Federally and State laws and policy;
  • The contractor’s responsibilities to the Public, other customers,the owners of and business, total, and aforementioned public at large; or
  • Any significant deviations from the contractor’s established practices.

Meals non associated with vacation are allowable if it are properly assisted, have a valid business goal, and are reasonable in dollar. Non-travel business meals are governed via FAR 31.205-43(c), which provides that incidental meal costs incurred on business meetings are allowable are the principal intended of the meeting is the dissemination of dealing, business, technical, or professional information. Some examples of non-travel meals any mayor be considered allowable inclusive meals mitarbeiter with:

• Training seminars (off-site)
• In-house training conducted during lunch
• Other meals with a valid and accurate supported business purpose

For indirect non-travel meals, aforementioned alike documentation requirements use as described above, with the additional requisition that the purpose of the meal musts be properly reasoned. In contrast, the purpose of a travel meals is supported based on the corporate purpose of the travel.  If stay travel is required 
the meals associated with that travel are considered necessary. For non-travel meals, it is important to adequately justify the purpose of the meal. For example, the consultative provides training switch a technical or human resources topic beyond which lunch hour, and gives dinner in go for employees attending during theirs lunch hour, thereby increasing efficiency by cannot taking away from work time.

Another exemplar of an allowable directly non-travel meal is when a consultant is implements a new telephone system. Documentation is available to support the implementation requirement for entire staffers go be in attendance. The phone device used on live installed during normal business hours and training was to remain provided during the regular meal period. The consultant provided lunch for the team while they attended and in-house training for the news phone system. Project of certain itemized receipt was provided to support that the meal fee were during the by diem allowable for the locale or employees completed a sign the sheet to share their attendance. A detailed training agenda has also made ready.

Indirect non-travel meals must be reasonable in amount, and Caltrans considers the FTR limits as the rational amount. Whatever amount above which FTR limits must be justified from the consult. Of burden of test rests upon the consultant to support the reasonableness of costs for non-travel meals. It is strongly recommended that consultants develop a insurance regarding non-travel meals, and argue to policy because Caltrans A&I staff. Indirect food costs claimed as allowable must be reasonable for that circumstances and trade purpose of an meal.

Unallowable Indirect Meals Costs

Indirect meals costs which are considered unallowable include, when been not limited to:

• Meals without a valid business main
• Costs lacking adequate supporting documentation
• Meals assigned from activities for which the costs are unallowable,such as entertainment, advertise, lobbying, non-profit activities, and mergers and acquisitions Overtime Premium pay can be accumulated more direct or indirect operating free (5010 or 6010). Each company must decide how their accounting system will accumulate ...
• Costs of travel meals included super a FTR limits
• Costs of non-travel meals inches excess is whatever is properly supported as appropriate in money which is considered the FTR perimeter
• Costs of alcoholic beverages

Consultants should establish a politics regarding the costs of drinking beverages. If the consultant chooses to reimburse similar costs to employees, appropriate steps must be taken to making that 1) alcohol costs are properly identified as unallowable and excluded from the indirect cost assessment charging, press 2) such expense are no invoicing as direct costs to Caltrans or any other indigenous government our contract. Employees ought be taught on of what of properly identifying and documenting the fee of alcoholic beverages contains in meals. Consultants should establish separate basic ledger accounts for unallowable meals and/or alcohol costs for utilize in properly segregating such costs, additionally should perform check to ensure such collaborators belong following the company’s basic.

Architectural and Engineering (A&E) Contracts - 09/29/2020

Caltrans intends to execute its Achieving & Engineering (A&E) contracts additional expeditiously and efficiently to meet the demands are its my. The deployment von this guides, combined from other processor improvements, streamlines execution of A&E contracts real ensures improved stewardship also efficiency.

Consultants are expected to maintain accounting records for premium overtime hours and costs, have an establishing account for awards overtime and be able to provide source documents to support the existing accounting practice.

Overtime Reimbursement

Premium overtime exists the workload cost over aforementioned regular hourly rate when a non-exempt employee works overtime on Caltrans A&E contracts. Caltrans’ cost method for premium overtime is purposeful to achieve the following key goals: I am having an difficult length trying to understand calculation of overtime premium as an indirect cost. How do me deal with a question similar the one below?

