what is a cost allocation plan? - hsfo.org

What is a Cost Allocation Plan?

Presented on behalf of HSFO

May 21st – 23rd, 2019

Phoenix, Arizona

Basic Cost Allocation Training © 2019 Public Consulting Group, Inc.

Basic Cost Allocation Training © 2019 Public Consulting Group, Inc. 2

Agenda

What is a Public Assistance Cost Allocation Plan?

Central Services Plans

Indirect Cost Rates

Benefitting Objectives

Effective Dates

Cost Allocation vs. Budgeting

Federal Circulars

The Importance of “Doing it Right”

How do Time Studies Interact with CAPs?

Review Guide

Regulatory Documents and Guidance



• A public assistance agency is the state agency responsible for the

administration of one or more of the State Plans for public assistance

programs, including Titles IV-A (TANF), IV-B, IV-D, IV-E, XIX, and XXI

of the Social Security Act.

• These programs require that an agency prepares a public assistance

cost allocation plan (PACAP) in order to determine the amount of cost

that may be allocated, and claimed, to various federal programs.

• Agencies that work with the above programs will benefit from or may be

required to prepare a cost allocation plan, even if they are not the single

state agency.



• Cost allocation plans are used to claim administrative dollars. Service

dollars are not claimed through cost allocation plans though they may be

accounted for.

• Administrative claiming is reimbursed at set Federal Financial

Participation (FFP) levels by activity (50% and higher) and is the

same in all states and territories.

• Service claiming is reimbursed at each state’s Federal Medical

Assistance Percentage (FMAP) rate (50-85%) and claimed as part

of claims systems (e.g., MMIS, etc.).

• The Affordable Care Act contains incentives in addition to

regular FMAP for certain types of services.



The following two pages

have very high level

overviews of some of the

funding sources in

public assistance cost

allocation plans

What is a Public Assistance Cost Allocation Plan? (Continued)


• Today, multiple state agencies, tribal governments, sub-recipients, and

contractors/vendors incur costs in support of federal programs.

• The public assistance agency is responsible for entering into (interagency)

agreements with each entity and ensuring that all costs are appropriate and

included on the proper claim forms (e.g., CMS-64, CB-496, etc.).

• With administrative claims, whether an entity is a sub-recipient or a

vendor/contractor is irrelevant. There must be a process in place to ensure that

costs are appropriately claimed and federal and state regulations are followed.


• A “narrative” document that outlines functions performed by an agency and the plan for allocating the costs of performing these functions to “benefitting objectives”; and

• The accompanying financial documents that actually allocate costs from cost pools to benefitting objectives.


• A public assistance cost allocation plan (PACAP) is comprised of:

• The cost allocation plan narrative is updated as needed, while all “math” is

calculated in support of claims, usually quarterly.


• A PACAP places costs into cost pools, assigns allocation methodologies to those cost pools, and “sends” costs to benefitting objectives.


Cost Pool

• Aggregate costs incurred by the department to be allocated with the same allocation method to one or many benefitting programs

Allocation Method

• A statistical data set that allocates (“sends”) costs from initial cost pools to benefitting programs, directly or indirectly

Benefitting Objective

• Activities or programs (federal or state) that are, in part or in whole, supported by an activity or a cost incurred by the agency. A best practices plan will allocate costs to claim reporting lines


• A cost allocation plan narrative describes each agency function.

• Cost pool numbers may tie to the agency accounting system or be created specifically for the cost allocation process.



• Financial reports provide the audit trail that support the cost allocation process.



• The goal is to allocate all costs to programs/funding sources.



• A public assistance cost allocation plan is governed by the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200) with particular requirements outlined in Appendix VI to Part 200 and 45 CFR 95.507-515.

• PACAPs must include all costs incurred by an agency, with the possible exception of “expenditures for financial assistance, medical vendor payments, food stamps, and payments for services and goods provided directly to program recipients”.

• Cost allocation plans work with “gross” costs. Various federal financial participant (FFP) rates are applied at the end of the cost allocation process, usually when federal forms are completed. Most claim forms require that gross amounts be entered so both state and federal shares are identified.



• Public assistance plans are amended on a quarter or as needed basis and are usually prepared on a quarterly basis as federal claims are submitted quarterly.

• Plan amendments are usually submitted to and approved by Cost Allocation Services (CAS), which is an arm of the Department of Health and Human Services (DHHS).

• CAS, the “cognizant” agency, will coordinate review of a plan with other parts of DHHS as necessary, including the Administration for Children and Families (ACF) and Centers for Medicare and Medicaid Services (CMS).

• Sometimes, public assistance agencies/plans will have a different cognizant agency and/or other reviews, including the Department of Agriculture (SNAP).


What are Central Services Plans?

