Minnesota Department of Transportation

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MnDOT Policies

Audit Office Authority Functions

MnDOT Policy FM009
View/print signed policy (PDF)

Policy statement

The Audit Office is an essential part of MnDOT’s effort to establish internal controls in the department, which we are required to do by Minnesota Statute 16A.057, "Internal Controls and Internal Auditing."

The Audit Office fulfills the purpose and intent of the law, which requires that, the office:

  1. (1) “Safeguard public funds and assets and minimize incidences of fraud, waste, and abuse;
  2. (2) Ensure that programs are administered in compliance with federal and state laws and rules; and
  3. (3) Require documentation of internal control procedures over financial management activities, provide for analysis of risks, and provide for periodic evaluation of control procedures to satisfy the commissioner (Minnesota Management & Budget) that these procedures are adequately designed, properly implemented, and functioning effectively.”

The Audit Office reports to the Deputy Commissioner, Chief Operating Officer/Chief Financial Officer and has the authority to provide professional audit services department-wide, regardless of MnDOT’s organizational structure.

Reason for policy

This policy describes how the agency will conduct the functions of the Audit Office to ensure that MnDOT operations are in compliance with laws, rules and regulations, and that contracts are administered properly and efficiently.

Who needs to know this policy

All managers, office directors, district engineers and persons responsible for contracts and grants (state and federally-funded) must follow the policy.

Procedures

Review and audit contracts

The Audit Office reviews and audits contracts to determine conformance with the law and AASHTO, "Uniform Audit & Accounting Guide," policies which are similar to those found in the following subsections of the U.S. Code of Federal Regulations, at 48 CFR, Chapter 1, Subpart 31.2, "Contracts with Commercial Organizations," Generally Accepted Auditing Standards (GAAS) or Government Auditing Standards (The Yellow Book); to ensure compliance with Generally Accepted Accounting Principles (GAAP), Federal Acquisition Regulation (FAR) Part 31 and, to the extent applicable, the Cost Accounting Standards (CAS) of 48 CFR subpart 9900.

Issuance of the final audit certificate

The Audit Office issues a final audit certificate in conformance with a departmental contract. The certificate may not be revised unless additional information presented supports costs previously disallowed. Refer to MnDOT Audit Certificates Policy, FM003 for further information.

  • The draft administrative approval document is to be approved by the Audit Office prior to submittal to the Division Directors for approval.
  • After the final audit certificate is completed, it is sent to the administrator of the agreement for review and
    signature upon concurrence.
  • If there are audit adjustments involved, an additional step is required.
  • The administrator sends a copy of the schedule of audit adjustments to the party being audited for review and agreement. When a resolution is reached, the administrator signs the audit certificate and sends it back to the Audit Office for final processing.
  • Based on knowledge of the project and reasonable business judgment, the agreement administrator may still recommend reimbursement of costs cited or otherwise disallowed by the Audit Office. These payments must be certified by the Division Director (of the contract) or appropriate designee.

Audit reports

  • The Audit Office issues quarterly reports which include schedules of audit certificates (more than 60 days previous) that have not been signed and returned to Audit by the agreement administrator. The schedules also include any agreements that have been held more than 60 days awaiting information required to complete an audit. The schedules are sent to the Deputy Commissioner and Chief Engineer, the Division Director (for the contract) and the Office Director (for the contract).
  • The agreement administrator contacts the Audit Office if there is a disagreement with the contract status.

Forms/instructions

Report Wrongdoing Form (note: for employees only)

Definitions

Audit Certificate

An Audit Certificate is a professional finding based on the Federal Acquisition Regulation (FAR). It is MnDOT standard practice that audit certification is compliant with the purpose and intent of the FAR. MnDOT Policy FM003, Audit Certificates, provides further details.

Continuous Audits

As defined by the Institute of Internal Auditors (IIA) Global Technology Guide “Continuous Auditing: Implications for Assurance, Monitoring, and Risk Assessment,” continuous auditing is the “automatic method used to perform control and risk assessments on a more frequent basis."

Dispute Resolution Panel

Refer to MnDOT Audit Certificates Policy.

Investigations

Investigations of allegations and wrongdoing will be conducted by the Audit Office and/or the Office of Legislative Audit, Investigations Unit. It is the responsibility of each employee to report any allegation of wrongdoing. For further information, "Report Wrongdoing / Questionable Activity" (note: for employees only).

The Audit Office conducts an investigation is conducted to determine if internal controls failed and if so, review the control or compliance requirements and recommend measures to strengthen the control. If fraud occurred, the Audit Office documents the financial loss of dollars stolen. The findings of the investigative report are prepared for senior management.

Single Audit

The Single Audit Act of 1984 standardized audit requirements for States, local governments, and Indian tribal governments that receive and use federal financial assistance programs (commonly known as Federal funds, Federal grants, or Federal awards). A Single Audit encompasses an examination of a recipient’s financial records, which is divided into two areas:

  • Compliance Audit, as defined by OMB Circular A-133, Compliance Supplement, 2013, Office of Management and Budget;
  • Financial Audit, as determined by the auditor based on the type of federal program.