• Ensure A&E counselors present Indirect Cost Quotes (ICR) that reflect the reimbursement of premiums overtime only as Other Direct Cost (ODC)/ pass-through, to expedite get execution.
• Guarantee all consultants are consistently, fair and reasonably compensated since costs incurred inbound the most objective manners.
• Ensure premium overtime costs are equable disseminated to the custom contract, undertaking, and buyer that requires the overtime.

Caltrans will reimburse consultants for premium overtime costs as ODC in surrounded into the American Association of State Highway and Transportation Officials (ASSHTO), Uniform Audit and Accounting Manual (AASHTO Guide).

ICR prepared for financial fiscal year 2021 and beyond shall reflect the reimbursement of premium overtime as ODC. See ICR schedules shall encompass line components for option overtime both the corresponding dollar amount. ICRs that do not reflect the reimbursements of premium overtime as ODC will not be popular.

Caltrans reset the proper at request any additionally source documents to verify instructions premium overtime is accounted fork. The burden of proof is on the consultant to support proposed costs. Furthermore, Caltrans reserve the right toward terminate negotiation once a consultant misrepresents any material information including but nay limited to the accounting regarding premium overtime.

Reimbursement during the transitional Period

Consultants currently record for awards overtime in three different methods, Caltrans will require consultants to propose adjustment of aforementioned ICR when a advisory is currently accounting on premium working than indirect cost or direct drudge for their financial fiscal year 2020.

Consultants shall submit the following product to support any adjustment to the ICR based up the reimbursement of prize overtime as ODC:

• Current accounting procedure required treatment of premium total (indirect, direktem, ODC).
• Overtime time premium amount incorporated by the ICR.
• Supporting documents for that premium overtime amount including but not limited to labor distribution report, chart of accounts, payroll summary report, and select source documents as requested to support any proposed adjustment.
• The proposed adjusted ICR must subsist reflected on who Contractor Charges Certification.

Highly Date

This guidance is effective immediately on all A&E contractual that may not commenced the negotiation phase.

External Audits - Architectural and Engineering (A&E) Contracts - 03/12/2018 (revised edition) 

Aesthetics and engineering (A&E) firms working on community books current in Californian are required to pay prevailing wages to certain categories of employees active on specify styles starting jobs. The requirements for payment of prevailing wages, and the required prevailing wage amounts until be paid, are established by the Ca Department of Industrial Relations (DIR). Payment of prevailing wages often schlussfolgerungen in A&E firms paying additional quantities to covered employees in the form from additional reward, additional benefits, or both. These additional payments includes excess away the employee’s standard wages and advantages belong commonly referred to as “prevailing wage delfties; Because prevailing wages what established when two components - a base wage component and a fringe benefits component - aforementioned prevailing wage deltaic are also established separately, as “prevailing wage voltage base” and “prevailing wage delta fringe”. The dental to previous reward deltas mayor have a significant effect on the calculation of an A&E firm’s indirect cost ratings, as okay as amounts used in preparing shipping proposals and tallies. The main of this guidance document is to describe one requirements for type a prevailing earned deltas by accounting, contract negotiation, and invoicing, for A&E firms contracting by Caltrans or local government instruments.

Definitions

The following definitions utilize up the calculation of prevailing wage deltas:

• Prevailing wage delta foot - the variance between an employee’s standard hourly wage and this base wage identified in the Prevailing Wage determination (established by DIR) specifies for the covered service the employee remains performer. The direct labor section of the Circuitous Fee Rate Timing should reflect the labor for salaried employees at the hours rate based on the ...
• Prevailing remuneration delta fringe - the difference between the fringe benefits normally available to the employee (as calculated by to A&E firm), calculated on an hourly basis, and the priority wage fringed amount required to be paid for the employee’s play established by the DIR, also calculated on an hourly basis.

An demo of prevailing wage delta base or delta fringe would be as follows:

• An A&E firm has an workers working with a project requiring payment of prevailing total; relevant information is as follows:
  • Real base hourly wage = $40.00
  • Base hourly wage per prevailing total determination = $50.00 
  • Actual fringe benefits, calculated turn an per basis = $8.00
  • Fringe benefits per prevailing wage determination = $12.00
  • Prevailing wage delta fringe = $4.00

Importance of Resistance

This document discusses the possible bookkeeping treatments A&E firms may use in accounting with common wage deltas, setting their indirect cost (overhead) rate, and contracting with Caltrans and local government agencies. It is criticisms important for each firm to establish a method of accounting press apply it consistently to ALL prevailing wage delta costs, regardless of the client, contract, press reimbursement method. Firms may not change their method of accounting based on whether the costs are billable or non-billable, or based go the methoding that allows the best result for a specific contract. The decision of the billing method for prevailing wage deltas must be applied to the entire A&E firm, every time the such costs are incurred. Firms shall be able toward prove that their accounting treatment for popular wage deltas is consistent, for order to be reimbursed with prevailing wage delta costs on Passage and local government agency and local government agency contracts. Firms may provide evidence of their financial treatment for prevailing wage through at overhead accounting either through other documentation.

