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December 31, 2011
The Department policy covering the allowability of costs is based upon OMB Circular No. A-87
This section references Personnel Costs, Professional Services, Attorney Services, Board Member Expenses, Telephone, Postage, Supplies, Cost of Space, ADP Equipment, Capital Equipment, Travel, Training, Registration Fees and other costs. The Section also gives examples of each item listed above as far as allowable and unallowable costs. Exclusion of a particular item of cost is not intended to imply that it is unallowable.
The following costs are allowable:
A. Personnel Costs
Salaries, wages, and fringe benefits of DSS employees hired under the state merit system are allowable as follows:
1. Salaries shall be allocated to programs by time distribution methods and supported by payroll and attendance records for individual employees.
2. Temporary employee costs are allowable to the extent of the wages and fringe benefit payments made by counties.
3. Bonuses, post-retirement health benefits and severance payments paid to agency employees are allowable when such benefits are included in a county-wide pay plan that complies with existing state personnel policies.
4. Wages and benefits paid to janitorial staff are classified as facility costs and are to be reported with "cost of space" expenditures.
5. Hospital premiums paid for retirees are allowable when such benefits are included in the county's official approved pay plan. These expenditures should be reported on the DSS-1571, Part II, Line 311.
1. General
"Professional Services" can include a variety of administrative support functions that an agency might purchase, including program-related services purchased from an expert or consultant such as translation, interpretation or the services of an attorney. Whichever type of services are purchased, the following requirements must be met if the costs are to be reported on the DSS-1571 Part II as administrative support for the agency:
a. The services have not been identified as being services to clients, but are directly and tangibly beneficial to the agency in the furtherance of its social services programs.
b The services must be in conformity with a written contract which specifies terms and conditions that have been properly executed, and are on file with both parties prior to requesting reimbursement.
c. Legal expenses incurred in the prosecution of claims against the federal government are unallowable. Likewise, legal expenses incurred in the prosecution of claims or in any other litigation against the State of North Carolina, or against an agency of the State of North Carolina, are unallowable.
d. Legal expenses incurred in defending the county department of social services against claims brought in contention of wrongful action are allowable. This would include attorney fees and those necessary additional expenses (such as deposition costs, witness fees, and court reporter fees) incurred up to the point that a settlement is agreed to, or that a judicial resolution is imposed. Any further costs associated with the claim, including amounts paid to or on behalf of the claimant, are unallowable. All costs associated with the filing of countersuits would also be unallowable.
Contracts shall be negotiated on the basis of an established fixed rate. For the services of professionals other than attorneys (attorney services are discussed below), reimbursable rates may be negotiated as follows:
e. Regarding those services for which the Social Services Commission has established, a maximum rate may be negotiated up to the rate established by the Commission.
f. For services other than those addressed by the Social Services Commission, reimbursable rates may also be negotiated provided that the county thoroughly documents that the rate agreed upon is reasonable, necessary, and competitive.
2. Attorney Services Purchased By Contract - Legal & Administrative
The cost of legal services required in the administration of the grant programs is allowable. The cost of legal services provided by the county attorney as a part of his/her official duties (legal advisor to the county commissioners) is unallowable. Legal expenses for the prosecution of claims against the federal government are unallowable. Otherwise, attorney services may be purchased subject to the following:
a. Legal Attorney Services - These are defined as the activities engaged in by an attorney in the actual provision of legal services to the agency. A rate of up to $125 per hour may be negotiated for these services, which must be inclusive of the attorney's time as well as any adjunctive expenses routinely incurred by an attorney in the public practice of law. Such adjunctive expenses might include photocopying, postage, telephone bills, legal secretary expenses, and so on.
A county may request a waiver for any rate above $125 per hour. Such request should include justification for the rate above $125 per hour. This justification should include market rate for Attorney services in the area, projected number of hours of usage, type of cases the Attorney will handle and programmatic area cases fall in. Request for a waiver must be submitted to the Division of Social Services Chief of Budget and Contracts. If approved, the approval is for one state fiscal year. A new request for a waiver must be submitted each state fiscal year.
Agencies may also hire an attorney on a retainer basis, provided that the fees reported for reimbursement are adjusted annually (by June 30th) so as to not exceed the hourly rates indicated [above] for the hours actually worked.