• Central services plans are cost allocation plans that allocate the costs of centralized services provided to other agencies.

• All states, and many counties, have central service cost allocation plans. State plans are also called SWCAPs or SWICAPs (statewide indirect cost allocation plans).

• Services may include functions such as motor pools, computer centers, purchasing, accounting, payroll, human resources, etc.

• What is included in a SWCAP and allocated out to other entities will depend on the governmental structure in each organization.

• For example, in some states human resources (HR) functions are provided from a central location; in other states, each agency may have its own HR department.


What are Central Services Plans? (Continued)• Federal guidance states “since federally-supported awards are performed

within the individual operating agencies, there needs to be a process whereby these central service costs can be identified and assigned to benefited activities on a reasonable and consistent basis.”

• Many of these functions are necessary to support work related to grants and programs and the appropriate portions of allowable costs can be claimed to programs such as Medicaid, Title IV-E, TANF, and grants.

• These costs are provided to public assistance agencies to include as an (indirect) cost in the public assistance cost allocation plan where appropriate.


What are Central Services Plans? (Continued)

• Typically, these plans only include the costs of the centralized services that are in support of other agencies and departments. They are not “full” cost allocation plans.

• Central services plans are specifically governed by Appendix V of OMB Uniform Guidance.

• The "Guide for State and Local Government Agencies: Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts with the Federal Government” exists for these plans.

• Central services plans are usually prepared on an annual basis.


What are Indirect Cost Rates?

• Simply stated, indirect cost rates are simplified cost allocation plans.

• In some cases, an agency may be able to use an indirect cost rate in lieu of a cost allocation plan (though this is not allowed for single state agencies).

• Indirect cost rates are commonly used at small agencies that only oversee a few programs or agencies that do not claim a lot via entitlement funds (e.g., public health agencies, etc.).

• Similar to a cost allocation plan, the main goal of a rate is to ensure “that federal awards bear their fair share of cost recognized under these principles except where restricted or prohibited by law”.

• Rates represent a “one size fits all” approach.


What are Indirect Cost Rates? (Continued)

• An indirect cost rate is a rate (ratio) that is calculated for the purpose of assigning “indirect costs” to “direct costs.”

• Similar to a CAP, an indirect cost rate assists an entity to obtain reimbursement for the full cost of operating a grant or program, not just the more easily identifiable “direct costs.”

• Per the Uniform Guidance in 200.416, “indirect costs include (I) the indirect costs originating in each department or agency of the governmental unit carrying out Federal awards and (2) the costs of central governmental services distributed through the central services cost allocation plan and not otherwise treated as direct costs.”


The de minimis rate can only be used in very specific

circumstances per the Uniform Guidance and cannot be used in

some cases and not others by the same agency. It cannot be

imposed on a sub recipient agency because a single state agency

wants to limit indirect costs if that entity already has a rate.

What are Indirect Cost Rates? (Continued)

• Rates are usually prepared on an annual basis and based on the agency’s fiscal year, not the grant or federal fiscal year. Plans are usually due six months after the fiscal year ends.

• A separate indirect cost rate is usually necessary for each department or agency claiming indirect costs under Federal awards (i.e., the Medicaid agency would not have the same indirect cost rate as the child welfare agency).

• Most agencies typically have a “cognizant” agency that is responsible for approving their rate.

• The submission of an indirect cost rate is typically referred to as an “indirect cost rate proposal”, in accordance with Appendix VII, Part D of the Uniform Circular.


What are Benefitting Objectives?

• The Uniform Guidance, ASMB C-10, and programmatic regulations require that costs be allocated to all programs that receive benefits from expenditures, and only to these programs.

• “Benefitting Objectives” are those activities or programs that are, in part or in whole, supported by an activity or a cost of the agency.

• A program is a benefitting objective if the cost to the program would decrease or be eliminated if the activity was terminated or the cost of the activity would decrease if the program was eliminated.


Example: If a program that supports 5 positions is eliminated

(and the positions are also eliminated), the cost of the payroll

office will decrease because there are 5 fewer positions to

support. The program in question is a benefitting objective of

the payroll office

What are Benefitting Objectives? (Continued)• In the case that a cost benefits multiple activities, the cost must be

allocated based on the activities’ relative benefits to each other. The costs cannot be allocated to one primary program (OGAM 98-2).

• In some cases, CAS will allow deviations from the requirement that individual programs, rather than a primary program, are allocated costs. In these cases, it must be verified that the exception is both reasonable and acceptable.

• However, even a single function agency, such as a nutrition assistance program, can have more than one benefitting objective if it is funded by more than one source.


Effective Dates

• Generally, once approved, a public assistance cost allocation plan’s effective date is the first day of the quarter following the date of the event that triggered the Plan’s submission (45 CFR 95.515) :

• If a CAP is not amended, agencies are required to submit a statement stating it is up to date once a year (45 CFR 95.509(b)).