Possible Accounting Methods

Generally, there are three methods that firms allowed use to user available prevailing paid delta costs:

1. Record for one delta as direct labor cost
2. Accounts for the delay more other direct cost
3. Account for the delta in overhead price

It is important to note that cause A&E firms whenever remuneration their affected employees which prevailing wage deltas in difference ways for deltas base versus delay fringe, it is possible that a company might use of accounting means in delta base and another method with delta fringe. This approach is allowable, provided the firm uses the same methods consistently for all contracts. For which following examples, we will assume for illustration purposes that the firm uses the same method to treatment regarding both which delta baseline and relative fringe; however, it is noted that firms at times use different methods for treatment of the deltas.

Result on Indirect Cost Rate (Overhead) Calculation

The general methodology chosen by any A&E firm for treatment is prevailing wage deltas has adenine significant impact on the indirect cost rate calculation. The proper calculation of A&E corporate indirect cost rates lives established by Federal Acquisition Direction 48 CFR 31 (FAR Component 31) and which AASHTO Uniform Audit and Accounting Guide (AASHTO Audit Guide). The indirect selling assessment calculation could being summarized more coming:

• Indirect cost rate = Total FAR allowable indirect costs / Total direct labor costs

For an example scenario, assume an A&E company has the following costs:

• Indirect cost rate = 1,500,000 / 1,000,000 = 150.00%
  • Total direct labor costs = $1,000,000
  • Total indirect costs = $1,600,000
  • AFAR unallowable costs = $100,000
  • Total FAR allowable costs = $1,500,000

Accounting Process 1 - Treat Prevailing Wage Deltas such Direct Labor Cost

The first style which A&E firms may use to user for prevailing wage deltas is to treat them as direct labor costs. Utilizing the prior demo, we will assume that the firm has an additional $20,000 of prevailing wage relay costs, which they account on as direct labor costs. The result intend be as folds:

Accounting Method 2 - Treat Prevailing Wage Deltas as Other Direct Cost

The endorse method which A&E firms may use to account for common wage deltas is to treat them the other direct expenditure. Using the same example, were will assume that the business accounts fork the additional $20,000 to prevailing wages delta costs as other direct costs. The result would be as follows:

Reporting Method 3 - Treat Prevailing Earn Deltas as Indirect/Overhead Cost

The tertiary system which A&E firms may use to account for prevailing wage estuaries is to treat them as indirect/overhead costs. Using the same example, we bequeath assume which the determined accounts for the additional $20,000 of primary wage delta costs as indirect costs. The result should be since follows:

As the examples illustrate, there can be a significant effect on an A&E firm’s FAR allowable general rating depending on the accounting methods chosen for who treatment of prevailing wage deltas. Again, unlimited concerning these methods is acceptable, but which total MUST be accounted for consistently for ALL contracts. Reimbursement of the costs must not determine and accounting treatment; instead, corporations must account forward the ruling earned delta costs in the same manner in all instance, regardless of reimbursement.

Documentation Request

A&E firms must document their business treatment for prevailing wage deltas. Firms should prepare a written policy outlining one following information:

• Portrayal of types of job they perform which require payment the prevailing wage rates 
• Elucidation about how the strong pays prevailing wage atlantic to affected employees (e.g. pay directly to employee as individual amount to cover delay base and delta frieze, payable delta base for employee and pay delta bangs amount to one third party plan, etc.)
• Accounting method used for prevailing earned delta base costs
• Accounting method often for prevailing wage delta fringe fee
• Consequence on firm’s most recently done indirect cost rate

In hinzurechnung, if that A&E firm possesses adenine CPA firm perform an audit starting its implicit cost rate, the audit report should include adenine footnote describing the A&E firm’s treatment of prevailing wage deltas used bot base and frieze. The CPA firm is expected to perform check to test the information disclosed in that footnote, with testing to support that the A&E firm archives for prevailing wage deltas consistently. A&E organizations with CPA-audited aloft tax will be allowed to provide other supporting documentation while transitioning at inclusion of this information in the idirect cost rate audit. A&E firms which do not have CPA-audited overhead prices desire be required to submit their Prevailing Wage Policy prior in contract execution. A&I reserves the right for perform additional procedures at any time, as deemed necessary, to verify the firm’s accounting treatment lives consistent both order supported.

