Appendix V to Part 200 - State/Local Governmentwide Central Service Cost Allocation Plans
2:1.1.2.2.1.6.48.23.10 : Appendix V
Appendix V to Part 200 - State/Local Governmentwide Central Service
Cost Allocation Plans A. General
1. Most governmental units provide certain services, such as
motor pools, computer centers, purchasing, accounting, etc., to
operating agencies on a centralized basis. 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 benefitted
activities on a reasonable and consistent basis. The central
service cost allocation plan provides that process. All costs and
other data used to distribute the costs included in the plan should
be supported by formal accounting and other records that will
support the propriety of the costs assigned to Federal awards.
2. Guidelines and illustrations of central service cost
allocation plans are provided in a brochure published by the
Department of Health and Human Services entitled “A Guide for
State, Local and Indian Tribal Governments: Cost Principles and
Procedures for Developing Cost Allocation Plans and Indirect Cost
Rates for Agreements with the Federal Government.” A copy of
this brochure may be obtained from the HHS Cost Allocation Services
or at their website.
B. Definitions
1. Agency or operating agency means an organizational
unit or sub-division within a governmental unit that is responsible
for the performance or administration of Federal awards or
activities of the governmental unit.
2. Allocated central services means central services that
benefit operating agencies but are not billed to the agencies on a
fee-for-service or similar basis. These costs are allocated to
benefitted agencies on some reasonable basis. Examples of such
services might include general accounting, personnel
administration, purchasing, etc.
3. Billed central services means central services that
are billed to benefitted agencies or programs on an individual
fee-for-service or similar basis. Typical examples of billed
central services include computer services, transportation
services, insurance, and fringe benefits.
4. Cognizant agency for indirect costs is defined in §
200.1. The determination of cognizant agency for indirect costs for
states and local governments is described in section F.1.
5. Major local government means local government that
receives more than $100 million in direct Federal awards subject to
this Part.
C. Scope of the Central Service Cost Allocation Plans
The central service cost allocation plan will include all
central service costs that will be claimed (either as a billed or
an allocated cost) under Federal awards and will be documented as
described in section E. omitted from the plan will not be
reimbursed.
D. Submission Requirements
1. Each state will submit a plan to the Department of Health and
Human Services for each year in which it claims central service
costs under Federal awards. The plan should include (a) a
projection of the next year's allocated central service cost (based
either on actual costs for the most recently completed year or the
budget projection for the coming year), and (b) a reconciliation of
actual allocated central service costs to the estimated costs used
for either the most recently completed year or the year immediately
preceding the most recently completed year.
2. Each major local government is also required to submit a plan
to its cognizant agency for indirect costs annually.
3. All other local governments claiming central service costs
must develop a plan in accordance with the requirements described
in this Part and maintain the plan and related supporting
documentation for audit. These local governments are not required
to submit their plans for Federal approval unless they are
specifically requested to do so by the cognizant agency for
indirect costs. Where a local government only receives funds as a
subrecipient, the pass-through entity will be responsible for
monitoring the subrecipient's plan.
4. All central service cost allocation plans will be prepared
and, when required, submitted within six months prior to the
beginning of each of the governmental unit's fiscal years in which
it proposes to claim central service costs. Extensions may be
granted by the cognizant agency for indirect costs on a
case-by-case basis.
E. Documentation Requirements for Submitted Plans
The documentation requirements described in this section may be
modified, expanded, or reduced by the cognizant agency for indirect
costs on a case-by-case basis. For example, the requirements may be
reduced for those central services which have little or no impact
on Federal awards. Conversely, if a review of a plan indicates that
certain additional information is needed, and will likely be needed
in future years, it may be routinely requested in future plan
submissions. Items marked with an asterisk (*) should be submitted
only once; subsequent plans should merely indicate any changes
since the last plan.
1. General
All proposed plans must be accompanied by the following: an
organization chart sufficiently detailed to show operations
including the central service activities of the state/local
government whether or not they are shown as benefitting from
central service functions; a copy of the Comprehensive Annual
Financial Report (or a copy of the Executive Budget if budgeted
costs are being proposed) to support the allowable costs of each
central service activity included in the plan; and, a certification
(see subsection 4.) that the plan was prepared in accordance with
this Part, contains only allowable costs, and was prepared in a
manner that treated similar costs consistently among the various
Federal awards and between Federal and non-Federal
awards/activities.
2. Allocated Central Services
For each allocated central service*, the plan must also include
the following: a brief description of the service, an
identification of the unit rendering the service and the operating
agencies receiving the service, the items of expense included in
the cost of the service, the method used to distribute the cost of
the service to benefitted agencies, and a summary schedule showing
the allocation of each service to the specific benefitted agencies.
If any self-insurance funds or fringe benefits costs are treated as
allocated (rather than billed) central services, documentation
discussed in subsections 3.b. and c. must also be included.
3. Billed Services
a. General. The information described in this section
must be provided for all billed central services, including
internal service funds, self-insurance funds, and fringe benefit
funds.
b. Internal service funds.
