| (a) Introduction. The following list of allowable and
unallowable costs is not comprehensive but serves as a guide and clarifies
certain key expense areas. If a particular type of expense is classified
as unallowable for purposes of reporting on a cost report, it does
not mean that individual contracted providers may not make such expenditures.
Except where specific exceptions are noted, the allowability of all
costs is subject to the general principles specified in §355.102
of this title (relating to General Principles of Allowable and Unallowable
Costs). In addition, refer to program-specific allowable and unallowable
costs, as applicable.
(1) Accounting and audit fees. See subsection (b)(3)(A)
of this section.
(2) Advertising and public relations. See subsection
(b)(16) of this section.
(3) Amortization expense. See subsection (b)(10) of
this section.
(4) Bad debt expense. See subsection (b)(20)(M) of
this section.
(5) Boards of directors and trustees. See subsection
(b)(5) of this section.
(6) Bonuses. See subsection (b)(1)(A)(i) of this section.
(7) Central office costs. See subsection (b)(7) of
this section.
(8) Charity allowance. See subsection (b)(20)(N) of
this section.
(9) Compensation of employees. See subsection (b)(1)
of this section.
(10) Compensation of owners and related parties. See
subsection (b)(2) of this section.
(11) Compensation of outside consultants. See subsection
(b)(3) of this section.
(12) Courtesy allowance. See subsection (b)(20)(N)
of this section.
(13) Depreciation expense. See subsection (b)(10) of
this section.
(14) Donated revenues. See subsection (b)(18) of this
section.
(15) Donated services, supplies, and assets. See subsection
(b)(19) of this section.
(16) Dues or contributions to organizations. See subsection
(b)(14) of this section.
(17) Employee relations expenses. See subsection (b)
(20)(A) of this section.
(18) Employment-related taxes. See subsection (b)(12)(B)
of this section.
(19) Endowment income. See subsection (b)(18) of this
section.
(20) Expenses not related to contracted services. See
subsection (b)(20)(H) of this section.
(21) Fines and penalties. See subsection (b)(20)(G)
of this section.
(22) Franchise tax. See subsection (b)(12)(C) of this
section.
(23) Finance charges. See subsection (b)(11)(E) of
this section.
(24) Franchise fees. See subsection (b)(20)(C) of this
section.
(25) Fringe benefits. See subsection (b)(1)(A)(iii)
of this section.
(26) Fundraising activities. See subsection (b)(17)
of this section.
(27) Gains on disposal of assets. See subsection (b)(10)(F)
of this section.
(28) Gifts. See subsection (b)(18) of this section.
(29) Goodwill. See subsection (b)(10) and (20)(C)(ii)
of this section.
(30) Grants, gifts and income from endowments. See
subsection (b)(18) of this section.
(31) In-kind donations. See subsection (b)(19) of this
section.
(32) Insurance expense. See subsection (b)(13) of this
section.
(33) Interest expense. See subsection (b)(11) of this
section.
(34) Legal fees. See subsection (b)(3)(B) of this section.
(35) Life insurance. See subsection (b)(13)(G) of this
section.
(36) Litigation expenses and awards. See subsection
(b)(20)(I) of this section.
(37) Lobbying costs. See subsection (b)(20)(J) of this
section.
(38) Losses on disposal of assets. See subsection (b)(10)(F)
of this section.
(39) Losses due to theft or embezzlement. See subsection
(b)(20)(L) of this section.
(40) Management fees. See subsection (b)(6) of this
section.
(41) Medicaid as payor of last resort. See subsection
(b)(21) of this section.
(42) Medical supplies and medical costs. See subsection
(b)(20)(F) of this section.
(43) Nonpaid workers. See subsection (b)(4) of this
section.
(44) Operating revenue. See subsection (b)(18)(D) of
this section.
(45) Organization costs. See subsection (b)(20)(B)
of this section.
(46) Payroll taxes and insurance. See subsection (b)(1)(A)(ii)
of this section.
(47) Penalties. See subsection (b)(20)(G) of this section.
(48) Planning and evaluation expenses. See subsection
(b)(10)(E) of this section.
(49) Promotional activities. See subsection (b)(17)
of this section.
(50) Public relations. See subsection (b)(16) of this
section.
(51) Repairs and maintenance. See subsection (b)(9)
of this section.
(52) Research and development costs. See subsection
(b)(20)(E) of this section.
(53) Salaries and wages. See subsection (b)(1) and
(2) of this section.
(54) Self-insurance. See subsection (b)(13)(B) of this
section.
(55) Staff training costs. See subsection (b)(15)(A)
of this section.
(56) Startup costs. See subsection (b)(20)(D) of this
section.
(57) Tax expense and credits. See subsection (b)(12)
of this section.
(58) Travel costs. See subsection (b)(15)(B) of this
section.
(59) Utilities. See subsection (b)(8) of this section.
(60) Volunteers. See subsection (b)(4) of this section.
(61) Voucher-paid expenses. See subsection (b)(20)(K)
of this section.
(62) Workers' compensation insurance. See subsection
(b)(13) of this section.
(b) Allowable and unallowable costs.
(1) Compensation of employees. Compensation includes
both cash and non-cash forms of compensation subject to federal payroll
tax regulations. Compensation includes wages and salaries (including
bonuses); payroll taxes and insurance; and benefits. Payroll taxes
and insurance include Federal Insurance Contributions Act (old age,
survivors, and disability insurance (OASDI) and Medicare hospital
insurance); Unemployment Compensation Insurance; and Workers' Compensation
Insurance.