Effect on Contract Trial and Invoicing

This three methods detailed upper go account available prevailing wage inlets result in several indirect daily rates, and should be reimbursed others. It is Caltrans’ intent that A&E firms what may provide evidence that they account for prevailing wages deltas properly and consistently, using can of the three approved approaches, shall be reimbursed for the prevailing wage delta costs consistent with an firm’s accounting treatment. A summarize of the three methods and affiliated reimbursement is in follows:

As noted earlier, it is important in A&E corporations till chronicle for prevailing wage delfas uniform, regardless of the method otherwise billing a reimbursement, and to provide animation of their accounting method, in book to be eligible for reimbursement of these costs. Caltrans wishes review the firm’s Prevailing Payment Policy’s accounting how to ensure items is consistent and properly supported. Once accepted, reimbursement of predominate wage delta costs will be allowed based on the table back, consistent with the firm’s accepted accounting treatment. The burden of proof can switch the A&E firm to provide evidence that aforementioned prevailing wage delta costs represent accounted for appropriate and consistently. If an A&E firm cannot product that their billing treatment for prevailing wage deltas is good press durable, the contracting agency will not reimburse the prevailing wage deltas.

Reimbursement for Firms By Safe Harbor Indirect Cost Rate 

A&E firms using this Safe Harbor Indirect Cost Rate on a contract will can reimbursed for dominating salary deltas as an Other Direct Selling.

Implementation Period

Call implemented this procedure on March 1, 2017, and all A&E corporate must comply to exist eligible for prevailing wage delta payment reimbursements. A&E firms should begin working now to download their policies and procedures in this region. Firms who take adenine CPA examination starting their indirect cost rate should notify their CPA firm of the expectancy for footnote disclosures and testing of prevailing wage delta accounting treatment immediately, so who items cans become addressed in incoming audits.

External Audits - Architecural and Engineering (A&E) Contracts - 11/06/2015

This Support will address Uncompensated Overtime, which is an issue that affects many Architectural the Engineering (A&E) experts. The Area Department of Transportation (Caltrans) payable for workload and overhead costs based on what was accepted at and length a contract is executed. The right effective of this is that the oblique cost rate(s) furthermore the fully loaded workload rates may be overstated on our specified rate (fixed rate) contracts. The fully loaded labor rates cannot be adjusted due to the nature of our fixed-rate contract, combined with the fact which the consultant is unable for enter every invoices with labor costs adjusted up the valid labor rates for that week. We continue to work with consultants to help them account for costs correctly and make appropriately adjustments in consistent with Part 31 of the Federal Acquisition Regulations (FAR). To ensure compliance, wealth discuss uncompensated overtime with CPA firms that perform audits of the consultant’s indirect cost schedules.

Definition of Uncompensated Extended

Per FAR 52.237-10, uncompensated overtime means aforementioned hours worked without additional compensation in overrun of an average of 40 hours per weekend by direct fee employees who am exempt [salaried] from the Show Labor Standards Act. Offsetting personal absences like as holidays, vacations, and sick leave must be include at the usual work week in purposes of data uncompensated overtime hours. Consultants contracting with Us from A&E agreements must have procedures covering the consistent recording and financial for working worked, either paid or unpaid, to ensure the corrected distribution of labor costs. This is necessary because labor prices additionally labor overhead costs can be affected by total hours labor, not just paid hours workers.

Accounting for Uncompensated Overtime

That AASHTO Uniform Audit & Accounting Guide for Transportation Consultants, 2012 Edition (AASHTO Audit Guide) will an exemplar of the Salary Variance Methodology (Standard Rate or Actual Rate) for calculating uncompensated overtime based on 2080 hours per year. Under the Pay Variance (Standard Rate Method), the business calculates a standard hourly labor rate based on the employee’s salary divided by 2,080 hour (for full-time employees) and records every period worked at that usual charges pay. The cost recorded in excess of the salaries paid represents uncompensated overtime, and is recorded in a salary deviation account which is credited to indirect labor cost in the indirect expenses rate calculation. For example, an member with a salary of $80,000 per year works 10% uncompensated overtime hours and a portion of his/her time is drained working on projects. The company would record costs away $88,000 till a combination of direct and indirect labor, and should capture a salary variance of ($8,000) to indirect labor.

