| This section is provided to answer frequently
asked questions posed to the Division of Cost Allocation. The
section is divided into six categories:
General
Question#1: What is the purpose of a rate agreement?
Answer: The purpose of the rate agreement is to publish the maximum
reimbursement rate which accurately reflects the indirect costs
(e.g.; facilities and administrative costs), fringe benefit expenses,
etc. incurred by the organization. The rate agreement specifies,
among other things, the applicability of the rate(s) to the organization’s
performance sites and activities, the period of time covered,
the base (salaries and wages or other) to which they are applied,
and the composition of the indirect cost pool(s). The rate agreement
will also include information about any special indirect cost
rates, such as “off-site” rates, and will specify
whether the rate is a provisional, predetermined, or final rate.
Question#2: How do you arrive at the rates that are published
on the agreement?
Answer: The organization submits a proposal to the DCA. The proposal
includes the rate calculations along with the allocation methodologies
and supporting documentation to justify the proposed rate. The
DCA negotiator(s) review the proposal to see if it complies with
Office of Management and Budget (OMB) Circular A-21, A-87, or
A-122 requirements, and verify that the costs have been allocated
properly among the organization’s functions. The negotiator
will contact the organization to discuss any concerns he/she has
with the proposal and/or to request any additional information
to complete the review. After discussions with the organization,
the DCA will approve/issue a rate that is mutually agreed to by
the two parties.
Question#3: Why is it necessary to have rate agreements?
Answer: Rate agreements streamline the process of “awarding,”
“monitoring” and “closing out” grants
and contracts. When a grants officer issues an award to an organization,
he/she is unaware of the indirect costs to be incurred by this
particular award. These types of expenses (e.g.; administration,
depreciation, water, electric, janitorial, maintenance, etc.)
are difficult to identify on a grant by grant basis. By using
a DCA approved indirect cost rate, the grant officer can simply
apply the rate to the respective base (e.g., modified total direct
costs, direct salaries and wages, etc.), and have confidence that
the particular award is being allocated the proper amount of indirect
costs.
Question#4: Will the DCA assist grantees/contractors
in obtaining proper approval of the indirect cost rate from other
Federal agencies and State and local units of Government?
Answer: The DCA is available to explain to other organizations
the methodology used in development of the grantee's/contractor's
indirect cost rate. However, the funding of indirect costs is
subject to approval of government authorized representatives and
contracting officers of the respective organization. Under most
circumstances, other Federal agencies will recognize and pay a
grantee/contractor's approved indirect cost rate. The cognizant
Federal agency cannot, however, require states or units of local
government to recognize an approved indirect cost rate.
Question#5: Can the audit costs under Circular A-133
be recovered?
Answer: Circular A-133 allows audit costs to be recovered as
either direct or indirect costs in accordance with applicable
cost principles. However, there is no special appropriation for
audit costs. To recover audit costs, the organization must build
them into the specific grant/contract documents (if direct) or
into the overhead proposal (if indirect).
Question#6: What can submitting organizations do to
help the DCA facilitate their review of an indirect cost rate
proposal?
Answer: If there are questions concerning any aspect of the
proposal, call the DCA rate negotiator to resolve the issue prior
to formal submission. Also, if during a prior negotiation you
agreed to take corrective action(s) on any issues, you must disclose
the status of your action(s).
Question#7: What are some of the concerns the DCA has
about grantee/contractor submissions of indirect cost rate proposals?
Answer: The primary concern is receiving incomplete documentation.
Indirect cost proposals sometimes provide insufficient detail
to explain the functions and the benefits associated with the
costs being allocated. An additional concern is a proposal that
does not reconcile to the financial statements and fails to explain
the difference.
Question#8: Will we receive a negotiation agreement
in the mail?
Answer: No. The organization should include a fax number with
its proposal. Once negotiations are complete, the DCA will fax
the agreement to the organization. After receiving the fax, the
organization is responsible for signing the agreement and faxing
it back to the DCA.
Question#9: If my proposal is due, can I file an extension?
Answer: Yes, contact your DCA field office for information regarding
the extension.
Question#10: If a negotiation is completed and information
included in the proposal is inaccurate, should I contact the DCA?
