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Internal Audit

Brian Moore, Program Manager, 605.773.3581

The office of Internal Audit performs compliance audits of internal and external departmental activities.

Internal Reviews

Projects will be selected upon request.

External Audits

Perform external reviews of contracts and subcontracts, not awarded through a competitive bidding process by the South Dakota Department of Transportation, to ensure that only allowable, reasonable and allocable costs have been claimed and that the terms of the agreement were complied with. This includes grants to local governmental units and not-for-profit organizations as well as agreements with consultants, utility companies and railroads.

The following types of audits are performed:

  • Continuous Audit
    1. Reviews of agreements prior to authorization, to determine if all necessary information is included to comply with Federal and State Regulations, and
    2. Reviews of vouchers for compliance with Federal and State regulations as well as the terms of the agreement.

  • Full Scope Audit
  • Overhead Rate audits of organizations or firms after the end of their fiscal year(s) to determine actual costs and apply those costs and rates to the projects worked on during the period of the audit.

  • Desk Review
  • Application of Overhead rates, as determined by another auditing group or by using the rates calculated from the information sent by the firm after their end of year books are closed. These rates are then applied to the projects worked on during the period of the review.

  • A-133 Review
  • A review of an audit, performed by an outside auditing firm, or Legislative Audit:

    1. To ensure that the sub recipients have met the audit requirements of OMB Circular A-133 for that fiscal year.
    2. To ensure that the sub recipient takes timely and appropriate corrective action when the audit report discloses instances of noncompliance with federal laws and regulations.
    3. To consider whether this sub recipient audit necessitates adjustment of program records.

  • Railroad Equipment, Labor Additives and Overhead Rate Reviews

    Equipment, labor additives, and overhead rate audits of railroads operating within the State of South Dakota.

    1. Equipment Rates: To ensure the equipment rates are based on average or actual costs or at industry rates such as the Blue Book for Railroad Equipment Rates. Blue Book rates may be used in lieu of actual costs if agreed to by the railroad, State Highway Agency (SHA), and Federal Highway Administration (FHWA). When using the Blue Book rates, the rates should be adjusted by the following:
      1. The proposed equipment rate should be an hourly rate based on the Blue Book monthly rate divided by 176 hours. Then the hourly rate is then adjusted for age factors and operating expenses as set forth in the Blue Book.
      2. The depreciation should be excluded from the rate calculation, if the equipment is twenty years or older.
      3. The hourly rate should exclude any cost for indirect overhead (general and administrative) costs and the cost of facilities capital.

    2. Labor Additive Costs or Rate: To ensure the labor additive rate is based on actual costs or an additive rate, which is representative of actual costs incurred. The rate should be approved by SHA and FHWA.
    3. Overhead Costs: A State may elect to reimburse the railroad for its overhead and indirect construction costs. The State of South Dakota elected not to reimburse the railroads for their overhead and indirect construction costs. The written policy, established on August 12, 1996, states that South Dakota Department of Transportation will not allow reimbursement of overhead costs incurred by railroads performing work on any Railroad project.

Regulations: The South Dakota Department of Transportation audits various firms and organizations to ensure compliance with Federal and State Regulations. These regulations may be found in the following:

Audit Guide: A group of auditors from several states developed this guide in order to create a uniform guide which can be used as a reference in all states.

The purpose of the audit guide is to provide a tool which can be used by individual state auditors, consulting firms and public accounting firms that perform audits of consulting firms.

The primary focus of the guide is auditing the Indirect Cost Schedules and resultant overhead rates of consultants who perform work for State Highway Agencies.

The guide is not intended to be an auditing procedures manual, but rather a guide that will assist individuals in understanding terminology, policies, audit techniques and sources for regulations and specific procedures.

Cost of Money: For cost of money rate information, contact the Audit Office.

Audit uses TreasuryDirect to identify the cost of money rate. The cost of money rate will be calculated based on the firm's fiscal year.

Questions: For questions on cost pools or any other allowable costs, contact the Audit Office.

Organizations subject to Audit: The Audit Office audits the following types of organizations and firms that do business with the South Dakota Department of Transportation:

  • Engineering Consultants
  • Local Governments
  • Research Consultants
  • Railroads
  • Utilities
  • Not-for-Profit Organizations
  • 3rd Party organizations
  • Miscellaneous individuals and companies

The following tips may help an organization survive a government audit:

  • Know what the compensation section of the contract says
  • Know the billing terms and other provisions of the contract
  • Assign a unique project number to each project, including supplements (commercial and government work, irrespective of method of reimbursement)
  • Keep good records (time sheets, invoices, progress reports, travel logs, phone logs, rate and usage calculation work sheets, etc.)

Effective October 1, 1995 costs for employee Christmas parties and company picnics are unallowable. This was clarified in FAC 90-31.

As a reminder, those consultants with active design and construction engineering agreements are required by contract to submit indirect rate calculations within four months of the end of their fiscal year.

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