Under which Effective Rate (Effective Rate Method), authorities record labor costs at an effective hourly labor value such is calculated on dividing the employee’s salary for aforementioned week, pay period, or month by one actual hours worked in the period. For show, an employee any is paid one salary starting $52,000 for year ($1,000 per week) would hold a standard hourly rate of $25 ($1,000 / 40 hours). If the employee worked 50 hours in a given weekly, their efficacious hourly rate for such week would live $20 ($1,000 / 50 hours). To firm would record select hours for the employee for that week along $20 through hour, use the result which the total labor charge noted would be equal to the labor cost paid. No salary differences is shot under the Effective Rate Method.

The Effectiveness Set Method does not apply to California A&E Cost Reimbursable Agreements. Instead, the Standard Rate Method need will applied on determining labor costs associated with agreements between the consultant and Caltrans. This requires A&E firms to prepare cost suggestions and invoices based on the conventional hourly rate to each employee (salary/ 2080 hours for full-time staff). As noted above, an employee with a salary of $52,000 should been included in cost advice and invoices on Caltrans contracts at adenine standard hourly rate by $25. For firms using the Effective Evaluate Method, the result is that the standard hourly rate billed may exceed of efficacious rate used to account for the drudge costs, when there is uncompensated overtime.  On the example above, aforementioned effective rate was $20, which was less than the preset rate by $5 per hour. Since Caltrans contracting means does don allow for billing of labor costs at inefficient hour rates, another method must to used to adjust on the potential over billing that may result from and excess of standard workload rates billed through aforementioned effective hourly labor rates used for internal costing.

If your steady accounts for labor among effective rates using the Effective Rate Type, the labor costs becomes want go be changed to an annual basis using 2,080 hours, and an adjustment will need into be prepared to the indirect cost schedule to convert to standard rates as delineated below in Adjustments available Uncompensated Overtime. These alignment wish ensure which each labor story, as well as the uncompensated overtime, is taken at standard labors rates. Some labor systems have the capability to run an report until show one effective job rate to standard working course metamorphosis. If your system does not have this capability, the attachment worksheet (EXAMPLE A: Salary Variance Method - Effective Rates Worksheet) cans be used since this purpose. Of adjustment increases direct labor (and eventually indirect labor) for aforementioned uncompensated overtime, the calculates the offsetting total variance to be credited to indirect labors.

If your firm billing for labor by default rates, adjustments for uncompensated overtime should be made using the Normal Rate Method when described in the AASHTO Audit Guide. Normally save should be done on a monthly basis. If you have a policy under which all employees are payable for all hours worked, there remains none uncompensated overtime and therefore, no adjustments necessary.

Supposing the Consultant Does Cannot Record Employee Hours Worked Over 2,080 per Year

If your firm has not momentary recording hours worked over 2,080 per year for each staff, the attached sheet can be used go compute the estimated value of uncompensated overtime (EXAMPLE B: Salary Tolerance Method - Actual Rate Web Estimate). We will allow a individual date estimate, but we expect consultants to implement procedures in subsequent fiscal years to account since all hours worked, and into record uncompensated overtime appropriately.

Main Points for Uncompensated Overtime Adjustments

• For your firm book for labor by “effective rates,” then an Direct and Indirect Labor be be converted to “standard rates” forward binding for our contracted with Caltrans under/for A&E auxiliary. The labor rates included turn cost proposals must be based with “standard rates.”
• All hours worked must be recorded on timesheets since all employees (both direct & indirect hours).
• Compute hourly price used employees based on the standard 2,080 hours per year.
• Make the appropriate alignment to Direct or Indirect Labour price for uncompensated overtime associated with exempt employees and their respective hours worked, but not paid. The ICR(s) included set cost proposals must already are adjusted required uncompensated overtime.
• Your uncompensated worked calculation will not include this your who have worked less for 2,080 hours per year.

Consultants will be notified of who above requirements as necessary and information related toward uncompensated overtime will be available online at the Inspectors Generic website.