Answer: Yes; after negotiations, sometimes internal audit, a
public accounting firm, or an intermediary makes significant changes,
which will alter the rate computation.
Question#11: Rate agreements identify rates as being
provisional, final, predetermined, and fixed. What is the difference
between these classifications?
Answer:
Provisional: A provisional rate is a temporary rate established
for a given period of time to permit funding, claiming, and reporting
of indirect costs pending establishment of a permanent (e.g.;
final, predetermined, or fixed) rate for that period. The DCA
also may issue a provisional rates for a period(s) subsequent
to the last permanent rate with the understanding that a permanent
rate may be issued when the actual costs for the provisional period(s)
become known upon the submission of another indirect cost proposal.
Provisional rates are established for all new grantees.
Final: A final rate is a permanent rate established after an
organization’s actual costs for a current year are known.
A final rate is used to adjust indirect costs claimed based on
a provisional rate. These negotiations normally take place on
an annual basis.
Predetermined: A predetermined rate is a permanent rate established
for a specific future period based on a review of actual costs
from a preceding period. These rates are not subject to adjustment
except under very unusual circumstances. To negotiate this kind
of rate, the DCA needs reasonable assurance that the costs used
to establish the predetermined rates will be approximately the
same as the actual costs incurred.
Fixed: A fixed rate has the same characteristics as a predetermined
rate; however, the difference between estimated costs used to
establish the fixed rate and the actual costs incurred during
the fiscal year covered by the rate is classified as a carry-forward.
If the actual costs are higher than the fixed rate, this results
in an under recovery by the grantee. If the actual costs are lower
than the fixed rate, this results in an over recovery by the grantee.
The carry-forward is used to adjust the rate for future years.
Fixed rates are often used to establish fringe benefit rates.
The costs of certain fringe benefits (e.g., health insurance,
etc.) can be very volatile. Fixed rates protect the grantee and
the government from this volatility.
Question#12: What period of time is covered by an indirect
cost rate agreement?
Answer: Typically, a provisional indirect cost rate is negotiated
for a new grantee to cover a one year period. In subsequent years,
a final indirect cost rate agreement is negotiated to cover past
fiscal years, and predetermined or fixed indirect cost rates are
negotiated for the current or future fiscal years.
Question#13: What should a grantee do when grants/contracts
do not provide for any indirect costs or provide for indirect
cost rates lower than those established?
Answer: All indirect costs, using the approved rate, must be
allocated to all grants/contracts regardless of any restrictions
or funding limitations. Allocable indirect costs that exceed any
administrative or statutory restrictions on a specific Federal
grant/contract may not be shifted to other Federal grants/contracts,
unless specifically authorized by legislation. Non-Federal revenue
sources must be used to pay for these un-recovered costs.
Question#14: Our grant with HHS totals $500,000 and
includes a provisional indirect cost rate of 10%. Our actual,
final indirect cost rate is 13%. Will HHS provide us with additional
grant funds due to our higher indirect cost rate?
Answer: HHS will not provide your organization with additional
grant funds due to a higher final indirect cost rate than the
established provisional rate. However, a grant modification may
be allowed to transfer budgeted direct costs to the indirect cost
category due to the increased indirect costs. This would be subject
to the terms and conditions of the grant agreement, e.g. approval
of grant officer, indirect cost ceilings, and administrative cost
limitations.
Question#15: If a grantee/contractor under-expends the
total grant/contract but exceeds the ceiling placed on the indirect
cost by DHHS, can the excess indirect cost be recovered?
Answer: No. The ceiling on the indirect cost is included in
the agreement to limit the amount of grant/contract funds used
for indirect cost purposes by the grantee/contractor. This condition
is known by the grantee/contractor before the expending of any
grant/contract funds.
Question#16: Can our indirect cost rate proposal be
based only on Federal funds since it only represents 15% of our
total revenue?
Answer: No. An indirect cost rate proposal must be accompanied
by a schedule of costs incurred for all projects, Federal and
non-Federal, and the amount of the proposed allocation base must
tie-in with the applicable direct cost base for all projects.
Question#17: What is required for a fringe benefit rate
proposal?