Child Support attorneys may not be hired on retainer per federal regulations requiring reimbursement for ACTUAL TIME spent on a case based on the contracted hourly rate.
b. Administrative Attorney Services - These are defined as the activities engaged in by an attorney, which are outside the realm of legal services as defined in the preceding paragraph. Specifically, this category would include attendance at professional meetings, seminars, and the like. A rate of up to $55 per hour may be negotiated for these services, not to exceed $440 per day.
Agencies may also hire an attorney on a retainer basis, provided that the fees reported for reimbursement are adjusted annually (by June 30th) so as to not exceed the hourly rates indicated [above] for the hours actually worked.
Child Support attorneys may not be hired on retainer per federal regulations requiring reimbursement for ACTUAL TIME spent on a case based on the contracted hourly rate.
Travel and Subsistence payments are allowable in addition to the hourly rates up to a maximum of the same rates that are applicable to the county DSS employees. These costs must be included in the agreement as a budget addendum. However, an attorney may not be paid an hourly rate for time spent traveling.
Members of the county Board of Social Services may receive a per diem in such amount as shall be established by the county board of commissioners. Reimbursement for subsistence and travel shall be in accordance with a policy set by the county board of commissioners. (Report on Part II as Code 311.)
D. Communications and Supplies
1. Includes such items as telephone services, postage, messenger service, postal meter charges, printed stamped envelopes, special delivery fee, or postage due charges.
2. Supplies include such general office supplies as paper, pencils, folders, unstamped envelopes, clips, etc.; also personal property, e.g., staples, pencil sharpeners, file baskets, books, etc., which do not meet the definition of non-expendable property.
E. Cost of Space that is essential to agency functions is a proper charge. Such charges may take the form of:
1. rental and service and maintenance costs in leased/rented buildings (from private owners or other public agencies)
2. costs of service and maintenance in county owned buildings (or provider agency owned buildings). The standards for allowable costs in OMB Circular A-87 for depreciation and use allowances and building space and related facilities apply.
The Federal Financial Participation (FFP) in the acquisition costs of data processing equipment and services to meet local county agencies need is only available if it does not duplicate or modify an already existing county or state system and limited by the following based criteria:
1. Individual items of computer equipment with a unit cost of less than $5,000 may be expensed rather than depreciated regardless of the total cost of acquisition.
2. Prior approval is required for $1,000,000.00 or more on noncompetitively acquired data processing equipment and services.
3. Competitively acquired data processing equipment and services used to meet county needs, costing $5,000,000 or more per acquisition needs prior approval.
The following specific criterion applies to the purchase of office equipment:
1. Definition. - Items which are of a nonexpendable nature, having a useful life of more than one year and an acquisition cost of $5,000.00 or more per unit, are classified as nonexpendable equipment. A county may use its own definition of equipment provided that such definition would at least include all tangible nonexpendable property as defined above.
2. Availability of funding. - Federal participation is available in expenditures for nonexpendable personal property only in the form of depreciation expense, or as an annual use allowance of 6 2/3% of acquisition cost [except as indicated in item #6, "Automatic Data Processing" and in paragraphs (l) and (2), below]. Whichever option is chosen, allowability is limited to the period for which the property is used in the county agency program(s).
3. Furniture cannot be direct-charged.
a. A county may claim FFP in the full amount of expenditures for acquiring nonexpendable personal property costing less than $25,000. In the case of property acquired with a trade-in, the $25,000 limitation is applied to the amount paid for the new property plus the book value of the property traded.
b. The $25,000 threshold is not applicable for purchases supported by funds from USDA/FNS, the depreciation threshold for these purchases remains at $5,000.
a. Any vehicles purchased by the county using Federal and /or State funds require prior approval from the Controller’s Office prior to purchasing. Reimbursement for all vehicles is made at the administrative rate. When a vehicle is purchased for use by a Department of Social Services (DSS), the cost is allocated between the programs that will be using it. However, with prior approval of the North Carolina Division of Social Services (NCDSS) program staff and the Division of Social Services Deputy Director of Operations, and the assurance that the vehicle will be used exclusively for one specific program, the cost of the vehicle may be direct charged. To direct charge the vehicle's costs, the county must submit a request that includes their assurance of exclusive use and the plan of use (how many clients will use it, who else will be using it, why no other resource can be used, etc.).
The total costs claimed each month may be determined in one of the following ways:
(1.) Depreciation - Reimbursement for the vehicle may be claimed on a monthly basis over its useful life. The Division has determined that the useful life of a vehicle is 110,000 miles. Therefore, an estimate of the number of miles to be driven per month, divided into the 110,000 will determine the useful life of the vehicle in months. By dividing the purchase price by the useful life in months, the result is the maximum monthly reimbursement amount. If experience shows that the actual and estimate for monthly mileage use are significantly different, then the maximum monthly allowance must be adjusted.
