| (D) Nonroutine revenues such as income from operations
not associated with providing contracted services, including, but
not limited to, beauty and barber shops, vending machines, gift shops,
canteen stores, and meals sold to employees or guests should be offset
or reduced by the related expenses prior to reporting the revenue
on the cost report. Expenses related to providing these types of non-contracted
operations are unallowable costs. If nonroutine operating expenses,
including overhead costs incurred to generate nonroutine operating
revenue, exceed nonroutine operating revenues, the net nonroutine
operating expenses are unallowable costs. Routine operating revenue
received as payments for the contracted services, such as income from
private clients, private room and board, or other sources of routine
contracted services are not to be offset. Refer to §355.102(k)
of this title for further guidelines on reporting net expenses.
(19) In-kind donations.
(A) Allowable in-kind donations.
(i) Depreciation of in-kind donations is limited to
donated buildings and donated vehicles used in the direct provision
of contracted client services, where title has been transferred to
the provider entity by a third party in an arm's-length transaction.
Depreciation must be reported in accordance with subsection (b)(10)
of this section. The historical cost basis used to depreciate vehicles
must be consistent with the retail price of the National Automobile
Dealers Association (NADA) listings; or, in the case of a new vehicle,
the documented historical cost to the donor or NADA may be used. The
historical cost basis used to depreciate donated buildings must be
the lower of:
(I) the most recent tax appraisal of the building prior
to donation, unless the donor was exempt from tax appraisal, in which
case an independent appraisal made by a third-party appraiser at the
time of donation may be used in place of the tax appraisal (for donations
made prior to the provider's 1997 fiscal year, a current appraisal
from an independent third-party appraiser may be used to establish
the historical cost); or
(II) the documented historical cost to the donor.
(ii) Expenses actually incurred to maintain a donated
asset for use in providing contracted client care to clients are allowable.
(iii) If a provider receives a donation of the use
of space owned by another organization and if the provider and the
donor organization are both part of a larger organizational entity
(such as units of a state or county government), the space is not
considered a related-party donation, but rather treated as allowable
costs requiring allocation between the provider and the other organization.
For example, if a county home health agency is given space to use
in the county office building, costs associated with the use of the
space (such as depreciation, janitorial services, maintenance, and
repairs) must be allocated from the county to the county home health
agency. Allocation of costs must be in compliance with §355.102(j)
of this title.
(B) Unallowable in-kind donations. The value of unallowable
in-kind donations may be collected for specific programs at the discretion
of HHSC for statistical purposes only, on a schedule separately identified
for such purpose. The value of in-kind donations to a contracted provider,
such as produce, supplies, materials, services, equipment, or other
items used by the contracted provider which the contracted provider
did not purchase, is an unallowable cost. The value of in-kind donations
of buildings or vehicles when the title is not transferred to the
provider is an unallowable cost. The value of in-kind donations to
a contracted provider which are not arm's-length transactions are
unallowable costs. The contracted provider may not treat as an allowable
cost the imputed value for unallowable in-kind donations.
(20) Miscellaneous costs.
(A) Employee relations expenses. Costs relating to
employee relations are different from fringe benefits, as specified
in paragraph (1)(A)(iii) of this subsection, in that employee relations
expenses incurred are for employees as a group rather than as a fringe
benefit for an individual employee. Examples of allowable employee
relations costs, which are reported as administrative costs for cost-reporting
purposes, include a staff party, an employee outing, or other such
staff expenses intended to boost employee morale and in turn increase
the efficiency and quality of care provided. Other examples of allowable
employee relations expenses are plaques or awards presented to employees
for certain achievements or honors. Employee relations cost which
discriminates in favor of certain employees, such as employees who
are officers, stockholders, related parties, or the highest paid individual(s)
in the organization are unallowable. Employee relations costs are
limited to a ceiling of $50 per employee eligible to participate per
year. If a staff party includes nonemployees, an allocation must be
made such that only the portion of costs relating to employees and
their families in attendance is reported on the cost report. If a
staff party also serves as an open house for promotional purposes,
an allocation of costs must be made so that only costs relating to
employees and their families in attendance are reported as allowable
costs. Entertainment expenses other than those for the benefit of
current clients or those for staff employee relations described above
are unallowable costs.
(B) Organization costs. Organization costs are those
costs directly incident to the creation of a corporation or other
form of business necessary to provide contracted services. These costs
are intangible assets in that they represent expenditures for rights
and privileges which have a value to the business enterprise.
(i) Allowable organization costs include, but are not
limited to, legal fees incurred (such as drafting documents) in establishing
the corporation or other organization, necessary accounting fees,
and fees paid to states for incorporation. Allowable organization
costs must be amortized over a period of not less than 60 consecutive
months, beginning with the first month in which services are delivered
to the first client.
(ii) The following types of costs are considered unallowable
organization costs: costs relating to the issuance and sale of shares
of capital stock or other securities, reorganization costs, and stockholder
servicing costs. If the business or corporation never commences actual
operations, the organization costs are unallowable.
(C) Franchise fees.
(i) Allowable franchise fees. Allowable franchise fees
include those costs related to actual goods, supplies, and services
received in return for fees paid to a company for the right to sell
its goods and/or services in a specific territory.
(ii) Unallowable franchise fees. Franchise fees based
upon percentages of revenues and/or sales are unallowable costs. Franchise
fees based upon goodwill are unallowable, with goodwill being that
intangible, salable asset arising from the reputation of a business
and its relationship with its customers.
(D) Startup costs. Startup costs are those reasonable
and necessary preparation costs incurred by a provider in the period
of developing the provider's ability to deliver services. Startup
costs can be incurred prior to the beginning of a newly-formed business
and/or prior to the beginning of a new contract or program for an
existing business. Allowable startup costs include, but are not limited
to, employee salaries, utilities, rent, insurance, employee training
costs, and any other allowable costs incident to the startup period.
Startup costs do not include capital purchases, which are purchased
assets meeting the criteria for depreciation in paragraph (10) of
this subsection. Any costs that are properly identifiable as organization
costs or capitalizable as construction costs must be appropriately
classified as such and excluded from startup costs. Allowable startup
costs should be amortized over a period of not less than 60 consecutive
months. If the business or corporation never commences actual operations
or if the new contract/program never delivers services, the startup
costs are unallowable.
(i) For a newly-formed business, startup costs should
be accumulated up to the time the business begins (that is, when services
are delivered to the first client/customer). Amortization of startup
costs for a newly-formed business begins the month the business begins.
In the event that a newly-formed business is established for the direct
purpose of contracting with the state for delivery of client care
services, startup costs should be accumulated up to the time the contract
is effective or the time the first client receives services, whichever
comes first, with amortization of startup costs beginning the same
month.
Cont'd... |