Answer: The following information is required in a fringe benefit
rate proposal:
- A copy of the current fringe benefit policies (only changes
to the policies are required after the initial submission).
- A schedule of the components (i.e. health insurance, FICA,
etc.) included in the fringe benefit pool and the annual cost
for each component
- A fringe benefit rate calculation (fringe benefit pool divided
by total salaries and wages). In some cases, multiple rates
will be required if your organization provides different benefits
to different classes of employees and the costs of these benefits
differ significantly in relation to the salaries of these employees.
For example, salaried employees may have a pension plan which
is not provided to hourly employees.
- A reconciliation of fringe benefit costs and salaries and
wages to the audited financial statements.
- A description of any anticipated changes in fringe benefit
policies, charging practices, or significant projected changes
in expenses for fringe benefit components.
- A carry-forward calculation if the fringe benefit rates are
fixed rates.
- Any additional information required/requested by the DCA.
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Non-Profit Organizations
Question#1: Is the cost of accrued annual leave allowable
under Circular A-122?
Answer: Circular A-122, Attachment A, Paragraph 2E, states "To
be allowable under an award, costs must be determined in accordance
with generally accepted accounting principles". The Financial
Accounting Standards Board issued Financial Accounting Standard
Number 43, Accounting for Compensated Absences, to establish uniformity
in the accounting for annual leave pay. This standard requires
employers to accrue during each accounting period the liability
for compensated absences earned by employees during that period
provided that all of the following conditions are met:
- The employer's obligation relating to employees' rights to
receive compensation for future absences is attributable to
employee's services already rendered;
- The obligation relates to rights that vest or accumulate;
- Payment of compensation is probable; and
- The amount can be reasonably estimated.
The accrual of annual leave does not result in increased costs,
but allows recognizing the cost in the proper accounting period
to improve actual cost determination. In general, compensated
absences are to be accrued in the period in which they are earned
rather than when they are paid. For accrued leave to be an allowable
cost, the personnel policies of the organization must comply with
Financial Standard Number 43.
Question#2: What is the difference between bid and proposal
costs and fund raising costs, and how does a grantee/contractor
treat such costs in its indirect cost proposal?
Answer: Bid and proposal costs represent the salaries, consultant
fees, printing, postage, travel, etc. associated with an organization's
preparation of bids, proposals and applications to perform specific
tasks for remuneration under potential Federal and non-Federal
grants, contracts or other agreements. An organization should
treat bid and proposal expenses as allowable indirect costs subject
to any limitations imposed by the Cognizant Federal agency. Fund
raising costs represent the salaries, consultant fees, printing,
postage, travel, etc. associated with an organization's requests
to private institutions or individuals for donation of funds for
non-specific purposes. Fund raising costs are unallowable for
Federal reimbursement purposes. However, this cost objective shall
be allocated an appropriate share of indirect costs. Accordingly,
fund raising costs are included in the distribution base to compute
an organization's indirect cost rate.
Question#3: If the grantee's policy is to capitalize
equipment under the $5,000 threshold specified in Circular A-122,
is prior Federal approval needed to directly charge the grant
with the cost of equipment?
Answer: No. The grantee is allowed to directly charge the Federal
grant with the cost of equipment under the $5,000 threshold without
obtaining prior Federal approval. This direct cost is usually
classified as supplies in the reporting of Federal grant expenditures
and, if applicable, must be in compliance with any budget limitations.
Question#4: A grantee purchased a building in September,
1995 and refinanced its mortgage in September, 1998. Can the grantee
charge Federal programs with the interest incurred on this mortgage?
Answer: No. Interest on debt incurred to finance or refinance
assets acquired before or reacquired after September 29, 1995
is not allowable.
Question#5: A grantee has contracted to update its computer
network with its affiliates for a total cost of $50,000. Since
each component; i.e., monitor, printer, personal computer, software,
modem, etc., costs less than the $5,000 per unit threshold specified
in Circular A-122, can this "equipment" be charged to
the indirect cost pool?
Answer: No. The components of the computer network make it useable
for the purpose for which it was acquired and establishes the
"system" as a capital expenditure. Accordingly, this
equipment can be appropriately charged to Federal grants either
as a direct or indirect cost, on the basis of depreciation or
a use allowance as specified in Circular A-122.
