HomeMy Public PortalAboutExhibit MSD 30P9 - Overhead Rate Review January, 2012OVERHEAD RATE REVIEW FY 2012 AUDIT PLAN
Metropolitan Saint Louis Sewer District
Overhead Rate Review
January, 2012
This report is intended solely for the use of Metropolitan St. Louis Sewer District and is not
intended to be and should not be used by any other parties without the prior written
consent of MSD.
Exhibit MSD 30P9
OVERHEAD RATE REVIEW i FY 2012 AUDIT PLAN
St. Louis Metropolitan Sewer District
Overhead Rate Review
January, 2012
Table of Contents
Introduction ............................................................................................ 1
Objectives and Scope ............................................................................ 2
Methodology ........................................................................................... 3
Engagement Conclusion and Results ..................................................... 5
Comparison of Unallowed Overheads .................................................... 6
Other Matters ....................................................................................... 11
INTRODUCTION
OVERHEAD RATE REVIEW 1 FY 2012 AUDIT PLAN
The Metropolitan Saint Louis Sewer District (MSD) has plans for major construction spending
over the next several years as part of the Capital Improvement and Replacement Program
(CIRP). MSD has plans to issue two contracts one with Jacobs North America Infrastructure (NAI) who has HDR Engineering (HDRE) as a major sub and one with Parsons Water and
Infrastructure (PWI). NAI is a wholly-owned subsidiary of Jacobs Engineering Group Inc. and PWI is a wholly-owned subsidiary of Parsons Corporation. Both contracts are hybrid contracts that have both cost plus or lump sum work order assignments. The work order assignments will
either be done on a Cost Plus or Lump Sum basis. As part of the contract each company has submitted overhead rates that will be used to bill MSD.
MSD has requested Brown Smith Wallace to review the overhead rate structures for Jacobs North America Infrastructure (NAI), HDR Engineering (HDRE), and Parsons Water and
Infrastructure (PWI) for appropriateness and reasonableness based on the requirements of Part
31 of the Federal Acquisition Regulations (FAR). The overhead rates are a major cost component of each company’s billing rates and MSD would like to insure that the rates are in
compliance with the contract terms to reduce the risk of overcharges.
Reviewing the overhead rates will become increasingly important, as the CIRP is a multi-billion
dollar, multi-year plan. MSD has defined goals to:
• Deliver consistent, high quality customer service
• Comply with all legal and regulatory requirements and schedules
• Minimize customer rate increases; and
• Be accountable to the St. Louis Community
Achieving these goals is a high priority for MSD, and meeting them while implementing the
CIRP will require a focus on effective project controls.
The reviews were conducted by Brown Smith Wallace from12/1/2011 thru 12/24/2011 and
focused on the 2011 chargeable overhead rates, based on the data and reports covering the
calendar year 2010 for the three contractors.
OBJECTIVES AND SCOPE
OVERHEAD RATE REVIEW 2 FY 2012 AUDIT PLAN
Objectives
The objectives of the BSW review was to determine that the calculations used in arriving at the
allowed overhead rates were generally allowable, allocable, consistent, reasonable and to
provide a degree of assurance of compliance to standards generally imposed by the Defense Contract Audit Agency. The engagement was designed to identify compliance with FAR 31 and
concentrated on the unallowable costs.
The review included a determination of whether accounting categories, or portions of those categories, should be allowable overhead charges. For categories that are only partially
allowable, the methodology the contractors used for determining the allowable amounts was reviewed to the extent possible contingent upon the information and data available.
Specifically we:
• Reviewed the submitted overhead rates and the methodology behind the calculations.
• Traced charges from the trial balance to the reported overhead categories.
• Compared 2009 and 2010 financial information for significant deviations.
• Reviewed the disallowed amounts for accuracy and compliance with FAR 31.
• Compared our calculations to the provided audited reports.
• Identified potential non-compliance.
• Presented the results to Management for review.
Scope
We reviewed the submitted 2011overhead rates of Jacobs North America Infrastructure (NAI), HDR Engineering (HDRE), and Parsons Water and Infrastructure (PWI).
METHODOLOGY
OVERHEAD RATE REVIEW 3 FY 2012 AUDIT PLAN
Methodology
To accomplish the objectives of this engagement we interviewed personnel from each company
and reviewed audits of overhead rates, performed by third parties for FAR compliance, and review 2009 and 2010 financial information.
