Indirect Cost Rate Audit

In compliance with 23 U.S.C. 112(b)(2)(B), any contract or subcontract awarded for engineering and design services by state transportation departments, whether funded in whole or in part with Federal-aid highway funds, shall be performed and audited in compliance with cost principles contained in the Federal Acquisition Regulations (“FAR”) of part 31 of title 48, Code of Federal Regulations (“CFR”). As such, consulting firms who anticipate that they will perform services for the Virginia Department of Transportation (“VDOT”) are required to submit an indirect cost rate audit report (“Indirect Cost Rate Audit”) to the Assurance and Compliance Office (“ACO”) for the most recent fiscal year.  

The indirect cost rate audit must meet the following requirements:

  • The audit shall be conducted by an independent Certified Public Accountant (“CPA”), an agency of the federal government, another state transportation agency or similar independent audit organization.
  • The audit shall be conducted in accordance with Generally Accepted Government Auditing Standards (“GAGAS”) issued by the U.S. Government Accountability Office (GAO).
  • The audit shall be conducted in accordance with the cost principles and procedures as set forth in 48 CFR, Chapter 1, Part 31, FAR.
  • The audit shall follow the guidance of the most recent American Association of State Highway Transportation Officials Uniform Audit and Accounting Guide for Audits of Architectural and Engineering Consulting Firms (“AASHTO Audit Guide”).

A new or small consulting firm which does not have a relevant contract cost history to use as a base for development of an indirect cost rate or has not had a recent indirect cost rate audit may be eligible for a provisional indirect cost rate of 110% and/or a field rate of 75% for one year.  Contact the ACO for more information if you are interested in obtaining a provisional rate.

VDOT Indirect Cost Rate Submission and Review Process

The VDOT Indirect Cost Rate Submission and Review Process is effective for any submittal to VDOT ACO on or after January 1, 2019.

Annual Indirect Cost Rate Submittal Requirements

In addition to the indirect cost rate audit report, the consulting firm shall submit additional documents in their annual indirect cost rate submittal as required by FAR, Federal Highway Administration (“FHWA”), the AASHTO Audit Guide and VDOT. The indirect cost rate submittal is due within six months of the consulting firm’s fiscal year end.

The following documents shall be submitted electronically via email in the consulting firm’s annual indirect cost rate submittal to

  • AASHTO Internal Control Questionnaire (“ICQ”) for Consulting Engineers form with all required attachments.
  • Contractor Cost Certification (“CCC”) of Final Indirect Cost Rates form.
  • Complete copy of the consulting firm’s annual audited financial statements.
  • Analysis of the reasonableness of executive compensation as outlined in the AASHTO Audit Guide.
  • Cognizant audit letter, if available.
  • A listing of all contracts, with dollar amounts, the consulting firm currently has with VDOT as a prime consultant or a subconsultant.

The following checklist will assist firms in submitting the required documents needed for a complete submittal for their non-cognizant indirect cost rate review.  When completing the checklist, please do not leave any boxes blank.  The checklist is required for each submission to VDOT ACO effective January 1, 2019.

Indirect Cost Rate Acceptance - Checklist for Non-Cognizant Review Submission (Other than Safe Harbor) ACO-EXT-01 January 1, 2019.

ACO's Indirect Cost Rate Acceptance and Review Process

After all of the required documentation of the indirect cost rate submittal is provided to ACO, ACO will accept an indirect cost rate(s) for billing purposes, subject to audit. The rate(s) is valid until the due date for the next year’s submittal, unless an audit determines the rate(s) needs to be adjusted. 

ACO reserves the right to review the workpapers of the consulting firm’s CPA as part of the acceptance of the consulting firm’s indirect cost rate(s). If requested, the consulting firm must authorize access to their CPA’s audit workpapers for review by ACO or its designee. Under limited circumstances, it may be necessary to review the books and records of the consulting firm to validate work performed by the CPA. To the extent practicable, the review will be performed remotely through access to electronic records of the consulting firm and/or the CPA firm. If electronic records are not provided, it may be necessary for ACO or its designee to perform the review at the physical location of the consulting firm and/or the CPA firm.

ACO or its designee will conduct CPA workpaper reviews on selected consultants using the guidance of the AASHTO Audit Guide, Chapter 12 and Appendix A-1 to determine:

  • the CPA’s audit was conducted in accordance with GAGAS;
  • the CPA adequately considered the auditee’s compliance with FAR Part 31 and other related laws, regulations and guidance; and
  • the audit report format is acceptable.

ACO uses a risk based approach to select the consulting firms who will receive CPA workpaper reviews. Risk based evaluation factors include, but are not limited to:

  • the type of opinion (qualified, unqualified) issued by the CPA firm;
  • the consulting firm’s current contracts with VDOT;
  • the consulting firm’s revenue/income derived from VDOT contracts and all non-VDOT contracts;
  • the amount and levels of executive compensation included;
  • the amount and type of vehicle and building lease agreements; and
  • the results of prior CPA workpaper reviews of the consulting firm and CPA firm.               


Simba Mandizvidza
VDOT Assurance and Compliance Office
Audit Manager
1401 E. Broad Street
Richmond, Virginia 23219


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Page last modified: Oct. 30, 2019