State DOT wants an overhead rate audited under FAR Part 31 before we can get on their consultant list. We've never had one. Where do we start?

Under 23 CFR 172.11(b)(1)(ii), the DOT has to accept an indirect cost rate that a cognizant agency audited, or one a CPA audited where an agency reviewed the workpapers and issued a letter of concurrence. When neither exists, (b)(1)(iii) has the DOT evaluate the rate itself before using it, either with its own audit or by reviewing a CPA's audit report and workpapers. So both things you heard are true. Call the DOT's audit group and ask which path they want for a first-time firm.

Your two questions. The rate is set for a 1-year period that follows your fiscal year, per (b)(1)(i), so it comes off a closed year's actual costs. If they want you on a contract before that's done, (b)(1)(iii)(C) lets the DOT set a provisional rate for that contract and adjust to the audited final rate at the end.

Client appreciation events come out. FAR 31.205-14 makes entertainment unallowable, and FAR 31.201-6 says expressly unallowable costs and their directly associated costs get identified and excluded. Food, venue, the whole event.

I helped a small surveying client through this. What slowed us down was year end books that lumped everything into a handful of overhead accounts. We split out the unallowables and the labor hours charged to projects versus overhead before the CPA started.

Also, 172.11(c)(3) requires a Certificate of Final Indirect Costs signed by an officer no lower than VP or CFO. Get your principal ready to sign it.