• As mentioned earlier, central services plans and indirect cost rates are usually prepared each year, and often, they are based on information from prior periods.


Example: if a PA agency undergoes a reorganization during the

first quarter of FY16, which necessitates a plan amendment,

the revised plan will become effective on the first day of the

second quarter of FY16. This process can vary, so it is

important to discuss dates with regional representatives

Cost Allocation vs. Budgeting

• Budgets are prepared in advance to provide estimates of future expenditures.

• Cost allocation plans are prepared “after the fact” with actual expenditures.

• Cost allocation plans may not be prepared with budgeted amounts.

• A common mistake is to let budgets drive or impact cost allocation plans.

• A person may be “budgeted” with both federal and state dollars.

• However, unless the amount of time spent on a federal program(s) can be documented, all of costs must be treated as state funded until the costs can actually be allocated.

• Cost allocation plans must have a way to treat a cost holistically, not as two parts based on a budget.


Cost Allocation vs. Budgeting (Continued)

• Use cost allocation plan results to inform the budget processes.

• Investigate significant variances between the two.

• Avoid the mistake of “funding” individuals with capped grants therefore limiting the amount that can be claimed via entitlement programs.

• Recognize flexibility around costs that can be funded with more than one block grant.


• Costs may not be claimed based on “estimates”, only actuals.

• It can be useful to marry an agency’s budgeting process with cost

allocation results. Agencies can:

Cost Allocation vs. Budgeting (Continued)


Group Discussion!

• Do you use cost allocation plan results to inform your

budget processes?

• If there are significant variances, do you take steps to

investigate them?

• Do you avoid the mistake of “funding” individuals with

capped grants therefore limiting the amount you can

claim via entitlement programs?

• Does your CAP allow flexibility around costs that can be

funded with more than one block grant?

What are Federal Circulars?

• The Federal Office of Management and Budget releases circulars to provide guidance for Federal Agencies and Federal award recipients.

• The Federal circulars provide guidance regarding budget, state and local governments, educational and non-profit institutions, federal procurement, federal financial management, and federal information resources/ data collection.


What are Federal Circulars? (Continued)

• Effective December 26, 2014, OMB A-87 was replaced with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200).

• What was previously OMB Circulars A-21, A-50, A-87, A-102, A-110, A-89, A-122, and A-133 is now one comprehensive guidance.

• As noted, a public assistance cost allocation plan is governed by the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200) and its companion guide ASMB C-10, with particular requirements outlined in Appendix VI to Part 200.

• The 2007 DCA Best Practices Review Guide is a useful tool which can help clarify grey areas within these documents.



The Importance of “Doing it Right”

• Plans are not commodities!

• A PACAP is used to ensure all costs are accurately allocated and claimed.

• Every PACAP can and should be used to assist the agency in justifying revenue recovery and retention.

• PACAPs that are done accurately provide valuable data, including:

• Revenue claimed through administrative claims;

• Filling out cost reports;

• Creating budgets;

• Setting rates for various funding programs; and

• Identifying the true cost of administering grants.

• Poor PACAPs run the risk of inaccurate claiming, lost revenue, and audit exposure.

Cost allocation is

not a rote process, it

is part of how an

agency ensures

vulnerable citizens

receive the services

they need

How do Time Studies Interact with CAPs?

• CAPs outline the methodologies used that allocate (“send”) costs from initial cost pools to benefitting programs, directly or indirectly.

• When staff work on multiple activities or programs and another methodology is not available, Cost Allocation Services’ (CAS) required methodology for allocating costs is a time study.

• Time studies measure “level of effort,” or relative amount of time spent on one activity versus another.

• A time study allows an agency to essentially “carve up” a single cost (e.g., a person’s salary) into multiple cost pools that can each be allocated accordingly.

• All time study methodologies must be outlined in the agency’s CAP and approved by federal agencies.


How do Time Studies Interact with CAPs? (Continued)


Review Guide

• In 2007, CAS (as DCA) released an updated “DCA Best Practices Manual for Reviewing Public Assistance Cost Allocation Plans,” which is an updated guide that assists CAS negotiation staff in their review and approval of cost allocation plans and amendments.

• The guide is especially helpful in discussing the differences between public assistance plans and other types of plans. It also gives insight into the training received by federal reviewers.

• However, it is not necessarily a “binding” document and is not a guide for how to prepare a plan.


Regulatory Documents & Guidance

• Public Assistance Agency: The State agency administering or supervising the administration of one or more of the State plans for public assistance (PA) programs. A State PA agency may be an organizational part of a larger State agency that also contains other components and agencies.