The review was conducted using summary financial and account level information in order to provide an opinion on the logic of the approach used by these contractors and to determine
whether allowable categories of cost were included in the overhead rates. Brown Smith Wallace’s review methodology is designed to provide reasonable assurance that HDRE, Jacobs NAI and PWI are providing overhead rates consistent with the accounting information submitted
for review.
The volume of transactions associated with overhead costs for these contractors is too large to
allow a review of transactions to determine if they are allowable. The transaction-level audits are conducted by the contractors’ outside Certified Public Accounting firms. No single
calculation method will fit all contractors. This means that each contractor’s approach may be
different, and so the method of reviewing overhead rate calculations needs to be adapted to each contractor.
The following cost categories were reviewed.
• Executive Compensation
• Labor Fringe Rates
o Pension Plans o Insurances o Payroll Taxes
o Training
• Travel
• Business Meals
• Entertainment
• Employee Training
• Vehicle Expenses
• Recruiting and Relocation
• Marketing
• Public Relations
• Advertising
• Memberships
• Lobbying
• Goodwill
• Subscriptions
• Charitable Donations
• Insurance
• Bad debts
• Interest
• Expenses allocated from the parent
• Bad debts
• Fines and Penalties
• Acquisition Costs
• Leased airplanes
METHODOLOGY
OVERHEAD RATE REVIEW 4 FY 2012 AUDIT PLAN
• Taxes
The engagement was performed with a fundamental objective of assessing the accuracy and
appropriateness of the overhead rates that will be incurred by MSD as a result of the two
contracts.
ENGAGEMENT CONCLUSION AND RESULTS
OVERHEAD RATE REVIEW 5 FY 2012 AUDIT PLAN
The amount included in the overhead rates is dependent on several factors, for example, having
less people and equipment not engaged on projects, the quality of accounting and cost tracking systems and the effort made by individuals in seeing that charges are correctly recorded if they
are on a project. Unlike direct costs which are specifically identified to a project, work activity or cost objective,
indirect costs are charged to projects based on an allocation method. However, certain indirect costs are not allowed to be charged to projects. FAR 31 provides detailed guidance as to which costs are allowed to be included in overhead charges. The non-allowed costs are generally
those that provide no benefit to project performance. Direct labor costs are the most often used basis for the allocation and overhead rates are generally expressed as a percentage of direct
labor dollars.
Allowed overhead costs include fringe benefits on labor and many categories of general and
administrative (G&A) expenses. The allowable G&A expenses include the costs of certain
executive management, legal, accounting, treasury, information systems, human resources, health and safety, and other corporate functions. A parent company's corporate office costs
may be included in the costs provided they have been properly adjusted to reflect non-allowed costs. It is generally acceptable, but not required, to use two indirect overhead rates: the first being an ‘at-office’ rate that is applied to work performed in the contractor’s owned facilities, and
the second being an ‘at-site’ rate for work performed at other facilities. Overall we could find no overt material error, miscalculation or unequivocal error in methodology
based on the information submitted for review. NAI and HDRE are routinely audited for compliance to FAR since they pursue contracts with the U.S. government. This frequency reduces the risk of non-compliance. However, PWI is not necessarily FAR 31 compliant.
Although PWI is FAR non-compliant, BSW attempted to recreate PWI’s data as though it was
FAR compliant by utilizing the data PWI submitted as an estimate of FAR unallowed costs
based on their corporate FAR disallowances and adjusting other cost categories to align those costs more closely with NAI and HDRE. The estimated rate for PWI would be approximately 7%
lower for both field and office.
We recommend that MSD include contractual requirements that impose compliance with FAR 31 in these contracts to HDRE, PWI and NAI to ensure the avoidance of unwanted overhead
costs.