Note: According to the Office of Controller State Policy (OSC), “The general rule is that careful estimates of useful lives that later prove to be incorrect based on new information should be considered changes in estimates. Changes in estimates must be handled prospectively (i.e., restatement of prior years is prohibited).”
For example, a vehicle is purchased during 2002 with the established policy stating the useful life to calculate depreciation is based on 100,000 miles. Even though during 2004, the same vehicle continues to be in use and had not fully depreciated, but a new revised policy has instituted the useful life as 110,000 miles, the vehicle purchased during 2002 would continue to calculate depreciation based on the policy in place when the vehicle was originally purchased.
If the 110,000 mile basis is not appropriate, an alternative method may be requested. The request must be sent to the DHHS Controller’s Office and include your justification for the alternative.
(2.) Use allowance - Reimbursement for the vehicle may be claimed on the basis of use. By dividing the purchase price by 110,000 miles (useful life as above) the result is the cost per mile. For example, if the purchase price of a vehicle was $22,000, the mileage rate is $0.20/mile. The cost per mile is then multiplied by the total miles on the log for the month to determine the reimbursement amount for the current month.
(3.) Expensed - With the prior review by NCDSS program staff and the approval of the Deputy Director of Operations, a county may expense a vehicle that costs up to $25,000.
(4.) Mileage - Reimbursement for the vehicle may be claimed using the allowable rate for the county, up to the limit of the IRS rate (such as, 22 or 30 cents per mile). This method normally takes into account all maintenance, insurance, etc.; so any of these costs included in the rate may not be claimed in addition to mileage rate.
(5.) Regardless of the method of reporting for reimbursement, the county must maintain an ongoing log that accounts for the purpose of use for 100% of the miles driven. The county must also maintain invoices, logs, worksheets, and other records as necessary to support the claim for reimbursement. For items numbered (1) through (3) above, other expenses, such as maintenance, insurance, gas, etc. may be claimed for reimbursement in addition to the mileage rate.
(6.) The purchase of a vehicle must be in accordance with policy contained in Code of Federal Regulations at 45 CFR Part 95 as well as other policies relative to equipment purchases and management of property.
(7.) An ownership interest is maintained in a vehicle purchased with any federal funding. Therefore, a vehicle expensed cannot be disposed of without the same percentage of proceeds, or unused portion, being returned to the federal program(s) as was used to reimburse for it. For example, if a county that normally follows the use allowance method expensed a $20,000 vehicle ($10,000 federal funds and $10,000 county funds) and disposed of it after only 27,500 miles of use, the county would have to return $7,500 to the federally funded program. This is determined by computing the unused portion of the vehicle, which is 75% {(110,000 - 27,500)/110,000}, and the amount of the purchase that was expensed to the federally funded program, which is $10,000. The amount due the federal program is the unused portion of the federal funding or 75% times $10,000.
(8.) For information on allowing non-program participants to ride on a vehicle previously direct charged to a specific program, please contact the division of Social Services.
b. Contract providers may purchase vehicles subject to the conditions listed below:
(1.) The Contractor will retain title to the vehicle(s) and will immediately transfer title to the Department of Health and Human Services upon termination of the contract; dissolution of articles of incorporation or other similar action that may have an adverse effect on the Contractor's ability to carry out the provisions of the contract, whichever occurs first.
(2.) The Contractor may not trade or otherwise dispose of the vehicle(s) without written consent of the Division of Social Services.
(3.) The purchase of the vehicle(s) must be in accordance with policy contained in Code of Federal Regulations at 45 CFR Part 95 as well as other policies relative to equipment purchases and management of property.
(4.) Conditions and requirements (a) through (c) must be incorporated in each year's contract and shall remain in effect as long as a valid contract exists or until the vehicle(s) useful life (as defined by the Division of Social Services) is exhausted, which occurs first.
County staff is authorized reimbursement for official travel that is within the context of a county-wide travel plan approved by the Board of County Commissioners and maintained in the county for review and audit. In the absence of such a county plan, reimbursement of claims submitted to the Division shall not exceed the maximum allowable under state policy.
I. Staff Development and Training
Costs for training, meetings/conferences, seminars or workshops, payment for books; training supplies and equipment; tuition; registration for training sessions; travel and per diem for trainees; cost of space rented for training are proper charges. If any of these costs are client-related and can be identified to a particular program or funding source, then the costs should be charged directly to that program or funding source. Furniture and supplies cannot be direct charged.