• Public Assistance Programs: Programs operated with awards received under Titles I, IV-A, IV-B, IV-C, IV-D, IV-E, X, XIV, XVI, XIX, and XXI of the Social Security Act; and under the Refugee Act of 1980; and the Refugee Education Assistance Act of 1980. Note that TANF replaced Title IV-A in 1996, though it is still referenced in many of the regulations.

• Public Assistance Cost Allocation Plan (Plan): A narrative description of the methods and procedures a State PA agency will use in identifying, measuring, and allocating all costs incurred with regard to public assistance programs. When preparing the Plan, the agency should consider all of the costs it incurred in support or supervision of all programs administered. The Plan serves as a written commitment between the State and the Federal government. It is also the primary tool most agencies use in claiming administrative costs (note: this is NOT a state plan component or state plan amendment (SPA), but it needs to be consistent with state plans.)


Regulatory Documents & Guidance (Continued)

• Agency Costs: Costs allocated to or incurred by the agency except expenditures for financial assistance, medical vendor payments, and payments to third parties in compensation for services or goods provided directly to program recipients.

• Federal Financial Participation (FFP): The federal government’s share of expenditures incurred by an agency under its various programs (e.g., Title IV-E, Title XIX). For administrative costs, FFP is 50% of expenditures; though some activities may be reimbursed at 75% or 90%. The Federal Medical Assistance Percentages (FMAP) determine the amount of non-administrative Medicaid and other expenditures the federal government will reimburse a state.

• Cost Allocation Services (CAS): The division of the Department of Health and Human Services (HHS) responsible for reviewing, evaluating, negotiating, and approving PA CAPs. HHS is the cognizant agency, which is the federal agency that funds the majority of a state agency’s costs (Formerly, the Division of Cost Allocation).



• Operating Division (OPDIV): A Federal agency affected by a state’s Plan, and involved in the review and approval of the Plan. While OPDIVs will vary according to the programs operated by the agencies, they may include the Administration for Children and Families (ACF) and the Centers for Medicare and Medicaid Services (CMS).

• 45 CFR (Part 95, Subparts E, F, and G): This series of Federal regulations establishes the basic cost allocation plan requirements that the PA agency must follow in the preparation of a Plan. While Section E outlines the procedures for the preparation, submission, and approval of a Plan; Section F defines the acceptability of ADP systems when submitting claims; and Section G outlines requirements for claiming FFP in the cost of equipment for agencies. These requirements are available at http://www.access.gpo.gov/nara/cfr/waisidx_05/45cfr95_05.html.

• Office of Grants and Acquisition Management (OGAM) Action Transmittal 98-2: A circular distributed by the OGAM in 1998 to clarify OMB A-87 and ASMB C-10 references to “benefitting Programs”.


http://www.access.gpo.gov/nara/cfr/waisidx_05/45cfr95_05.html


• ASMB C-10: In accordance with the latest release of OMB A-87, HHS released this guide in 1997 to assist PA agencies in interpreting and implementing procedures outlined in A-87 for determining costs applicable to Federal grants. A copy of this guide is available at http://rates.psc.gov/fms/dca/asmb%20c-10.pdf.

• Best Practices Manual for Reviewing Public Assistance Cost Allocation Plans: In 2007, DCA released this updated guide to assist DCA negotiation staff in their review and approval of Plans and amendments. The updated version reflects changes in A-87 and in the implementation of public assistance programs and provides insight into areas upon which reviewers focus during Plan review. This guide is available at http://rates.psc.gov/fms/dca/pacapguide1002.pdf.


http://rates.psc.gov/fms/dca/asmb c-10.pdf

http://rates.psc.gov/fms/dca/pacapguide1002.pdf


• State & Local Review Guide: There is also a review guide for state and local plans and indirect cost rates, available at http://rates.psc.gov/fms/dca/s&lguide.pdf.

Note, these links are subject to change. If they do not work, go to http://rates.psc.gov/ (CAS’s website) and search for them.

• Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200, Subparts A-F; e.g., the “Super Circular”) This is the new guidance! This final guidance supersedes and streamlines requirements from OMB Circulars A-21, A-87, A-110, and A-122 (which have been placed in OMB guidance); Circulars A-89, A-102, and A-133; and the guidance in Circular A-50 on Single Audit Act follow-up. http://www.ecfr.gov/cgi-bin/text-idx?SID=c1f4e2f6d3dd5fdd22c69d07abd1aea1&mc=true&node=pt2.1.200&rgn=div5.


http://rates.psc.gov/fms/dca/s&lguide.pdf

http://rates.psc.gov/

http://www.ecfr.gov/cgi-bin/text-idx?SID=c1f4e2f6d3dd5fdd22c69d07abd1aea1&mc=true&node=pt2.1.200&rgn=div5

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