2010 2009
Office Field Office Field Office Field Office Field Office
Labor Burden 30.78%Labor Burden 44.09%44.09%47.25%47.25%Labor Burden 27.11%27.11%26.94%26.94%
General Overhead 123.13%Gen'l & Admin.25.86%25.86%18.77%18.77%Gen'l & Admin.69.92%69.92%70.00%70.00%
Total 153.92%152.32%General Overhead 101.36%120.22%89.04%106.54%Office Occupancy 25.85%26.32%
Total 171.31%190.17%155.06%172.56%Total 97.03%122.88%96.94%123.26%
BSW Adjusted
Labor Burden 44.09%44.09%
General OH+G&A 120.74%139.59%
Total 164.83%183.68%
RATE COMPARISON
HDRE PWI
20102010 2009
NAI
2009
COMPARISON OF UNALLOWED OVERHEADS
OVERHEAD RATE REVIEW 6 2011 INTERNAL AUDIT REPORT
General Overhead Actual Unallowed % Unall.Net Actual Unallowed % Unall.Net Actual Unallowed % Unall.Net
General Indirect Labor 114,726,318 3,263,008 2.8%111,463,310 10,019,366 384,000 3.8%9,635,366 57,463,497 191,277 0.3%57,272,220
Marketing Labor 33,179,990 128,599 0.4%33,051,391
Fringe Benefits 45,531,258 45,531,258 4,410,503 0.0%4,410,503 15,571,093 0.0%15,571,093
Travel Expense 7,900,474 785,221 9.9%7,115,253 1,153,860 61,000 5.3%1,092,860 3,958,290 548,430 13.9%3,409,860
Travel Expense Est. BSW 19,600 1.7%-19,600
Entertainment 191,901 191,901 100.0%0
Employee Expense 11,382,143 2,837,979 24.9%8,544,164 1,037,843 0.0%1,037,843 1,680,094 273,985 16.3%1,406,109
Public Relations & Adv.26,800 26,800 100.0%0 160,775 138,320 86.0%22,455
Pension & Stock Amort.2,578,744 0.0%2,578,744
Recruiting and Relocation 434,997 0.0%434,997 788,718 220,042 27.9%568,676
Supplies 80,314 0.0%80,314 210,049 0.0%210,049 757,879 120,282 15.9%637,597
Building Rent & Expense 46,034,592 0.0%46,034,592 2,039,425 0.0%2,039,425 30,749,324 28,723 0.1%30,720,601
Autos 838,138 55,470 6.6%782,668 1,767,769 764,863 43.3%1,002,906
Taxes General 3,068,425 0.0%3,068,425 54,813 0.0%54,813 1,123,220 745 0.1%1,122,475
Depreciation 9,882,690 4,649,889 47.1%5,232,801 -721,513 0.0%-721,513
Dues & Registration 127,548 12,755 10.0%114,793
Licenses & Fees 26,747 0.0%26,747
Postage and Freight 828,197 0.0%828,197 31,584 0.0%31,584
Telephone 4,671,481 0.0%4,671,481 244,404 0.0%244,404
Subscriptions 187,482 39 0.0%187,443 9,752 0.0%9,752
Donations 482,921 482,921 100.0%0 142,773 142,773 100.0%0
Insurance 11,596,321 1,256,198 10.8%10,340,123 648,518 0.0%648,518
Bad Debts 740,295 740,295 100.0%0
Penalties and Fines 1,475 1,475 100.0%0
Office Expenses 1,159,245 168 0.0%1,159,077 1,886,482 0.0%1,886,482 531,603 7,262 1.4%524,341
Interest 879,680 879,680 100.0%0 1,091 1,091 100.0%0
Professional Services 720,617 441,858 61.3%278,759 2,380,144 119,007 5.0%2,261,137 872,491 202,415 23.2%670,076
Temporary Help 361,445 0.0%361,445 0 133,330 -2,511 -1.9%135,841
Marketing 5,205,835 4,665,599 89.6%540,236 0
Allocated Expense 42,381,031 27,806,795 65.6%14,574,236 6,301,000 613,000 9.7%5,688,000 52,002,764 1,693,026 3.3%50,309,738
Computer Expense 10,456,796 7,545 0.1%10,449,251 1,566,106 0.0%1,566,106 14,366,530 53,673 0.4%14,312,857
Fringe Benefit Comp. Lbr 1,843,200 0.0%1,843,200
Intercompany Overhead 94,040 0.0%94,040
Administrative Costs 12,312,915 2,011,651 16.3%10,301,264
Miscellaneous 1,295,216 979,415 75.6%315,801 95,586 9,559 10.0%86,027 2,134,485 945,059 44.3%1,189,426
Miscellaneous 880-203 Tr.11,131 11,131 100.0%0
State Income Tax 775,823 -112,425 -14.5%888,248
Sales, Project Services 268,779 1,927 0.7%266,852