(A) Allowable compensation of employees is compensation
paid to employees in arm's-length transactions as nonowners and non-related
parties and is subject to the reasonable and necessary costs which
must be incurred by providers in the provision of contracted client
services. Guidelines for compensation of owners and related parties
are specified in paragraph (2) of this subsection.
(i) A bonus is a type of compensation granted to employees
as a wage enhancement. Bonuses paid to employees in arm's-length transactions
are allowable costs, subject to the reasonable and necessary costs
that must be incurred by providers in the provision of contracted
client services. In determining the employee classification type,
part-time employees may be considered a different classification type
than full-time employees. To be allowable, bonuses to owners and/or
related parties:
(I) must not represent any form of profit sharing and
must not be determined on the level of profit earned by the contracted
provider;
(II) must be clearly defined in a written agreement
or employment policy;
(III) must not be made only to related parties, in
which case the bonuses are unallowable costs;
(IV) must be based upon the same criteria for all members
of the same employee classification type;
(V) must be made available to all employees of the
same classification type, unless the employee classification type
predominantly consists of related parties, in which case the bonuses
are unallowable costs; and
(VI) must not discriminate in favor of certain employees,
such as employees who are officers, stockholders, or the highest paid
individual(s) of the organization.
(ii) Payroll taxes and insurance are described in paragraph
(12) of this subsection, concerning tax expense and credits, and paragraph
(13) of this subsection.
(iii) Benefits are amounts paid to or on behalf of
an employee, in addition to direct salary or wages, and from which
the employee, his dependent, or his beneficiary derives a personal
benefit before or after the employee's retirement or death.
(I) Benefits paid to employees in arm's length transactions
as nonowners and non-related parties are allowable costs, subject
to the reasonable and necessary costs which must be incurred by providers
in the provision of contracted client care. To be allowable, benefits
paid to owners and/or related parties must not discriminate in favor
of certain employees, such as employees who are officers, stockholders,
or the highest paid individual(s) of the organization.
(II) Allowable benefits are reported on cost reports
either as salaries and/or wages, as employee benefits, or as costs
applicable to specific cost report line items, as specified in this
subclause and in subclause (III) of this clause. Any benefit subject
to payroll taxes is reported as salaries and wages. Allowable benefits
that are routinely reported as salaries and wages include paid vacations,
paid holidays, sick leave, voting leave, court or jury duty leave,
and/or all-inclusive paid days, as specified in subclause (III)(-c-)
of this clause. Allowable benefits which are routinely reported as
employee benefits include employer contributions to certain deferred
compensation plans, as specified in subclause (III)(-a-) of this clause,
employer contributions to an employee retirement fund or certain pension
plans, as specified in subclause (III)(-b-) of this clause, and costs
of certain employer-paid health, life, and disability insurance premiums,
as specified in subclause (III)(-f-) of this clause. The contracted
provider's unrecovered cost of meals and room and board furnished
to direct care employees, uniforms, employee personal vehicle mileage
reimbursement in accordance with paragraph (15) of this subsection,
job-related training reimbursements in accordance with paragraph (15)
of this subsection, and job certification renewal fees in accordance
with paragraph (15) of this subsection are not to be reported as benefits
but are to be reported as costs applicable to specific cost report
line items, unless they are subject to payroll taxes, whereas they
are reported as salaries and wages.
(III) Benefits include the following:
(-a-) Employer contributions to certain deferred compensation
plans are reported as employee benefits. Deferred compensation is
remuneration currently earned by an employee but which is not received
until a subsequent period, usually after retirement. For the cost
to be allowable, the deferred compensation plan must be formal, established,
and maintained by the contracted provider and communicated to all
eligible employees. A formal plan is one that is provided for in a
written agreement executed between the contracted provider and the
participating employees. The plan must:
(-1-) prescribe the method for calculating all contributions
to the fund;
(-2-) be funded with contributions made systematically
to a funding agency outside the contracted provider's ownership or
control, such as a trustee, an insurance company, or a custodial bank
account;
(-3-) provide for the protection of the plan's assets;
(-4-) designate the requirements for vested benefits;
(-5-) provide the basis for the computation of the
amounts of benefits to be paid;
(-6-) be expected to continue despite normal fluctuations
in the contracted provider's economic experience; and
(-7-) use all fund contributions and earnings for the
sole benefit of the participating employees. Contributions made during
the cost-reporting period to a deferred compensation plan meeting
the requirements specified in subitems (-1-) - (-7-) of this item
which represent legal obligations of the contracted provider and which
are clearly enumerated as to dollar amount are allowable costs and
should be reported on cost reports as employee benefits. Reasonable
trustee or custodial fees paid by the contracted provider will be
allowed as an administrative cost. However, such fees will not be
allowable where the deferred compensation plan provides that they
will be paid out of the corpus or earnings of the fund. To be allowable,
contributions representing the employee's share cannot revert to the
contracted provider. However employer-paid contributions can revert
back to the contracted provider in the event an employee does not
vest if designated in the requirements for vested benefits.
(-b-) Employer contributions to an employee retirement
fund or certain pension plans are reported as employee benefits. A
pension plan is a type of deferred compensation plan which is established
and maintained by the employer to provide systematic payment of definitely
determinable benefits to its employees over a period of years, or
for life, after retirement. Such a plan may include disability, withdrawal,
option for lump-sum payment, or insurance or survivorship benefits
incidental and directly related to the pension benefits. A pension
plan must meet all the Cont'd... |