Question#6: When is a grantee required to prepare a
cash flow statement prior to claiming interest expense on Federal
programs?
Answer: A cash flow statement is prepared on an annual basis
for debt arrangements over $1 million, unless an initial equity
contribution to the asset purchase equals 25% or more. A non-profit
organization shall reduce claims for interest expense by an amount
equal to imputed interest earnings on excess cash flow calculated
in accordance with Circular A-122, Paragraph 23.a.(1)(f)(ii).
Question#7: What is the relationship of Circular A-122,
Cost Principles for Non-Profit Organizations to Circular A-133,
Audits of Institutions of Higher Education and Other Non-Profit
Institutions in regard to indirect costs?
Answer: The compliance supplement for Circular A-133 references
Circular A-122. It sets forth the major compliance requirements
to consider in an organization-wide audit of non-profit institutions
receiving Federal assistance. The compliance supplement contains
general requirements to consider in all financial and compliance
audits. Failure to comply with the general requirements could
have a material impact on an organization's financial statements.
One of these general requirements is presented in Appendix VII
to Circular A-133, "Allowable Costs/Cost Principles."
According to this requirement, the auditor is responsible for
auditing direct and indirect costs to determine whether the costs
claimed comply with Circular A-122.
Question#8: Can transactions with an affiliate affect
allowable costs?
Answer: Yes. A problem may arise in transactions between parent
organizations and their affiliates when the parent organization
has an equity interest in the affiliate. When an equity interest
exists, any profits made by the affiliate improve the equity interest
of the parent. If an affiliate sells a good or service to the
parent and the selling price includes a profit to the affiliate,
the parent's equity interest in the affiliate has been increased.
If the parent then includes the purchase price as a direct or
indirect charge to a Federal award, it has violated the Circular
A-122 cost principle that charges will be at cost and not include
a profit factor.
For example, suppose an organization (the parent) obtains accounting
services from an affiliate and the parent organization has an
equity interest in the affiliate. The fee that the parent pays
to the affiliate must be based on the cost incurred by the affiliate,
and may not include a profit to the affiliate. If the fee does
include a profit factor to the affiliate, the allowable part of
the fee is limited to that portion which represents the cost to
the affiliate exclusive of any profit factor.
This principle also works in reverse. When an organization provides
a good or service to an affiliate, the full cost of providing
that good or service must be recovered from the affiliate, and
an appropriate credit must be applied to the indirect cost pool.
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Colleges and Universities
Question#1: Why do DCA negotiators request additional
data, beyond what is specified under the Standard Format for Long-Form
proposals?
Answer: As noted in Circular A-21, Appendix C - Documentation
Requirements for F&A Proposals, the information required under
the Standard Format is the minimum requirement. Additional documentation
may be requested by the DCA negotiators to address specific concerns
in a particular proposal.
Question#2: What documentation does the DCA require to
support building componentization studies?
Answer: The DCA requires (at a minimum) the following documentation
to support building componentization studies:
- A copy of the study methodology, which includes the procedures
and assumptions used in conducting the study as well as the
results of the study (in summary and in detail).
- A list of the building components used as well as the estimated
useful life for each component. An explanation of how the estimated
useful lives of components were computed or derived should be
provided. The useful lives should reflect actual experience
at the grantee institution.
- The depreciation computed in the study should be reconciled
to the audited financial statement depreciation figures.
Question#3: What documentation does the DCA require to
support space utilization surveys?
Answer: The DCA requires (at a minimum) the following documentation
to support space utilization surveys:
- A copy of the study methodology which includes procedures
and assumptions used in conducting the study. Also, a copy of
the form used to conduct the study as well as a listing of all
space functional categories (Instruction, Organized Research,
Departmental Administration, etc.) and definitions of these
categories should be provided.
- The results of the study should be provided, both in summary
and in detail. The detailed results should include a listing
by building and by department of all rooms, showing the identification
(location) of each room and the percentage of room usage assigned
to each space functional category for each room, totaling to
100 percent of usage.
- A listing of the names of the users of the space on a room
by room basis, and a listing of the funding sources (including
sponsored awards) of the users should be available. The list
should also provide the names of the unfunded users of the space,
such as guest investigators and students.