Public Mgmt. & Adm.226,010 66,963 29.6%159,047
Bonus Payments 2,743,973 0.0%2,743,973
Emp. Stock Options 194,750 0.0%194,750
Fixes Asset Gain (Loss)2,502,081 2,502,081 100.0%0 207,318 0.0%207,318
Total General Overhead 368,616,882 50,879,905 13.8%317,736,977 35,555,979 4,096,173 11.5%31,459,806 189,559,923 5,254,481 2.8%184,305,442
145,171,561
39,133,881
Total 184,305,442
ESTIMATES: EMP. & SALES 7,772 Year 2009 $1.49B 12,000 Year 2009 $2.0B 60,000 Year 2011 $10.3B
COMPARISON OF UNALLOWED OVERHEADS - 2010
HDRE PWI JACOBS NAI
G&A at site & office
G&A at office
COMPARISON OF UNALLOWED OVERHEADS
OVERHEAD RATE REVIEW 7 FY 2012 AUDIT PLAN
Direct Labor Category Labor Fringe Rate Labor Fringe Rate Labor Fringe Rate
Direct Labor 258,040,495 24,367,626 207,616,959
Fringes 79,434,804 30.78%10,743,849 44.09%56,276,991 27.11%
HO Direct Labor (in above)Not segregated 10,814,248 Ref only Office portion of DL 151,386,509 Ref only Office portion of DL
Fringes allocated between IL and DL for HDRE
Category Field Office Field Office Field Office
Labor Burden 30.78%44.09%44.09%27.11%27.11%
G&A Overhead 69.92%69.92%
General Overhead 123.13%120.74%139.59%25.85%Office occupancy
Total 153.92%164.83%183.68%97.03%122.88%
As Submitted Field Office
Labor Burden 44.09%44.09%
General & Admin.25.86%25.86%
General Overhead 101.36%120.22%
Total Same 171.31%190.17%Same Same
Field Office
Labor Burden 44.09%44.09%
General & Admin.21.77%21.77%
General Overhead 100.80%119.66%
Total 166.66%185.52%
Fringes All Labor Fringes Direct Lab.Fringes Direct Lab.
Vacation 33,457,050 Total Fringe 10,743,849 Paid Time Off 21,595,806
holiday 12,484,608 Payroll 24,367,626 Payroll Taxes 16,084,226
Sick Leave 561,806 Fringe Rate 44.09%Grp. Insur.10,315,461
Payroll Taxes 32,520,606 Work Comp.479,508
Group Insurance 29,922,742 Indirect Labor Thrift Plan 4,343,777
Retirement Benefits 16,081,988 Total Fringe 4,410,503 GL Insurance 3,394,173
Ret. Benefit Adjustment 1,780,463 Payroll 10,019,366 EAP 64,040
Total 126,809,263 Fringe Rate 44.02%Total 56,276,991
Payroll Payroll 207,616,959
General Indirect Labor 114,726,318 Fringe Rate 27.11%
Marketing Indirect Lab.33,179,990 Gen'l OH Office Field
Computer Indirect Lab.5,987,556 Gen'l OH 31,459,806 31,459,806 Indirect Labor
Direct 258,040,495 Office Occ.-2,039,425 -2,039,425 Total Fringe 15,571,093
Total 411,934,359 Net 29,420,381 29,420,381 Payroll 57,463,497
Fringe Rate 30.78%Calc. Tot. DL 120.74%Fringe Rate 27.10%
Office Occ.2,039,425
General Overhead Office Office Labor 10,814,248 Gen'l OH Office Field
Tot. GOH incl Disallowed 317,736,977 Calc. Off. Lab 18.86%GOH Site/Off 145,171,561 145,171,561
Total Direct Labor 258,040,495 Tot. DL 24,367,626 24,367,626 Tot. DL 207,616,959 207,616,959
Total General Overhead 123.13%Total Gen'l 139.59%120.74%Total General 69.92%69.92%
Office Occup.Office
GOH Office 39,133,881
Total DL Off.151,386,509
Total Office 25.85%
AS SUBMITTED
PWI'S ORIGINAL ESTIMATE OF FAR COMPLIANCE
DIRECT LABOR
RATE COMPARISON
HDRE PWI NAI
CALCULATIONS
PWI Estimate of FAR Compliance
COMPARISON OF UNALLOWED OVERHEADS
OVERHEAD RATE REVIEW 8 FY 2012 AUDIT PLAN
FAR
sectio
n
Costs Type In General When Allowed When NOT Allowed HDRE Parsons W&I Jacobs NAI
31.205-
1
Public relations, marketing and advertising
costs
Not Allowed When required by contract or as a result of
execution of contract requirements.
