Far Overhead Rate calculation

In recent years, more and more architectural and engineering (“A/E”) firms are finding that they must have an audited overhead rate in accordance with the Federal Acquisition Regulation Part 31 (“FAR”). The issuance of the new AASHTO Uniform Audit & Accounting Guide has resulted in an increased focus on properly calculated and audited FAR overhead rates rather than the use of estimates by A/E firms and different rates in various states.

FAR overhead statements are unique and FAR audits should be performed by a CPA that is experienced in working with A/E firms and in performing FAR audits. Joyce CPA LLC has expertise in this and currently conduct FAR overhead rate audits for clients who contract with dozens of state agencies. These audits include the calculation of the facilities cost of capital and the preparation of the required report on compliance and internal control matters. As further evidence of our expertise and the reputation that we have gained in the industry and with users of FAR overhead audit reports, we have also been engaged by the Arizona State Department of Transportation to perform contract audits of A/E firms.
Know More About FAR31 Audits:

What is a FAR overhead rate?

Technically known as a firm’s “indirect cost rate,” the more familiarly known “overhead rate” is the percentage of general expenses that consultants can bill to contracting government agencies. More specifically, it is the ratio of allowable indirect costs to total allocable direct labor costs.

What does a FAR overhead rate include?

Overhead is the sum of a firm’s indirect costs. A firm’s FAR overhead rate is the ratio of indirect costs to direct labor costs, based upon provisions in the Federal Acquisition Regulation and Cost Accounting Standards.

Why do I need it audited?

Government agencies base reimbursements to firms on their audited FAR overhead rates.

What are the requirements for receiving reimbursement from a government agency?

A/E firms must prove that costs are allowable, reasonable and allocable, per the provisions for contracts with commercial organizations detailed in FAR 31.2.

What are management’s responsibilities in an overhead rate audit?

Management “bears the sole responsibility for identifying, segregating, and removing unallowable costs from all billings to Government contracts,” according to the AASHTO Uniform Audit & Accounting Guide to government transportation contracts.

Where can I get more information?

The AASHTO Uniform Audit & Accounting Guide (2012 Edition) prepared by the American Association of State Highway and Transportation Officials is the leading source of information related to indirect cost rate schedules and overhead audits.