- The institution should have maps available showing the location
of all surveyed space.
Question#4: What is the difference between On-Campus
and Off-Campus rates?
Answer: The specific definition varies from institution to institution.
However, in general, an Off-Campus rate would be developed for
activities performed in facilities not owned or operated by the
institution, and to which facilities costs are directly charged
to the activities taking place in the facilities.
Question#5: In performing a space utilization survey,
is it permitted to split a room with more than one function into
two or more sub-rooms?
Answer: It is not permitted to split the room into two or more
sub-rooms. Either determine the percentage use of the room by
function (space functionalization), or use the allocation methodologies
for joint space specified in Circular A-21, Paragraph F.2.
Question#6: A Principal Investigator has a three year
award with committed cost sharing amounting to a particular dollar
amount over the life of the project. Can the institution fulfill
the entire cost sharing commitment during any one year of the
project?
Answer: This is permitted only if the project language specifies
this. Otherwise, it is presumed that the cost sharing is spread
equally over the life of the project.
Question#7: What is considered to be the preferred term
of agreement for an F&A Rate Agreement, and what variables
affect the length of the term negotiated?
Answer: The normal procedure for establishment of F&A rates
for universities is to negotiate predetermined rates for a period
of two to four years, based on the review of a complete F&A
proposal. The number of years negotiated may depend on the level
of uncertainty associated with the particular negotiation. For
example, is the university’s research funding fairly stable
or is it expected to change significantly? Is the university planning
major facility upgrades, or are only minor facility improvements
planned? These are the types of questions considered when deciding
the number of years to negotiate.
Question#8: What is the appropriate treatment of salary
costs in excess of the NIH salary limitation in terms of an F&A
proposal?
Answer: The excess salaries must be included in the appropriate
base in the F&A rate calculation according to where the effort
was performed by the individual. For instance, if an individual
worked on an Organized Research project(s), the salary in excess
of the NIH limitation related to effort on that project(s) must
be included in the Organized Research base.
Question#9: Is it allowable for an institution to include
State General Obligation Bond Interest expenses in F&A costs
in the institution’s F&A proposal?
Answer: State General Obligation Bond Interest is allowable as
an F&A cost for a University or University System provided
that the interest has first been allocated to the University through
the State-Wide Cost Allocation Plan. The amount allocated to the
University or University System must then be further allocated
to the appropriate campuses and buildings by the University.
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State and Local Governments
Question#1: How can I determine which Federal agency
is cognizant for a particular governmental unit?
Answer: The OMB published in the January 6, 1986 Federal Register,
a list of cognizant agency assignments for state and local governments.
To date, the list has not been revised. HHS is cognizant for all
state-wide central service cost allocation plans and public assistance
cost allocation plans. For those governmental units not listed
by OMB, cognizance is determined based on the Federal agency providing
the largest amount of Federal funds.
Question#2: What is a central service cost allocation
plan?
Answer: Most governmental units provide services, such as accounting,
purchasing, computer services, motor pools, fringe benefits, etc.,
to operating agencies on a centralized basis. Since the Federal
awards are performed within the individual operating agencies,
there needs to be a process whereby these central service costs
can be identified and assigned to benefiting activities on a reasonable
and consistent basis. The central service cost allocation plan
provides that process.
The central service cost allocation plan is the required document
that identifies, accumulates, and allocates or develops billing
rates based on the allowable costs of services provided by a governmental
unit on a centralized basis to its agencies. The costs of these
services may be allocated or billed to benefiting agencies.
Allocated central service costs (referred to as Section I costs)
are allocated to the benefiting operating agencies on a reasonable
basis. These costs are usually negotiated and approved for a future
year on a “fixed-with-carry-forward” basis. Section
I costs assigned to an operating agency through the central service
costs allocation plan are typically included in an operating agency’s
indirect cost pool.
Billed central service costs (referred to as Section II costs)
are billed to benefiting agencies on an individual fee-for-service
or similar basis. The billed rates are usually based on the estimated
costs for providing the services. An adjustment is made at least
annually for the difference between the revenue generated and
the actual allowable costs. Section II costs billed to an operating
agency may be charged as direct costs to the agency’s Federal
awards or included in its indirect cost pool.