Rarely Allowed 89.6% of marketing
expenses
$4,665,599
100% of advertising
$26,800
86% of PR and
advertising
$138,320
31.205-
2
(Reserved)(Reserved)(Reserved)(Reserved)
31.205-
3
Bad Debts Not Allowed Never Allowed Never Allowed 100%
$740,295
None specifically
identified or
included ($0 in trial balance)
Identified as
included in
"Miscellaneous" and excluded
31.205-
4
Bonding Costs Allowed Usually allowed Not allowed if unreasonable compared to
industry standard rates.
None specifically
identified
None specifically
identified
None specifically
identified
31.205-
5
(Reserved)(Reserved)(Reserved)(Reserved)
31.205-
6
Compensation for personal services Allowed For direct compensation costs.
When in accordance with labor contract.
When costs are reasonable in comparison to similar work situation.
Compensation may be paid in equities
provided they are priced at fair market value.
Deferred payments, benefits and pensions
are generally allowed.Individual severance payments are generally
allowed but are subject to scrutiny.
May include bonuses provided the basis for
award is reasonable and is part of a
documented program or is allowed by contract.
Pension Costs are generally allowed but
must fairly represent the cost of providing
the benefit for the time period covered
(Very complicated!).Early retirement buyouts are allowed but are
limited to the NPV of the prior year annual
salary of the employee.
Fringe benefits are generally allowed
provided they are reasonable and consistent with contract provisions.
Post retirement benefits costs such as
healthcare are allowed provided accruals are
reasonable and representative of actual
Retroactive adjustments not allowed unless
the time period involved is entirely within
the contract period.Services before or after contract time period
are not allowed.
Adjustments to compensation for locational
tax differences are not allowed.
Cost for mass severance packages are not allowed, but special allowance may be
requested.
Post retirement benefit costs are not
allowed.
Payments to indivudual owners or partners in closely held corporations must be
reasonable and may not include distrubution
of profits.
Golden Parachute payments are not allowed
costs.Employee rebate and discount costs are not
allowed.
Compensation for highly paid executive that
exceeds limits (See regs for latest limits).
1.02% of general
indirect labor,
marketing labor and computer labor plus
associated fringes
excess compensation
$3,391,607
2.7% of general
indirect labor and
fringes based on Parsons' federal
group audit
$384,000
0.26% based on
benchmark to
surveys. $191,277
31.205-7 Contingencies Not Allowed Only allowed for items where statistical analysis of historic data can establish a
reasonable confidence in future costs.
Rarely Allowed None specifically identified None specifically identified None specifically identified
31.205-
8
Contributions and charitable donations Not Allowed Never Allowed Never Allowed 100%
$482,921
100%
$142,773
Assumed 100%-
contained in
classification "Miscellaneous"
and "excluded"
31.205-
9
(Reserved)(Reserved)(Reserved)(Reserved)
31.205-10 Cost of Money Allowed Imputed cost of money is allowed. (e.g., calculation of interest and equity funding
costs for capital costs incurred.)
Actual interest costs are not allowed, the imputed cost of money should be used.0.4196%None specifically identified None specifically identified
31.205-
11
Depreciation Allowed Generally allowed Depreciation costs exceeding booked
depreciation are not allowed.
47%
$4,649,889
None specifically
identified
None specifically
identified
31.205-12 Economic planning costs Allowed Cost for strategic planning associated with contractors line of business Organizational and market development costs are not allowed.None specifically identified None specifically identified None specifically identified
31.205-
13
Employee morale, health, welfare, food
service, and dormitory costs and credits
Allowed Generally allowed Gift costs are not allowed.
Cost for recreation that is not part of a
morale or health improvement program is
not allowed.
31.205-
14
Entertainment Costs Not Allowed Never Allowed Never Allowed Specifically not
identifiable as
disallowed but possibly a component
of the disallowed
"Employee Exp,"
"Computer Exp,"
"Marketing" & "Administrative"
100%
$191,901
31.205-
15
Fines, penalities and mischarging costs Not Allowed Never Allowed Never Allowed Specifically not
identifiable as
disallowed but possibly a component
of the disallowed
"Miscellaneous"
Not included in
calculation based
on trial balance, added in by BSW to
simulate
disallowance
$1,475
31.205-16 Gains or losses on sale of equipment Allowed Limited to the impact on costs relevant to the contract. Rules are complex and should be
reviewed for applicability to individual cases.