Responsibilities

Director, Audit Office

Oversees the audit functions of the Audit Office, which include:

  • Pre-award and post-award audits of claims by railroad, utility, transit and traffic entities as a result of contracts entered into between MnDOT and these entities.
  • Post-award audits of claims by consultants and planning agencies as a result of contracts with MnDOT. Desk and field audits are conducted on all final bills under these contracts. The audits conducted are to determine if the organization's accounting system is capable of identifying costs for cost type contracts and whether charges billed under contracts are supported by their cost accounting system and reimbursable under state and federal laws, rules and regulations.
  • Consultant Liaison and Pre-Awards
    • Consultant Pre-Award Audits
    • All Administrative Approvals
    • Audit's database
    • Audit Liaison with Consultants and MnDOT Administrators
    • Supervisory review of overhead rates
    • Final contract payments
    • Determining if agreements should be exempt from Audit Review
  • Conducts audits within MnDOT by furnishing analysis, appraisals and recommendations

Internal Audit

Under the Single Audit Act of 1984 and Single Audit Act Amendments of 1996, the MnDOT Audit Office is charged with rendering an opinion of MnDOT’s financial management practices involving federal and state funds, as well as expressing an opinion on the integrity of the total financial system, regardless of whether it involves a program with federal participation or with state funds only.

All non-federal entities that expend $500,000 or more of Federal awards in a year are required to obtain an annual audit in accordance with the Single Audit Act Amendments of 1996. A single audit is intended to provide a cost-effective audit for non-federal entities in that one audit is conducted in lieu of multiple audits of individual programs.

The scope of the internal audit shall encompass the examination and evaluation of the adequacy and effectiveness of the organization’s system of internal control and whether the department has managed or utilized resources in an economical and efficient manner and whether the department was effective in achieving its program objectives.

Internal Audit also reviews MnDOT operations, informing management about compliance with financial and compliance requirements and must satisfy federal assistance requirements by reasonable assurance that a recipient of federal assistance has:

  • Provided financial data that can be relied upon,
  • Maintained systems for controlling the receipt and expenditure of funds, and
  • Complied with the terms and conditions of Federal awards, and has shown that its claims for funds were proper and supportable.

External Audit

External Audits shall be made on claims to determine compliance with the terms of the agreements between MnDOT and external entities, and to ensure compliance with state and federal requirements.

Pre-award audits, administrative approvals, audit database, audit liaison with consultants and MnDOT agreement administrators, provide supervisory review of overhead rates, final contract payments, determine if agreements should be exempt from Audit Review.

Payable agreements to be audited include the following categories:

  • Audits of claims by consultants, planning organizations, and railroad, utility, transit and traffic entities as a result of contracts entered between MnDOT and these entities
  • Other state agencies
  • Political subdivisions of the state

The external audit process may include a pre-payment review (desk audit) of all claims submitted by contracting agencies to MnDOT, at the request of the Agreement administrator. The processing of payments of partial invoices when the amount paid is a lump sum or a pre-determined calculation that only requires mathematical verification may be done without being processed by the Audit Office, providing the administering office and Audit mutually concur and Audit is provided a copy of the invoice.

Agreement Administrator

  • Approves results of audits (Audit Certificates) that are not contested
  • Prepares administrative approval for payment authorization of final audit close-out

Frequently asked questions

What is the current overhead rate for a consultant contract?

Contact the External Audit Section, Audit Office.

Related information

Audit Reference Links:
AASHTO 2012 Uniform Audit & Accounting Guide
Generally Accepted Auditing Standards (GAAS)
Government Auditing Standards (The Yellow Book)
Federal Acquisition Regulation (FAR)
Office of Legislative Auditor
Office of State Auditor
OMB Circular A-133, Compliance Supplement, 2013, Office of Management and Budget
Single Audit Act of 1984, Office of Federal Financial Management Single Audit
Single Audit Act Amendments of 1996
MnDOT Audit Certificates Policy

History of policy updates or amendments

Amended

Policy FM009 – Audit Office Authority Functions, established 8-20-2013

  • Comprehensive review, minor revisions. Changes and updates were made to the policy to reflect organizational changes and to make it consistent with other administrative policies.
    • Change/update: Signature page

Supersedes

  • Guideline 82-1A-G2A – Audit Section Follow-up, established 11-23-1992
  • Guideline 84-3-G1A – Audit Section Authority Functions, established 11-23-1992

Effective date

Effective date as signed by responsible senior officer.

Ownership

Responsible Senior Officer

Tracy Hatch
Deputy Commissioner/CFO/COO
tracy.hatch@state.mn.us
651-366-4811

Policy Owner

Daniel Kahnke
Director, Audit
daniel.kahnke@state.mn.us
651-366-4155

Policy Contacts

Lisamarie Stroschein
Internal Audit Manager
lisamarie.stroschein@state.mn.us
651-366-4151

Greg Hlivka
External Audit Manager
greg.hlivka@state.mn.us
651-366-4142