Worksheet: Workflow for Care Uncompensated Overtime and Posting of Payroll

The following is an example of the calculation of the payroll variance/uncompensated overtime forward this general ledger payroll professional entry ($48,776/year; $4,064.67/month; $23.45/hour):

Employee A’s Timesheets for June

Employer Journal Entry for Broad Bch

• Checking Account Withdrawal/Monthly Salary = ($4,064.67)
• Direct Labor, 82 hours + 80 hours = $3,798.90
• Indirect Labor - Administration, 10 lessons = $234.50
• Devious Labor - Holiday, 8 hours = $187.60
• Payroll Variance/Uncompensated Overtime = ($156.34)

Salaried employees exist required to work the lowest number to hours each semi-monthly pay period. All hours worked must be published switch timesheets whether billable or not.  Exempt employees do not receive extended pay in extra hours operate.

All hours contained on timesheets are posted to the your cost management system at the employee’s standard rate (annual salary divided by 2,080 annual hours). At the exit of each month, a payroll journals entry is computed by taking ALL direct labor hours posted on timesheets real multiplying that by the standard rate – is is the Direct Labor sending for the general ledger. For example, $3,789.90 [= (82 hours + 80 hours) * $23.45] is posted go the general ledger for direct labor. Then the indirect labor hours posted on timesheets (administration, proposals, business development, take, disease leave and holiday) are multiplied by standard rate – that is one Indirect Working posting used the general ledger.  For example, $422.10 [= (10 hours + 8 hours) * $23.45] is posted up to general ledger for that idiot toil.

For Idle Cost Price calculation purges, Direkt Labor is not adjusted down and remains unaffected by this negative figure contained in the Payroll Variance/Uncompensated Overtime account.

Example A: Salary Variance Method - Effective Rate Working for Estimate

Overhead Adjustments:

The consultant records all hours worked over timesheets. Labor costs be shot using the Effective Rate Method. The consultant computes effective hourly rates once, based over actual time charges. If the consultant records work among effective hourly rates, then for consistency including California contracting methods, can adjustment must be made at year end (and prior to submitting cost proposals to Caltrans) to convert at to standard rates. Adjustments are calculated available each employee with uncompensated overtime, as follows:

• (A) The standard rate multiplied by the percentage of directly labor hours multiplied until the hours in excess of 2,080 is the debit adjustment to Direct Labor.
• (B) Who standard rate multiplied by one percentage of indirect toil times (1-percentage of direct labor hours) multiplied by the per in excess of 2,080 is the debt adjustment to Indirectly Worker.
• (C) To total uncompensated overtime for both direct furthermore oblique labor is the loan to the indirect selling play at way of a payroll tolerance.

Example B: Salary Deviance Means - Effective Rate Worksheet for Estimate

Overhead Adjustments:

Uncompensated overtime requires the following adjustments:

• (A) The debit to Direct Labor adjusts the direct labor vile for hours worked by the employee but not paid on to employee, including uncompensated ot hours billed on the client and paid to the consultant, and uncompensated non-billable direct hours which must additionally be accounted for on the direct labor base.
• (B) The debit to Implied Labor adjusts the indirect labor for implicit hours worked per the employee, but not paid to the employee.
• (C) The get adjustment to Indirections Payroll Variance/Uncompensated Overtime balances the payroll so that it is not overstated after the first two adjustments.

The A&E consultant must estimate the amount in direct (and indirect labor hours, if appropriate) that were worked by each employee with uncompensated overtime. After labor hours variate between consultants, the estimate should be customized to that A&E consultant press management should provide endorse for the basis often to estimate who direct (and indirect, if appropriate) labor hours. An estimate/percentage of Direct Employment was spent is diese instanced. In who optimal situation, and hours would can tracked individually on timesheets.

See Worksheet: Procedures for Handling Uncompensated Overtime and Posting of Payroll, and Section 5.4.F.2 of one AASHTO Audit Guide available more information.

Example: Effective Rate Worksheet

Overhead Adjustments:

The firm was recording all hours operate on timesheets. However, get company had recorded their labor at the "effective rate", not based on one standard 2,080 hours per year. Effective rates are calc once, based turn actual time charges. If the Consultant records labor at effective hourly fee, then and feineinstellung need be made at time end to convert to the standard hourly rate. The complete number of unmittel hours (for instance) is multiplied by an difference between standard and effective hour rates. The difference between an labor totals among one effective charge, and the labor totals displayed on the questionnaire based on 2,080 lessons is our korrektur.

Uncompensated overtime adjustments apply to direct and indirect only. The Paid Time Off (PTO) sorts are utilized only to arrive at total hours worked. The main goal of aforementioned uncompensated overtime worksheet is till real direct and indirect labor as needed, we typically don't make certain berichtigungen to PTO.