Costs not relevant to contract are not allowed.None specifically identified Not included in calculation based
on trial balance,
added in by BSW to
simulate
disallowance $2,50,2081
0%
31.205-
17
Idle facilities costs Not Allowed When required by contract or when needed
to accommodate varying work loads that
result from execution of contract
requirements.
Generally not allowed.None specifically
identified
None specifically
identified
None specifically
identified
The following provides guidance on the allowability of indirect cost into government contracts that have Cost Accounting Standards (CAS) invoked.Unallowed Percent
COMPARISON OF UNALLOWED OVERHEADS
OVERHEAD RATE REVIEW 9 FY 2012 AUDIT PLAN
31.205-
18
Research, development and bid proposal
costs
Allowed Must be current or directly related to
contract fulfillment. Rules are complex and
should be reviewed for each case.
Expenses incurred outside of contract period
are generally not allowed. Cost
compensated under another contract or
program are not allowed.
None specifically
identified
None specifically
identified
None specifically
identified
31.205-
19
Insurance and indemnification Allowed When fairly allocated cost of insurances is
applied.
Unreasonable costs or costs for catastropic
losses under a self insurance program are not
allowed.
Costs for warranty, defect and workmanship
insurance are not allowed.
10.8% (difference
between exp. rec'd
and cash paid, plus
deduct for av. over 5
yrs.) $1,256,198
0%
31.205-
20
Interest and financing costs Not Allowed Never Allowed Never Allowed 100%
$879,680
0%
31.205-
21
Labor relations costs Allowed Always Allowed Always Allowed None specifically
identified
None specifically
identified
None specifically
identified31.205-
22
Lobbying and Political Activity costs Not Allowed Only allowed when required by contract Rarely Allowed Specifically not
identifiable as
disallowed but
possibly a component
of the disallowed
"Administrative" &
"Marketing"
None specifically
identified
31.205-
23
Losses on other contracts Not Allowed Never Allowed Never Allowed None specifically
identified
None specifically
identified
31.205-
24
(Reserved)(Reserved)(Reserved)(Reserved)
31.205-
25
Manufacturing and production engineering Allowed Always Allowed, provided the costs are
directly associated with contract
performance.
Always Allowed None specifically
identified
None specifically
identified
None specifically
identified
31.205-
26
Material Costs Allowed Always Allowed, provided the costs are
adjusted to reflect any discounts or rebates that are applied
Always Allowed None specifically
identified
None specifically
identified
None specifically
identified
31.205-
27
Organization Costs Not Allowed Never Allowed Never Allowed None specifically
identified
None specifically
identified
31.205-
28
Fiduciary costs for proxy materials,
shareholder meeting, board meetings, etc.
Allowed Always Allowed Always Allowed None specifically
identified
None specifically
identified
None specifically
identified31.205-
29
Plant Protection Costs, including costs
associated with routine commercial security,
military or homeland security requirements
Allowed Always Allowed Always Allowed None specifically
identified
None specifically
identified
None specifically
identified
31.205-
30
Patent Costs Allowed Provided they are relevant to the contractual
requirements.
When not required by contract.None specifically
identified
None specifically
identified
None specifically
identified
31.205-31 Plant reconversion costs. Not Allowed Cost to remove equipment required by contract and to restore resulting damage is
allowed. Costs specifically covered in
contract are allowed.
Generally not allowed.None specifically identified None specifically identified
31.205-
32
Precontract costs Allowed Provided they would have been incurred in
any case to meet contract requirements.
Generally allowed None specifically
identified
None specifically
identified
None specifically
identified31.205-
33
Professional and consultant services Allowed Provided the costs are reasonable and
relevant. Retainer fees that are reasonable
and customary are also allowed.
Cost of work must be supported by
documented evidence of work performance such as time tracking or invoices.
Compensation that is contingent based on
recovery from government is not allowed.
Compensation for unethical, anticompetitive
or illegal activities is not allowed (duh).
61.3%
$441,858
5%
$119,007
23.2%
$202,415
31.205-
34
Recruitment Cost Allowed Provided the costs are reasonable and are
relevant to the contract performance.
Cost for postings where no specific job is
defined or postings that are primarily
marketing or PR materials are not allowed.