(1) For each internal service fund or similar activity with an
operating budget of $5 million or more, the plan must include: A
brief description of each service; a balance sheet for each fund
based on individual accounts contained in the governmental unit's
accounting system; a revenue/expenses statement, with revenues
broken out by source, e.g., regular billings, interest
earned, etc.; a listing of all non-operating transfers (as defined
by GAAP) into and out of the fund; a description of the procedures
(methodology) used to charge the costs of each service to users,
including how billing rates are determined; a schedule of current
rates; and, a schedule comparing total revenues (including imputed
revenues) generated by the service to the allowable costs of the
service, as determined under this part, with an explanation of how
variances will be handled.
(2) Revenues must consist of all revenues generated by the
service, including unbilled and uncollected revenues. If some users
were not billed for the services (or were not billed at the full
rate for that class of users), a schedule showing the full imputed
revenues associated with these users must be provided. Expenses
must be broken out by object cost categories (e.g., salaries,
supplies, etc.).
c. Self-insurance funds. For each self-insurance fund,
the plan must include: the fund balance sheet; a statement of
revenue and expenses including a summary of billings and claims
paid by agency; a listing of all non-operating transfers into and
out of the fund; the type(s) of risk(s) covered by the fund (e.g.,
automobile liability, workers' compensation, etc.); an explanation
of how the level of fund contributions are determined, including a
copy of the current actuarial report (with the actuarial
assumptions used) if the contributions are determined on an
actuarial basis; and, a description of the procedures used to
charge or allocate fund contributions to benefitted activities.
Reserve levels in excess of claims (1) submitted and adjudicated
but not paid, (2) submitted but not adjudicated, and (3) incurred
but not submitted must be identified and explained.
d. Fringe benefits. For fringe benefit costs, the plan
must include: a listing of fringe benefits provided to covered
employees, and the overall annual cost of each type of benefit;
current fringe benefit policies; and procedures used to charge or
allocate the costs of the benefits to benefitted activities. In
addition, for pension and post-retirement health insurance plans,
the following information must be provided: the governmental unit's
funding policies, e.g., legislative bills, trust agreements, or
state-mandated contribution rules, if different from actuarially
determined rates; the pension plan's costs accrued for the year;
the amount funded, and date(s) of funding; a copy of the current
actuarial report (including the actuarial assumptions); the plan
trustee's report; and, a schedule from the activity showing the
value of the interest cost associated with late funding.
4. Required Certification
Each central service cost allocation plan will be accompanied by
a certification in the following form:
CERTIFICATE OF COST ALLOCATION PLAN
This is to certify that I have reviewed the cost allocation plan
submitted herewith and to the best of my knowledge and belief:
(1) All costs included in this proposal [identify date] to
establish cost allocations or billings for [identify period covered
by plan] are allowable in accordance with the requirements of this
Part and the Federal award(s) to which they apply. Unallowable
costs have been adjusted for in allocating costs as indicated in
the cost allocation plan.
(2) All costs included in this proposal are properly allocable
to Federal awards on the basis of a beneficial or causal
relationship between the expenses incurred and the Federal awards
to which they are allocated in accordance with applicable
requirements. Further, the same costs that have been treated as
indirect costs have not been claimed as direct costs. Similar types
of costs have been accounted for consistently.
I declare that the foregoing is true and correct. Governmental
Unit: Signature: Name of Official: Title: Date of Execution: F.
Negotiation and Approval of Central Service Plans 1. Federal
Cognizant Agency for Indirect Costs Assignments for Cost
Negotiation
In general, unless different arrangements are agreed to by the
concerned Federal agencies, for central service cost allocation
plans, the cognizant agency responsible for review and approval is
the Federal agency with the largest dollar value of total Federal
awards with a governmental unit. For indirect cost rates and
departmental indirect cost allocation plans, the cognizant agency
is the Federal agency with the largest dollar value of direct
Federal awards with a governmental unit or component, as
appropriate. Once designated as the cognizant agency for indirect
costs, the Federal agency must remain so for a period of five
years. In addition, the following Federal agencies continue to be
responsible for the indicated governmental entities:
Department of Health and Human Services - Public
assistance and state-wide cost allocation plans for all states
(including the District of Columbia and Puerto Rico), state and
local hospitals, libraries and health districts.
Department of the Interior - Indian tribal governments,
territorial governments, and state and local park and recreational
districts.
Department of Labor - State and local labor
departments.
Department of Education - School districts and state and
local education agencies.
Department of Agriculture - State and local agriculture
departments.
Department of Transportation - State and local airport
and port authorities and transit districts.
Department of Commerce - State and local economic
development districts.
Department of Housing and Urban Development - State and
local housing and development districts.
Environmental Protection Agency - State and local water
and sewer districts.
