Audit Guide for Consultants

Chapter 6Overhead CostsChapter 6 Overhead CostsThis chapter discusses:• Overhead Costs• The Development of an Overhead Schedule• Costs Normally Included in a Firm’s Overhead• Unallowable Costs Included in Overhead• Costs Which Create the Most Confusion for ConsultantsOverhead Costs in GeneralOverhead costs are those general expenses incurred during the normal courseof operating a business. At times, these costs may be called General andAdministrative, Fringe Benefit Costs, Overhead, or Payroll burden.The majority of firms doing business with WSDOT lump these business coststogether into a firm wide overhead rate. For management purposes, larger firmsmay segregate the costs into the groups as previously identified. The reasons forthis distinction vary; therefore, we reference you to the nearest library or costaccounting textbook. The primary reason is for the management of business costsat the lowest level possible.WSDOT Auditors use the Federal Acquisition Regulations (FARs) to assist inestablishing overhead costs which may be recovered in a firm’s overhead rate.Note: We said may be recovered!The reader needs to understand the distinction between overhead costs andoverhead cost categories that can be included in an overhead rate.This includes the fact that costs accepted by the Internal Revenue Service maynot be acceptable for contracting purposes with WSDOT because IRS and FARsregulations are different.This computed rate is normally applied to ...