Audit Sampling is discussed and the Chapter Audit Sampling is discussed and the Chapter presents some basics to be considered in
presents some basics to be considered in presents some basics to be considered in presents some basics to be considered in designing an audit sample.
designing an audit sample.
Substantive Changes Substantive Changes
Chapter 10, continued:
Chapter 10, continued:
NoteNote: B: Before selecting a statistical audit sample using efore selecting a statistical audit sample using variable sampling
variable sampling techniques to test for unallowable cost techniques to test for unallowable cost items, auditors are expected to scan the engineering
items, auditors are expected to scan the engineering
consultant’s general ledger so that large dollar or sensitive consultant’s general ledger so that large dollar or sensitive consultant’s general ledger so that large dollar or sensitive consultant’s general ledger so that large dollar or sensitive (LDS) transactions can be removed/stratified for complete (LDS) transactions can be removed/stratified for complete examination, including verification to source documents.
examination, including verification to source documents.
The The sampling universesampling universe should be limited to the group of should be limited to the group of items that remain after the LDS items have been removed.
items that remain after the LDS items have been removed.
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Chapter 10, continued:
Chapter 10, continued:
The auditor should determine an appropriate sample The auditor should determine an appropriate sample size after considering the size of the firm, the auditor’s size after considering the size of the firm, the auditor’s previous experience with the firm, the number of
previous experience with the firm, the number of previous experience with the firm, the number of previous experience with the firm, the number of transactions and high
transactions and high--risk accounts in the indirect cost risk accounts in the indirect cost pool, and the assessed level of control risk. The test pool, and the assessed level of control risk. The test sample of an account balance or line item must be sample of an account balance or line item must be
sufficient to comply with GAGAS 4.26. Additionally, in sufficient to comply with GAGAS 4.26. Additionally, in accordance with SAS No. 111, the auditor should
accordance with SAS No. 111, the auditor should
document the sampling plan, including factors used in document the sampling plan, including factors used in the determination of sample sizes.
the determination of sample sizes.
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Chapter 10, continued:
Chapter 10, continued:
Auditors are encouraged to apply sampling methods Auditors are encouraged to apply sampling methods using a 95
using a 95--percent confidence level with a precision percent confidence level with a precision level in the range of 2 to 5 percent.
level in the range of 2 to 5 percent.
All unallowable costs uncovered through audit testing All unallowable costs uncovered through audit testing must be removed from the overhead schedule,
must be removed from the overhead schedule, regardless of amount, as FAR Part 31 does not regardless of amount, as FAR Part 31 does not
establish a tolerance level to permit any amount of establish a tolerance level to permit any amount of unallowable costs to remain in the indirect cost pool.
unallowable costs to remain in the indirect cost pool.
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Chapter 10, continued:
Chapter 10, continued:
Based on the assessed level of control risk, the auditor Based on the assessed level of control risk, the auditor should determine an appropriate labor sample with a should determine an appropriate labor sample with a minimum of 26 timesheets
minimum of 26 timesheets chosen for testing across an chosen for testing across an appropriate mix of direct
appropriate mix of direct--charge employees, including charge employees, including appropriate mix of direct
appropriate mix of direct--charge employees, including charge employees, including supervisors and/or project managers.
supervisors and/or project managers.
In this context, “direct
In this context, “direct--charge employees” means any charge employees” means any employees, supervisors, and/or principals who spend a employees, supervisors, and/or principals who spend a portion of their time working on A/E projects.
portion of their time working on A/E projects.
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Chapter 10, continued:
Chapter 10, continued:
In situations where the auditor determines that additional In situations where the auditor determines that additional testing beyond the LDS items is required, the remaining testing beyond the LDS items is required, the remaining indirect costs in the high
indirect costs in the high--risk accounts (the sampling risk accounts (the sampling universe) should be tested on a sample basis.
universe) should be tested on a sample basis.
A minimum random sample in the range of A minimum random sample in the range of 2 to 20 2 to 20 transactions
transactions is recommended for each highis recommended for each high--risk account. risk account.
This requires transactions to have been verified from the This requires transactions to have been verified from the overhead schedule back to the general ledger and requires overhead schedule back to the general ledger and requires that the transactions be vouched from the general ledger to that the transactions be vouched from the general ledger to source documents.
source documents.
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Chapter 10, continued:
Chapter 10, continued:
Note: State DOTs generally will deem an overhead audit Note: State DOTs generally will deem an overhead audit insufficient due to:
insufficient due to:
Failure to comply with the recommended minimum testing Failure to comply with the recommended minimum testing procedures as established in this chapter (unless deviations procedures as established in this chapter (unless deviations from the minimum testing requirements are adequately
from the minimum testing requirements are adequately from the minimum testing requirements are adequately from the minimum testing requirements are adequately identified and justified in the auditor’s workpapers).
identified and justified in the auditor’s workpapers).
Failure to apply properly the FAR Subpart 31.2 cost Failure to apply properly the FAR Subpart 31.2 cost principles.
principles.
Failure of a CPA or other audit group to provide access to all Failure of a CPA or other audit group to provide access to all audit workpapers used to determine the audited overhead
audit workpapers used to determine the audited overhead rate.
rate.
Substantive Changes Substantive Changes
Chapter 12
Chapter 12--Cognizance and OversightCognizance and Oversight
The underlying guidance concerning cognizant audits is The underlying guidance concerning cognizant audits is contained in 23 CFR 172 and 23 U.S.C. 112 and
contained in 23 CFR 172 and 23 U.S.C. 112 and supporting documents published by FHWA.
supporting documents published by FHWA.
Section 174 of the 2006 Transportation Appropriations Section 174 of the 2006 Transportation Appropriations
Section 174 of the 2006 Transportation Appropriations Section 174 of the 2006 Transportation Appropriations Act and the implementation guidance issued by FHWA Act and the implementation guidance issued by FHWA served to re
served to re--emphasize the importance of cognizant emphasize the importance of cognizant audits, while not actually changing the underlying audits, while not actually changing the underlying regulations specific to issuance or acceptance of regulations specific to issuance or acceptance of cognizant audits.
cognizant audits.