2. Review
All proposed central service cost allocation plans that are
required to be submitted will be reviewed, negotiated, and approved
by the cognizant agency for indirect costs on a timely basis. The
cognizant agency for indirect costs will review the proposal within
six months of receipt of the proposal and either negotiate/approve
the proposal or advise the governmental unit of the additional
documentation needed to support/evaluate the proposed plan or the
changes required to make the proposal acceptable. Once an agreement
with the governmental unit has been reached, the agreement will be
accepted and used by all Federal agencies, unless prohibited or
limited by statute. Where a Federal awarding agency has reason to
believe that special operating factors affecting its Federal awards
necessitate special consideration, the funding agency will, prior
to the time the plans are negotiated, notify the cognizant agency
for indirect costs.
3. Agreement
The results of each negotiation must be formalized in a written
agreement between the cognizant agency for indirect costs and the
governmental unit. This agreement will be subject to re-opening if
the agreement is subsequently found to violate a statute or the
information upon which the plan was negotiated is later found to be
materially incomplete or inaccurate. The results of the negotiation
must be made available to all Federal agencies for their use.
4. Adjustments
Negotiated cost allocation plans based on a proposal later found
to have included costs that: (a) are unallowable (i) as specified
by law or regulation, (ii) as identified in subpart F, General
Provisions for selected Items of Cost of this Part, or (iii) by the
terms and conditions of Federal awards, or (b) are unallowable
because they are clearly not allocable to Federal awards, must be
adjusted, or a refund must be made at the option of the cognizant
agency for indirect costs, including earned or imputed interest
from the date of transfer and debt interest, if applicable,
chargeable in accordance with applicable Federal cognizant agency
for indirect costs regulations. Adjustments or cash refunds may
include, at the option of the cognizant agency for indirect costs,
earned or imputed interest from the date of expenditure and
delinquent debt interest, if applicable, chargeable in accordance
with applicable cognizant agency claims collection regulations.
These adjustments or refunds are designed to correct the plans and
do not constitute a reopening of the negotiation.
G. Other Policies 1. Billed Central Service Activities
Each billed central service activity must separately account for
all revenues (including imputed revenues) generated by the service,
expenses incurred to furnish the service, and profit/loss.
2. Working Capital Reserves
Internal service funds are dependent upon a reasonable level of
working capital reserve to operate from one billing cycle to the
next. Charges by an internal service activity to provide for the
establishment and maintenance of a reasonable level of working
capital reserve, in addition to the full recovery of costs, are
allowable. A working capital reserve as part of retained earnings
of up to 60 calendar days cash expenses for normal operating
purposes is considered reasonable. A working capital reserve
exceeding 60 calendar days may be approved by the cognizant agency
for indirect costs in exceptional cases.
3. Carry-Forward Adjustments of Allocated Central Service Costs
Allocated central service costs are usually negotiated and
approved for a future fiscal year on a “fixed with carry-forward”
basis. Under this procedure, the fixed amounts for the future year
covered by agreement are not subject to adjustment for that year.
However, when the actual costs of the year involved become known,
the differences between the fixed amounts previously approved and
the actual costs will be carried forward and used as an adjustment
to the fixed amounts established for a later year. This
“carry-forward” procedure applies to all central services whose
costs were fixed in the approved plan. However, a carry-forward
adjustment is not permitted, for a central service activity that
was not included in the approved plan, or for unallowable costs
that must be reimbursed immediately.
4. Adjustments of Billed Central Services
Billing rates used to charge Federal awards must be based on the
estimated costs of providing the services, including an estimate of
the allocable central service costs. A comparison of the revenue
generated by each billed service (including total revenues whether
or not billed or collected) to the actual allowable costs of the
service will be made at least annually, and an adjustment will be
made for the difference between the revenue and the allowable
costs. These adjustments will be made through one of the following
adjustment methods: (a) a cash refund including earned or imputed
interest from the date of transfer and debt interest, if
applicable, chargeable in accordance with applicable Federal
cognizant agency for indirect costs regulations to the Federal
Government for the Federal share of the adjustment, (b) credits to
the amounts charged to the individual programs, (c) adjustments to
future billing rates, or (d) adjustments to allocated central
service costs. Adjustments to allocated central services will not
be permitted where the total amount of the adjustment for a
particular service (Federal share and non-Federal) share exceeds
$500,000. Adjustment methods may include, at the option of the
cognizant agency, earned or imputed interest from the date of
expenditure and delinquent debt interest, if applicable, chargeable
in accordance with applicable cognizant agency claims collection
regulations.
5. Records Retention
All central service cost allocation plans and related
documentation used as a basis for claiming costs under Federal
awards must be retained for audit in accordance with the records
retention requirements contained in subpart D of this part.
6. Appeals
If a dispute arises in the negotiation of a plan between the
cognizant agency for indirect costs and the governmental unit, the
dispute must be resolved in accordance with the appeals procedures
of the cognizant agency for indirect costs.
7. OMB Assistance
To the extent that problems are encountered among the Federal
agencies or governmental units in connection with the negotiation
and approval process, OMB will lend assistance, as required, to
resolve such problems in a timely manner.
[78 FR 78608, Dec. 26, 2013, as amended at 80 FR 54410, Sept. 10,
2015; 85 FR 49581, Aug. 13, 2020]