State-wide cost allocation plans for central services must be
prepared annually and submitted to HHS for approval. Federal agencies
will not honor claims for central service costs unless the state-wide
cost allocation plans are approved by HHS.
Question#3: If a central service activity is omitted
when the state/local-wide cost allocation plan is approved, can
the state or local governmental unit recover the cost of the omitted
activity in a future plan?
Answer: Circular A-87, Attachment C, Section C, specifically
states that costs of central services omitted from the plan will
not be reimbursed. However, if a service did not exist (as opposed
to being overlooked) when the plan was prepared, the approved
plan can be reopened to include the new activity. The definition
of nonexistent does not include central services that existed
when the plan was finally approved, nor those central services
that the governmental unit should have known would exist in the
future, based on approved budgets.
Question#4: Under a central service cost allocation plan,
is the governmental unit required to submit documentation for
internal service funds (ISFs) with operating budgets under $5
million?
Answer: Attachment C, Section E of Circular A-87 specifies documentation
requirements for ISFs with operating budgets of $5 million or
more. It also states that the requirements may be modified, expanded
or reduced by the cognizant Federal agency on a case-by-case basis.
At a minimum, the governmental unit must submit a schedule of
ISFs under $5 million that reconciles the ISF Retained Earnings.
(Refer to ASMB C-10, “A Guide for State, Local and Indian
Tribal Governments” for a sample schedule format.). This
schedule provides essential information for Federal review and
approval of the ISFs, and which is not included in the comprehensive
annual financial report or other financial statements. In addition,
the reconciliation determines a Circular A-87 allowable balance
on an on-going basis. Additional documentation may be requested
on a case-by-case basis depending, in part, on the dollar impact
on Federal awards and when a detailed review of the ISF was last
performed by the cognizant agency.
Question#5: What is an indirect cost rate proposal?
Answer: An indirect cost rate proposal is prepared by a governmental
unit or component to provide necessary documentation to substantiate
its request of an indirect cost rate. Indirect costs are normally
charged to the Federal awards by the use of an indirect cost rate.
The indirect costs include: (i) costs originating in the agency
carrying out the Federal awards, and (ii) costs of central governmental
services distributed through the central service cost allocation
plan that are not otherwise treated as direct costs.
Question#6: How does a local governmental unit establish
an indirect cost rate with HHS?
Answer: A local governmental unit must develop an indirect cost
proposal in accordance with the Circular A-87 requirements, and
maintain the proposal and related supporting documentation for
audit. Local governmental units are usually not required to submit
their proposals unless specifically requested to do so by HHS.
Question#7: What if a local governmental unit only receives
HHS funds as a sub recipient? Does an indirect cost rate have
to be negotiated with HHS?
Answer: Where a local government only receives Federal funds
as a sub recipient, the primary recipient is responsible for negotiating
the sub recipient’s indirect cost rate(s), and monitoring
the costs - not HHS.
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Public Assistance Agencies
Question#1: What is a public assistance cost allocation
plan (PACAP)?
Answer: It is a narrative description of the procedures used
by a State public assistance agency to identify, measure, and
allocate costs incurred in support of the programs administered
or supervised by the State agency. The procedures described in
the PACAP should address all costs incurred by or allocable to
the State agency except expenditures for financial assistance,
medical vendor payments, and payments for goods and services provided
directly to program recipients.
Question#2: What agencies must prepare and submit a PACAP
for Federal review and approval by the DCA?
Answer: The State agency responsible for the administration or
supervising the administration (hereafter included under the term
administration) of the State Plan for one or more of the public
assistance programs must prepare and submit a PACAP for review
and approval. The public assistance programs are listed in 45
CFR 95.503 and include the Temporary Assistance for Needy Families
(TANF) program (Title IV-A), the Medicaid program (Title XIX),
the Child Support program (Title IV-D), the Foster Care and Adoption
Assistance programs (Title IV-E), etc.
Question#3: Will a State have more than one PACAP?
