Minnesota Department of Transportation

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MnDOT Policies

Audit Oversight of Consultant Contract Indirect Cost Rates

MnDOT Policy FM010
View/print signed policy (PDF)

Policy statement

MnDOT has adopted the AASHTO, "Uniform Audit & Accounting Guide," ("Guide") for reimbursement of consultant contracts (professional/technical services), as 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."

The Guide developed under the direction and guidance of the Federal Highway Administration (FHWA) is a collaboration with ACEC (American Civil Engineering Companies) and the AASHTO (American Association of State Highway and Transportation Officials) Subcommittee on Internal and External Audit.

Reason for policy

To be consistent with other state transportation departments when rendering an opinion on MnDOT’s financial management practices involving federal and state funds to determine consultant costs for reimbursement.

Who needs to know this policy

  • MnDOT senior leadership, managers and supervisors
  • MnDOT Agreement Administrators


Cognizance and Oversight

It is common practice for auditors to rely on the work of others, also known as a “cognizant audit.” MnDOT is a “cognizant agency” as defined, “the Home State Transportation Department (the State where the consulting firm’s accounting and financial records are located), or a Non-Home State Transportation Department to whom the Home State has transferred cognizance in writing for the particular indirect cost audit of a consulting firm.”


Consultant compensation analysis

As stated in the Guide it is the responsibility of consultants to prepare an acceptable compensation analysis subject to the National Compensation Matrix.

For Minnesota-based consultants that have their overhead rates audited by a CPA firm rather than by the MnDOT Audit Office, the CPA Work Paper Review Program, AASHTO will be used to review the CPA work papers prior to MnDOT acceptance. The result of the CPA work paper review will be the issuance of a cognizant letter regarding MnDOT acceptance of the CPA’s overhead rate audit.

The primary purpose of the CPA Work paper Review Program:

Methods for determining a cognizant approved indirect cost rate

Cognizant approved rates may be established by any one of the following methods:

  • A Cognizant Agency either: (a) performs an indirect cost rate audit, or (b) contracts with and directs the work of a CPA who performs this work.
  • A Non-Home State auditor or CPA working under the State’s direction issues an audit report, and the Home State issues a cognizant letter of concurrence. If the Home State does not accept the indirect cost rate audit performed by another State, the Home State will have 180 days from receipt of the audit report to issue a cognizant approved rate; otherwise, the Non-Home State audit report will be used to establish a cognizant approved rate for the one-year applicable accounting period.
  • An indirect cost audit performed by an independent CPA (not part of the engineering consultant’s organization) hired by the consulting firm will be used to establish a cognizant approved rate if one of the following conditions is met:
    • The Home State reviews the CPA’s audit report and related work papers, and the Home State issues a cognizant letter of concurrence with the audit report.
    • A Non-Home State reviews the CPA’s audit report and related work papers and issues a letter of concurrence with the CPA report, for the Home State to accept.
      • If the Home State does not accept the Non-Home State’s review, the Home State will have 180 days from receipt to complete a review of the CPA audit report and either concur with it, modify it, or reject it due to a material error requiring resubmittal; otherwise, the CPA audit report with which the Non-Home State has concurred will be used to establish the cognizant approved rate for the one year applicable accounting period.

Effects of the Guide to MnDOT consultants:

  • MnDOT caps overhead rates at 170%. The Deputy Commissioner/Chief Financial Officer/Chief Operating Officer has the authority to change the overhead cap. Exceptions to the cap may be allowed by prior approval of the Deputy and the Audit Director, on a contract-by-contract basis
  • MnDOT will not accept Facilities Capital Cost of Money (FCCM) rates
  • Company-owned vehicles/equipment and in-house reproduction will no longer be required to be included in overhead
  • To be allowable as a direct project expense, credits to the applicable overhead account will be necessary. Many of the firms MnDOT uses already do this and Audit has previously reversed the credits to apply our audit policies. Companies that do not credit-out the above project-related costs will not be allowed to bill these items as direct costs
  • MnDOT generally prefers fringe benefits to be included with the other overhead accounts and use direct labor as the allocation base. Most all Minnesota-based companies use 2080 hours to establish standard labor rates for their salaried employees. Effective hourly rates based on actual hours are discouraged


MnDOT Audit Office


  • Assign audits and reviews to staff
  • Reviews and issues acceptance and cognizant approval letters


  • Perform field audits of overhead rates as needed
  • Perform cognizant field reviews of CPA work papers for Minnesota firms CPA audits
  • Perform desk reviews of company overhead developments and CPA audit reports for acceptance
  • Write the acceptance and cognizant letters

Related information



  • First Revision: August 28th, 2017
  • Second Revision: June 23rd, 2020


August 20th, 2013


  • Policy 2.823.G1, Audit Oversight of Consult Contract Indirect Cost
    • Effective April 12th, 1989


Please go to the MnDOT Org Chart to find specific contact information: Org Chart.

Responsible Senior Officer

Deputy Commissioner/Chief Engineer

Policy Owner

Office Director
Office of Audit

Policy Contact

Consultant Liaison
Office of Audit