| (ii) Compensation in the form of salaries, benefits,
or any form of perquisite provided to owners, partners, officers,
directors, stockholders, employees, or others who do not provide services
directly to clients or who do not provide services required in the
normal conduct of operations to provide contracted client services,
is an unallowable cost. Services which would be required in the normal
conduct of operations to provide contracted client services would
include expenses such as administration of the program or supervision
of direct care staff.
(3) Compensation for outside consultants and fees for
services provided by outside vendors. Allowable compensation for outside
consultants and contracted services must meet the criteria in §355.102
of this title. Specific criteria for certain types of compensation
of outside consultants and contracted services are as follows:
(A) Accounting and audit fees.
(i) Allowable accounting and audit fees. Fees for preparation
of business tax reports and returns, financial statements, and cost
reports are allowable costs. Audit fees associated with the performance
of a financial audit are allowable costs.
(ii) Unallowable accounting and audit fees. Expenses
related to the preparation of personal tax returns are unallowable
costs as are certain taxes. Refer to paragraph (12) of this subsection,
concerning tax expense and credits. Audit fees associated with the
performance of a single audit are unallowable costs. The cost attributable
to a financial audit that was conducted along with a single audit
is allowable if the cost of the financial audit can be identified
separately from the cost attributable to the single audit. Accounting
fees and related costs associated with litigation between a provider
and a governmental entity are unallowable. Accounting costs associated
with any other unallowable costs are also unallowable. Fees related
to the preparation of annual reports, reports to stockholders or other
interested parties, or for investment management are unallowable costs.
(B) Legal fees. Legal retainers are not allowable in
and of themselves, but rather must be documented as specified in §355.105(b)(2)(B)(viii)
of this title. Legal costs associated with litigation between a provider
and a governmental entity are unallowable. Legal costs associated
with any other unallowable costs are also unallowable.
(4) Value of services of nonpaid workers. Since the
contracted provider incurs no actual costs for nonpaid and/or volunteer
workers, the value of the nonpaid work is not an element of cost;
and the value of such nonpaid work is an unallowable cost.
(5) Boards of directors and trustees. Fees and expenses
related to boards of directors and trustees are unallowable costs
except for:
(A) Travel costs incurred by the contracted provider's
board members or trustees to attend meetings of the contracted provider's
board of directors or trustees are allowable costs in accordance with
the travel guidelines as stated in paragraph (15)(B) of this subsection;
and
(B) Errors and omissions (liability) insurance for
boards of directors or trustees are allowable costs.
(6) Management fees.
(A) Allowable management fees. Reasonable management
fees paid to unrelated parties are allowable costs. Allowable management
fees paid to related parties are the actual costs to the related party
for the materials, supplies, and services provided directly to the
individual contracted provider. Any related party compensation or
owner compensation included in allowable management fees paid to related
parties must follow the guidelines specified in §355.102(i) of
this title and in paragraph (2) of this subsection, concerning compensation
of owners and related parties. Expenses for management provided by
the contracted provider's central office must be reported as central
office costs on the cost report. Cash management fees related to minimizing
interest costs and banking expenses in the management of operating
revenue necessary for contracted services are allowable costs.
(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 Cont'd... |