None specifically
identified
0%27.9%
$220,042
31.205-
35
Relocation Costs Allowed When intent is to relocate employee for a
period of 12 months or more.Provided they follow numerous guideline
that appear to be consistent with typical
corporate relocation programs. Rules are
complex and should be reviewed for each
case.
Generally allowed Included above.
31.205-
36
Rental Costs Allowed Provided costs are reasonable and relevant
to the contract. Only to the extent the lease
costs fall within the contract period unless
otherwise allowed by contract.
Generally allowed
31.205-37 Royalties on patents used Allowed Generally allowed If the government holds the patent or the patent is invalid or has no royalties, the costs
are not allowed.
None specifically identified None specifically identified None specifically identified
31.205-
38
Selling costs Mixed General marketing costs are allowed.
Advertising and PR required by contract or
needed in order to fullfil the contract are
allowed.
Advertising and PR costs are generally not
allowed.
See public relations,
marketing and
advertising above
None specifically
identified except
advertising
0.70%
31.205-39 Service and warranty costs Allowed Generally allowed Costs that duplicate embedded risk or insurance costs are not allowed.Not identified except possibly computer
maintenance
31.205-
40
Special tooling or test equipment Allowed If purchase is required by contract or
necessary to perform contract.
For equipment purchase prior to contract,
only the depreciation cost may be allocated.
None specifically
identified
None specifically
identified
None specifically
identified
31.205-
41
Taxes Allowed Always Allowed. Plus any cost associated
with challenging taxing authority are allowed
provided they are performed at direction of
contract administrator.
Always Allowed. However tax related
penalties may not be allowed.
(3%) of taxes
(deferred portion of
state)
0%<0.10% unallowed
31.205-
42
Contract termination costs Allowed Generally allowed. Rules are complex but
sort of follow common sense for
reasonableness. Rules should be reviewed
for each case.
Generally allowed Not applicable Not applicable Not applicable
COMPARISON OF UNALLOWED OVERHEADS
OVERHEAD RATE REVIEW 10 FY 2012 AUDIT PLAN
31.205-
43
Business, trade and professional association
meetings, memberships, subscriptions, etc.
Allowed Almost always allowed provided relevant to
contract performance or for personnel
involved in contract performance.
Generally allowed 0.02%0%
31.205-
44
Training and Education Costs Allowed Must be employees. Must be relevant to
contract or to employee performance.
In general, costs for over 2 years of education
for a degree program are not allowed.
Hourly pay for time in class is not allowed
when training is outside normal work hours.Overtime pay for training is not allowed.
31.205-
45
(Reserved)(Reserved)(Reserved)(Reserved)
31.205-
46
Travel costs Allowed Must be for business purposes. Must be
documented. Limited to the amount of per-
diem allowed for government contracts. See
rules.
Costs for private or lease plane travel costs
are limited to the price of commercial airline
travel.
31.205-47 Costs related to legal and other proceedings Depends If you win the case, the costs are generally allowed. Rules are complex and should be
reviewed for each case.
If you lose the case, the costs are generally not allowed.None specifically identified 0%None specifically identified
31.205-
48
Research and development costs Allowed To the extent spedified in contract or
government grant.
Costs in excess of contract or grant are not
allowed.
None specifically
identified
None specifically
identified
None specifically
identified
31.205-
49
Goodwill Not Allowed Never Allowed Never Allowed None None None specifically
identified
31.205-
50
(Reserved)(Reserved)(Reserved)(Reserved)
31.205-
51
Alcoholic beverage Not Allowed Never Allowed Never Allowed Specifically not
disallowed but
possibly a component
of an overall amount
unallowed
100%
31.205-
52
Asset valuation resulting from business
combinations
Allowed Valuation must follow IRS guidelines and
only the allocatable portion of costs is
allowable.
Generally allowed None specifically
identified
None specifically
identified
None specifically
identified
OTHER MATTERS
OVERHEAD RATE REVIEW 11 FY 2012 AUDIT PLAN
We would like to thank HDRE, Jacobs NAI and PWI personnel for their excellent cooperation
and assistance during this engagement.
Specifically, we would like express our gratitude to the following: Anita Stotts - PWI
Michael Brainard - HDRE Julie Garber - NAI
This report is intended solely for the use of Metropolitan St. Louis Sewer District and is not
intended to be and should not be used by any other parties without the prior written consent of MSD.