(B) Unallowable management fees. Fees for management
of personal investments or investments not necessary for the provision
of contracted services are unallowable costs.
(7) Central office costs. A chain organization consists
of a group of two or more contracted entities which are owned, leased
or controlled through any other arrangement by one organization. A
chain may also include business organizations which are engaged in
other activities and which are not contracted program entities. Central
offices of a chain organization vary in the services furnished to
the components in the chain. The relationship of the central office
to an entity providing contracted services is that of a related party
organization to a contracted provider. Central offices usually furnish
central management and administrative services such as central accounting,
purchasing, personnel services, management direction and control,
and other necessary services. To the extent the central office furnishes
services related directly or indirectly to contracted client care,
the reasonable costs of such services are allowable. Allowable central
office costs include costs directly related to those services necessary
for the provision of client care for contracted services in Texas
and an appropriate share of allowable indirect costs. Where functions
of the central office have no direct or indirect bearing on delivering
contracted client care, the cost for those functions are not allowable
costs. Costs which are unallowable to the contracted provider are
also unallowable as central office costs. Where a contracted provider
is furnished services, facilities, leases, or supplies from its central
office, the costs allowed are subject to the guidelines of related
party transactions in §355.102(i) of this title. Owner-employees
and related parties receiving compensation for services provided through
the central office are allowable to the extent provided in paragraph
(2)(A) and (B) of this subsection, concerning compensation of owners
and related parties.
(8) Utilities. To be allowable, the utilities must
be used directly or indirectly in the provision of contracted services.
(9) Repairs and maintenance. For cost-reporting purposes,
repairs and maintenance are categorized as ordinary or extraordinary
(major) repairs and should be handled as follows.
(A) Ordinary repairs and maintenance are defined as
outlays for parts, labor, and related supplies that are necessary
to keep the asset in operating condition, but neither add materially
to the use value of the asset nor prolong its life appreciably. Ordinary
repairs are recurring and usually involve relatively small expenditures.
Ordinary repairs include, but are not limited to, painting, wall papering,
copy machine repair, repairing an electrical circuit, or replacing
spark plugs. Because maintenance costs and ordinary repairs are similar,
they are usually combined for accounting purposes. Ordinary repairs
may be expensed.
(B) Extraordinary repairs (major repairs) involve relatively
large expenditures, are not normally recurring in nature, and usually
increase the use value (efficiency and use utility) or the service
life of the asset beyond what it was before the repair. Extraordinary
repairs costing $2,500 or more, with a useful life in excess of one
year, should be capitalized and depreciated. The cost of the extraordinary
repair should be added to the cost of the asset and depreciated over
the remaining useful life of the original asset. If the life of the
asset has been extended due to the repair, the useful life should
be adjusted accordingly. Extraordinary repairs include, but are not
limited to, major vehicle overhauls, major improvements in a building's
electrical system, carpeting an entire building, replacement of a
roof, or strengthening the foundation of a building.
(10) Depreciation and amortization expense. For DHS
contracted providers: for purchases made after the beginning of the
contracted provider's fiscal year 1997, an asset valued at $1,000
or more and with an estimated useful life of more than one year at
the time of purchase must be depreciated or amortized, using the straight
line method. For purchases made after the beginning of the contracted
provider's fiscal year 2004, an asset valued at $2,500 or more and
with an estimated useful life of more than one year at the time of
purchase must be depreciated or amortized, using the straight line
method. For TDMHMR contracted providers: for purchases made after
the beginning of the contracted provider's fiscal year 1997, an asset
valued at $2,500 or more and with an estimated useful life of more
than one year at the time of purchase must be depreciated or amortized,
using the straight line method. For all contracted providers: for
purchases made after the beginning of the contracted provider's fiscal
year 2015, an asset valued at $5,000 or more and with an estimated
useful life of more than one year at the time of purchase must be
depreciated or amortized, using the straight line method. In determining
whether to expense or depreciate a purchased item, a contracted provider
may expense any single item costing less than the capitalization level
for that fiscal period as described above or having a useful life
of one year or less. Depreciation and amortization expenses for unallowable
assets and costs are also unallowable, including amounts in excess
of those resulting from the straight line method, capitalized lease
expenses in excess of actual lease payments, and goodwill or any excess
above the actual value of physical assets at the time of purchase.
The minimum useful lives to be assigned to common classes of depreciable
property are as follows:
(A) Buildings. A building's life must be reported as
a minimum of 30 years, with a minimum salvage value of 10%. All buildings,
excluding the value of the land, are uniformly depreciated on a 30-year
life basis, regardless of the actual date of construction or original
purchase. Exceptions to this policy are permissible when contracted
providers choose a useful-life basis in excess of 30 years. An example
of depreciation on a 30-year life basis is:
Attached Graphic
(B) Building equipment; buildings and grounds improvements
and repairs; durable medical equipment, furniture, and appliances;
and power equipment and tools used for buildings and grounds maintenance.
Use minimum schedules consistent with the most current version of
"Estimated Useful Lives of Depreciable Hospital Assets," published
by the American Hospital Association. Copies of this publication may
be obtained by contacting the American Hospital Association, 155 North
Wacker Drive, Chicago, IL 60606 or at www.aha.org. Leasehold improvements
whose estimated useful lives according to the guidelines for depreciable
hospital assets are longer than the term of the lease must be depreciated
and/or amortized over the life of the leasehold improvement. Building
improvements which are not structural in nature and do not extend
the depreciable life of the building, but whose estimated useful lives
according to the guidelines for depreciable hospital assets are longer
than the remaining depreciable life of the building, must be depreciated
over the normal useful life of the building improvements. Once the
estimated useful life of the leasehold improvement has been established
using the guidelines above, subsequent extensions of the lease period
do not change the useful life of the leasehold improvement. Any exceptions
to this policy shall be stated in each program-specific reimbursement
methodology rules.
(C) Transportation equipment used for the transport
of clients, staff, or materials and supplies utilized by the contracted
provider. Cost reporting must reflect a minimum of three years for
automobiles (including minivans); five years for light trucks and
vans (up to and including 15-passenger vans); and seven years for
buses and airplanes. Depreciation expenses for transportation equipment
not generally suited or not commonly used to transport clients, staff,
or provider supplies are unallowable costs. This includes motor homes
and recreational vehicles; sports automobiles; motorcycles; heavy
trucks, tractors and equipment used in farming, ranching, and construction;
and transportation equipment used for other activities unrelated to
the provision of contracted client care, unless program-specific reimbursement
methodology rules provide otherwise. Refer to §355.105(b)(2)(B)(iii)
of this title for requirements for the maintenance of mileage logs
and other documentation required to substantiate transportation equipment
costs.
(i) Luxury automobiles are defined for cost-reporting
purposes as passenger vehicles, including automobiles, light trucks,
and vans (up to and including 15-passenger vans) and excluding buses,
with an historical cost at time of purchase or a market value at execution
of the lease exceeding $30,000 when purchased or leased before January
1, 1997. For vehicles leased or purchased on or after January 1, 1997,
luxury vehicles are defined as a base value of $30,000 with 2.0% being
added (using the compound method) to the base value each January 1
beginning on January 1, 1998. Any amount above the definition of a
luxury vehicle stated above is an unallowable cost. When a passenger
vehicle's cost exceeds the amount determined by the definition of
a luxury vehicle stated above, the historical cost is reduced to the
amount determined by the definition of a Cont'd... |