Engineering Inc - March/April 2018 - 50

unning into compliance issues while
working on federally funded transportation
projects can have dramatic implications
for an engineering firm's bottom line,
including the calculation and review
of overhead rates, treatment of certain
cost items, and labor and compensation
practices.
But compliance with the Federal
Acquisition Regulation (FAR), the primary
regulation that U.S. federal agencies use
in their acquisition of supplies and professional services with
appropriated funds, is a must if firms expect to do business
with the federal government.
Because these firms must observe FAR cost accounting
rules, it can also lead to delicate negotiations with state and
local transportation agency clients, who often
take varying views and employ an array of
interpretations of these requirements.
Firms that devote appropriate attention
to the necessary controls and tools for
developing and applying FAR-compliant rates
are likely to be more successful in managing
costs, mitigating risks and maintaining
profitability. This includes partnering with
CPAs who are familiar with the FAR standards
and participating in ACEC education and
training programs on audit and accounting
policies.

UNDERSTANDING COSTS

Many firms
believe that
government
accounting and
contracting is
only slightly
different
than that of
commercial
business.
Nothing
could be
farther
from the
truth.

"Many firms believe that government accounting and contracting is only slightly different
than that of commercial business. Nothing
could be farther from the truth," says Scott
Hursh, managing partner of the A/E Industry
Group at CPA firm Stambaugh Ness. "Beginning with senior management, the entire firm
must embrace a culture of following all the
rules all of the time.
"Firms that want to be successful in the government space must invest in people, processes
and technology that go well beyond those needed for commercial contracting," Hursh added. "Because not all costs routinely
incurred are allowable for reimbursement on government
contracts, processes must be established and people trained to
differentiate between costs-including labor-that are and are
not allowable."
Under FAR, firms need to not only understand what types
of costs they incur but how they are allocated and which ones
are unallowable, according to Diana Strassmaier, partner at
CPA firm Gross, Mendelsohn & Associates.
"In order to make that determination, firms must have a
process in place to identify and account for their costs properly," Strassmaier says. "While technology can assist with
capturing the data and organizing it, firms need to understand
the technology they employ, its limitations and the controls
50

ENGINEERING INC.

MARCH / APRIL 2018

surrounding it. It's not enough to just have technology or controls, they need to be properly set up, analyzed and constantly
and consistently monitored."
Engineering firms that do business with the government
understand the importance of compliance.
"We pay close attention to the rules, requirements and certifications as to not seriously jeopardize our current and future
government contracts," says Anthony Machi, vice president of
global business services at Michael Baker International.
Michael Baker does extensive work with government agencies and has a team dedicated to the intricacies of doing business with the government. "The obligations are real and the
government enforces the rules," Machi says.
To ensure that their 700 project managers working on
5,000 active projects remain compliant, Michael Baker has
established ground rules of consistent policies and procedures
and training for employees so that internal
controls are effective. It ensures that it has an
adequate accounting and timekeeping system
to keep track of all related data.
STRUCTURED RISK ASSESSMENT

The government compliance group at Michael
Baker has established an approach to compliance and reporting that is a structured risk
assessment and mitigation approach. The
group has developed an efficient mechanism
for sharing the information with the various
agencies for which the firm has contracts,
Machi says.
"The approach includes a risk assessment
and then the work we've performed to mitigate those risks, including a valid statistical
sampling approach," Machi says. "It's not only
a starting point, but in certain instances it
may represent the majority of documentation
that our auditors-both external and home
state-will utilize in their work papers. We've
had very good results with our approach."
HNTB also is committed to compliance
with the FAR Cost Principles and all applicable regulations, says Roger Seymour, audit
and fiscal compliance director. "This includes implementing
policies, processes and controls to ensure clients receive a fair
and reasonable price for work performed," he says.
HNTB's business markets and compliance program spans
federal, state and local projects encompassing a wide range,
including civil engineering related to transportation, bridges,
rail and aviation.
"Many of our contracts contain federal funding and, therefore, are subject to the FAR Cost Principles," Seymour says.
"Sound data integrity is a fundamental key to compliance. As
a professional services firm, our timekeeping system provides a
solid foundation for tracking the efforts expended on employees by client contracts."
The firm is required to segregate direct and indirect costs
and unallowable costs, and to consistently estimate, record and

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