State law allows reimbursement of the actual amount of convention registration fees as shown by a valid receipt or invoice [G.S. 138-6(a), (4)].
A lease of personal property with an option to purchase the property is subject to the laws and contracting requirements mentioned under FORMAL BIDDING, INFORMAL BIDDING, and LOW VALUE PURCHASES. The total estimated expenditure determines which of these types of purchases/contracts applies to the lease-purchase.
For accounting purposes, lease-purchase agreements are recorded as purchases of fixed assets with the related incurring of debt. Counties are cautioned that they may not enter into a lease-with-option-to-purchase without complying with the applicable bidding requirements. Such a lease-option agreement must be let to contract after complying with the competitive bidding rules, even though the rental payments will be credited toward the purchase price should the option be exercised at some later date.
Counties are further cautioned that, in awarding a contract for the purchase of equipment, they may not take into consideration the terms of a lease with a lessor under which the county can be given credit (on the purchase price of the equipment) for amounts already paid the lessor.
And finally, counties may not claim State/Federal Financial Participation in that portion of the total amount of a lease agreement that exceeds the amount that the leased equipment could have been purchased for at the outset.
Policy: A lease is an agreement between a lessor and a lessee that gives the lessee the right to use property, plant or equipment for a specific period of time in return for stipulated cash payments. Leases are classified as either capital or operating.
Capital Leases: According to Financial Accounting Standards Board (FASB) Statement 13, "Accounting for Leases", a lease is considered a capital lease if it meets any one of the following criteria:
The lease transfers ownership of the property to the lessee by the end of the lease term.
The lease contains an option to purchase the leased property at a bargain price.
The lease term is equal to or greater than 75 percent of the estimated economic life of the leased property (e.g., lease term four years, estimated life five years).
The present value of rental and other minimum lease payments equals or exceeds 90 percent of the fair value of the leased property less any investment tax credit retained by the lessor (e.g., future minimum lease payments $9,000, fair value $10,000).
Operating Leases: To determine if a lease is operating, review the four criteria above. If it does not meet any of the criteria, the lease is considered an operating lease. All costs incurred are expensed when recording operating lease activity. Neither an asset nor an obligation is recorded for operating leases. Accordingly, rental payments are recorded as rental expense in the operating statement. Note disclosure is required on the financial statements.
L. Lease/Rental Agreements
Competitive bidding is required based on the amounts indicated in items 3 and 4 of VIII A-2-1, even if the equipment is already on site on a rental or lease arrangement.
M. Other Allowable Items of Cost
1. Bonds covering county agency employees in their official capacities.
3. Allocated costs for county central supporting services (Indirect Cost) provided a county-wide cost allocation plan has been prepared and is on file.
4. Agency memberships in business, technical and professional organizations whose purpose is social services related.
5. Agency subscriptions to business, technical and professional periodicals and books regarded as program related, necessary and reasonably priced.
6. Taxes that are paid directly by an agency, and for which refunds or legal exemptions are not permitted by law, are allowable. An example of sales taxes paid which are reimbursable are those paid to an out of state entity. Please note the following clarifications as to how this policy applies in certain instances.
(a) When an agency reimburses an employee for actual travel expenses (or pays the employee an allowance in lieu of such reimbursement), the county may not properly claim a refund on sale taxes paid in connection with the travel expenses. Thus, the agency may report these sales taxes to the Division of Social Services for state and federal financial participation.
(b) When an agency stockpiles goods (such as fuel, heaters, blankets, fans, food, etc.) which will subsequently be given or loaned to recipients who are not specifically identified when the goods are purchased, the purchases are considered to have been made by and for the agency. The sales taxes paid thereon may be properly refunded to the county by the North Carolina Department of Revenue, and therefore are not allowable for state and federal financial participation through the Division. (In this situation, the tax refund status is essentially no different than it would be if the agency bought a box of paper clips - the tax is refundable.)
7. Notary Public fees or necessary costs incurred in the process of securing notary status for agency employees are allowable.
8. Physicians, dentists, psychiatrists - when providing direct medical care may receive up to $75.00/hour.
9. Stipends for cell phone usage-Federal regulations requires reimbursement cost to be of measurable value in order for funds to be expensed. A settlement process is necessary to ensure that counties only document valid business expenditures which can withstand audits.
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For questions or clarification on any of the policy contained in these manuals, please contact your local county office.
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