FHWA’s Oversight of Design and Engineering Firms’ Indirect Costs Claimed on Federal-Aid Grants

Source: Office of the Inspector General, Project ID: ZA-2009-033, February 05, 2009

From the summary:
On February 5, 2009, we issued our audit report on the Federal Highway Administration’s (FHWA) implementation of Section 307 of the National Highway Systems Designation Act (NHSDA). Section 307 of NHSDA requires the use of the Federal Acquisition Regulation as criteria to determine cost allowability when performing indirect cost rate audits of design and engineering (D&E) firms. Indirect rates are comprised of costs such as executive compensation; employee fringe benefits and wages; facilities charges; and insurance, legal, consultant, and travel costs. State departments of transportation (DOT) use indirect cost rates for reimbursing D&E firms for allowable costs incurred, establishing final contract costs, and negotiating new contracts. Our audit objectives were to evaluate the implementation of NHSDA Section 307 audit requirements, and test the allowability of executive compensation and other high risk indirect cost elements billed by D&E firms on state DOT contracts.

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