Answer: This depends on the number of agencies or departments
within the State that are responsible for the administration of
the State Plans for the public assistance programs listed in 45
CFR 95.503. Where only one State agency is responsible for administering
the State Plans for the public assistance programs, only one PACAP
would be required. However, where a State has more than one agency
responsible for administering these State Plans, a PACAP would
be required for each State agency. For example, where one State
agency is responsible for administering the State Plans for the
TANF and Medicaid programs, and another State agency is responsible
for administering the State Plans for the Title IV-E foster care
and adoption assistance programs, a PACAP would be required to
be prepared and submitted by each of these State agencies.
Question#4: Can a PACAP be submitted for a component
of a State department?
Answer: Yes. Where the State agency responsible for administering
the State Plan is organizationally part of a larger State department
that includes other components, the term State agency (for PACAP
purposes) refers to the specific component within the State department
administering the State Plan for the public assistance programs.
In that case, a PACAP would be required to be submitted for the
State department’s component responsible administering the
State Plan. For example, in a State where the State Health Department’s
Division of Medical Services is the State agency responsible for
administering the State Plan for the Medicaid program, a PACAP
would be required to be prepared and submitted for that Department’s
Division of Medical Services.
Question#5: How frequently must a State agency revise
its PACAP?
Answer: The State agency must revise its PACAP whenever the procedures
described in the existing plan become outdated. This situation
can occur as a result of changes to the State Plans for the public
assistance programs, organizational changes, changes in program
operations or when other changes occur which make the procedures
in the approved PACAP invalid. It can also result from changes
in Federal law or regulations affecting the validity of the approved
cost allocation procedures, or when a material defect in the PACAP
is disclosed by either the State or the DCA.
Question#6: When should a State agency submit a PACAP
amendment?
Answer: The State agency is required to promptly amend its PACAP
when the existing plan becomes outdated. If the State agency failed
to submit an amended cost allocation plan as required by 45 CFR
95.509, the costs improperly claimed will be disallowed.
Question#7: What must the State agency do if there have
been no revisions to the public assistance cost allocation plan
during the State’s fiscal year?
Answer: If a State agency has not submitted a PACAP or amended
its PACAP during a given State fiscal year, an annual statement
should be provided to the Director, DCA certifying that it’s
approved PACAP is not outdated. The statement should be submitted
within 60 days after the end of that fiscal year.
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Hospitals
Question#1: On new capital expenditures, do hospitals
need to get an interest waiver?
Answer: Yes, interest waivers should still be requested. The hospital
should contact its DCA field office to obtain information.
Question#2: Have the new hospital regulations been issued?
Answer: No, the new regulations are currently under development.
Question#3: Should observation bed days be included when
calculating patient care per diem rates?
Answer: Yes, the cost for observation bed days is included in
adult and pediatric inpatient costs. The days are found on the
Form CMS2552 on worksheet s-3, part 1.
Question#4: Is intern and resident cost an allocable
indirect cost?
Answer: No, the National Institutes of Health issued a regulatory
bulletin disallowing the intern and resident cost as an indirect
cost. All intern and resident costs should be charged as direct
costs on the grant or contract.
Question#5: Can you allocate cost after stepdown on worksheet
B part1?
Answer: No, cost cannot be reallocated after stepdown; this results
in over 100% of cost being allocated to Federal programs. A new
cost center must be established on the Form CMS2552 and approval
must be obtained from the Center for Medicare and Medicaid Services
(CMS) to make changes on the cost report.
Question#6: What should be submitted with an indirect
cost or patient care proposal?
Answer: The proposal should include a complete copy of a signed
and dated Form CMS2552 or an equivalent document; audited financial
statements; a reconciliation of the proposal to the CMS2552; for
new grantees – a copy of the approved Federal award; and
a separate presentation of all projections of indirect cost rates
for future years. The proposal should also include phone contacts,
facsimile numbers, and e-mail addresses.
Question#7: Can multi-year rates be issued for indirect
cost rates and patient care rates?
Answer: Yes; a predetermined rate can be issued for current and
future years. The predetermined rate cannot be changed by either
the government or the grantee unless subject to regulatory policy
issued in section III of the hospital rate agreement or Section
II of the research patient care rate agreement.
Please email any questions, comments or suggestions to bcaudill@psc.gov.
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