Appendix A to Part 277 - Principles for Determining Costs Applicable to Administration of SNAP by State Agencies
7:4.1.1.3.25.0.1.19.14 : Appendix A
Appendix A to Part 277 - Principles for Determining Costs
Applicable to Administration of SNAP by State Agencies
This appendix sets forth the procedures implementing uniform
requirements for the negotiations and approval of cost allocation
plans with State agencies, in accordance with the provisions of
Federal Management Circular (FMC) 74-4 and OASC-10, “Cost
Principles and Procedures for Establishing Cost Allocation Plans
and Indirect Cost Rates for Grants and Contracts with the Federal
Government,” U.S. Department of Health, Education, and Welfare.
This material is adapted substantially from the circular; changes
have been made only when necessary in order to conform with
legislative constraints.
(A) Purpose and scope.
(1) Objectives. This appendix sets forth principles for
determining the allowable costs of administering SNAP by State
agency under FNS-approved State Plans of Operation. The principles
are for the purpose of cost determination and are not intended to
identify the circumstances or dictate the extent of Federal and
State or local participation in the financing of the Program. They
are designed to provide that all federally assisted programs bear
their fair share of costs recognized under these principles, except
where restricted or prohibited by law. No provision for profit or
other increment above cost is intended.
(2) Policy guides. The application of these principles is
based on the fundamental premises that:
(a) State agencies are responsible for the efficient and
effective administration of SNAP through the application of sound
management practice.
(b) The State agency assumes the responsibility for seeing that
SNAP funds have been expended and accounted for consistent with
underlying agreements and program objectives.
(c) Each State agency, in recognition of its own unique
combination of staff facilities and experience, will have the
primary responsibility for employing whatever form of organization
and management techniques as may be necessary to assure proper and
efficient administration.
(3) Application. These principles will be applied by FNS
in determining costs incurred by State agencies receiving FNS
payments for administering SNAP.
(B) Definitions.
Approval or authorization by FNS means documentation evidencing
consent prior to incurring specific costs.
Cognizant Federal Agency means the Federal agency recognized by
OMB as having the predominate interest in terms of program
dollars.
Cost allocation plan means the documentation identifying,
accumulating, and distributing allowable costs of program
administration together with the allocation methods used.
Cost, as used herein, means cost as determined on a cash,
accrual, or other basis acceptable to FNS as a discharge of the
State agency's accountability for FNS funds.
Cost center means a pool, summary account, objective or area
established for the accumulation of costs. Such areas include
objective organizational units, functions, objects or items of
expense, as well as ultimate cost objective(s) including specific
costs, products, projects, contracts, programs and other
operations.
Federal agency means FNS and also any department, agency,
commission, or instrumentality in the executive branch of the
Federal Government which makes grants to or contracts with State or
local governments.
Payments for administrative costs means reimbursement or
advances for costs to State agencies pursuant to any agreement
whereby FNS provides funds to carry out programs, services, or
activities in connection with administration of SNAP. The
principles and policies stated in this appendix as applicable to
program payments in general also apply to any State agency
obligations under a cost reimbursement type of agreement performed
by a subagency, including contracts and subcontracts.
SNAP administration means those activities and operations of the
State agency which are necessary to carry out the purposes of the
Food and Nutrition Act of 2008, including any portion of the
Program financed by the State agency.
Local unit means any political subdivision of government below
the State level.
Other agencies of the State means departments or agencies of the
State or local unit which provide goods, facilities, and services
to a State agency.
Subagencies means the organization or person to which a State
agency makes any payment for acquisition of goods, materials or
services for use in administering SNAP and which is accountable to
the State agency for the use of the funds provided.
Service, as used herein, means goods and facilities, as well as
services.
Supporting services means auxiliary functions necessary to
sustain the direct effort of administering the Program. These
services may be centralized in the State agency or in some other
agency, and include procurement, payroll, personnel functions,
maintenance and operation of space, data processing, accounting,
budgeting, auditing, mail and messenger service, and the like.
(C) Basic guidelines.
(1) Factors affecting allowability of costs. To be allowable
under the Program, costs must meet the following general
criteria:
(a) Be necessary and reasonable for proper and efficient
administration of the Program, be allocable thereto under these
principles, and, except as specifically provided herein, not be a
general expense required to carry out the overall responsibilities
of State or local governments.
(b) Be authorized or not prohibited under State or local laws or
regulations.
(c) Conform to any limitations or exclusions set forth in these
principles, Federal Laws, or other governing limitations as to
types or amounts of cost items.
(d) Be consistent with policies, regulations, and procedures
that apply uniformly to both federally assisted and other
activities of the unit of government of which the State agency is a
part.
(e) Be accorded consistent treatment through application of
generally accepted accounting principles appropriate to the
circumstances.
(f) Not be allocable to or included as a cost to any other
federally financed program in either the current or a prior
period.
(g) Be the net of all applicable credits.
(2) Allocable costs.
(a) A cost allocable to a particular cost objective to the
extent of benefits received by such objective.
(b) Any cost allocable to a particular program or cost objective
under these principles may not be shifted to other Federal programs
to overcome fund deficiencies, avoid restrictions imposed by law or
grant agreement, or for other reasons.
(c) Where an allocation of joint cost will ultimately result in
charges to the Program, an allocation plan will be required as
prescribed in section I of these principles.
(3) Applicable credits.
(a) Applicable credits refer to those receipts or reduction of
expenditure-type transactions which offset or reduce expense items
allocable to programs as direct or indirect costs. Examples of such
transactions are: Purchase discounts; rebates or allowances;
recoveries or indemnities on losses; sale of publications,
equipment, and scrap; income from personal or incidental services;
and adjustments of overpayments or erroneous charges.
(b) Applicable credits may also arise when Federal funds are
received or are available from sources other than FNS to finance
operations or capital items donated or financed by the Federal
Government to fulfill matching requirements under another program.
These types of credits should likewise be used to reduce related
expenditures in determining the rates or amounts applicable to a
given program.
(D) Composition of cost.
(1) Total cost. The total cost of a program is comprised
of the allowable direct cost incident to its performance, plus its
allocable portion of allowable indirect costs, less applicable
credit.
(2) Classification costs. There is no universal rule for
classifying certain costs as either direct or indirect under every
accounting system. A cost may be direct with respect to some
specific service or function, but indirect with respect to a
program or other ultimate cost objective. However, it is essential
that each item of cost be treated consistently either as a direct
or an indirect cost. Specific guides for determining direct and
indirect costs allocable under the Program are provided in the
section which follows.
(E) Direct costs.
(1) General. Direct costs are those that can be
identified specifically with a particular cost objective. These
costs may be charged directly to the Program, contracts, or to
other programs against which costs are finally lodged. Direct costs
may also be charged to cost objectives used for the accumulation of
costs pending distribution in the course to programs and other
ultimate costs objectives.
(2) Application. Typical direct costs chargeable to the
Program are:
(a) Compensation of employees for the time and effort devoted
specifically to the administration of the Program.
(b) Cost of materials acquired, consumed, or expended
specifically for the purpose of the Program.
(c) Equipment and other approved capital expenditures.
(d) Other items of expense incurred specifically for efficiently
and effectively administering the Program.
(e) Service furnished specifically for the Program by other
agencies, provided such charges are consistent with criteria
outlined in section G of these principles.
(F) Indirect costs.
(1) General. Indirect costs are those (a) incurred for a
common or joint purpose benefiting more than one cost objective,
and (b) not readily assignable to the cost objectives specifically
benefited, without effort disproportionate to the result achieved.
The term indirect cost as used herein applies to costs of this type
originating in the State agency, as well as those incurred by other
departments in supplying goods, services, and facilities, to the
State agency. To facilitate equitable distribution of indirect
expenses to the cost objectives served, it may be necessary to
establish a number of pools of indirect costs within a State agency
or in other agencies providing services to a State agency. Indirect
cost pools should be distributed to benefiting cost objectives on
bases which will produce an equitable result in consideration of
relative benefits derived.
(2) State agency indirect costs. All State agency
indirect costs, including the various levels of supervision, are
eligible for allocation to the program provided they meet the
conditions set forth in their principles. In lieu of determining
the actual amount of State agency indirect cost allocable to the
program the following methods may be used:
(a) Predetermined fixed rates for indirect costs. A
predetermined fixed rate for computing indirect costs applicable to
program administration may be negotiated annually in situations
where the cost experience and other pertinent facts available are
deemed sufficient to enable the parties to reach an informed
judgment (1) as to the probable level of indirect costs in the
State agency during the period to be covered by the negotiated
rate, and (2) that the amount allowable under the predetermined
rate would not exceed actual indirect costs.
(b) Negotiated lump sum for overhead. A negotiated fixed
amount in lieu of indirect costs may be appropriate under
circumstances where the benefits derived from a State agency's
indirect services cannot be readily determined as in the case of a
small self-contained or isolated activity. When this method is
used, a determination should be made that the amount negotiated
will be approximately the same as the actual indirect cost that may
be incurred. Such amounts negotiated in lieu of indirect costs will
be treated as an offset to total indirect expenses of the State
agency before allocation to remaining activities. The base on which
such remaining expenses are allocated should be appropriately
adjusted.
(3) Limitation on indirect costs.
(a) Some Federal programs may be subject to laws that limit the
amount of indirect cost that may be allowed. Agencies that sponsor
programs of this type will establish procedures which will assure
that the amount actually allowed for indirect costs under each such
program does not exceed the maximum allowable under the statutory
limitation or the amount otherwise allowable under these
principles, whichever is the smaller.
(b) When the amount allowable under a statutory limitation is
less than the amount otherwise allocable as indirect costs under
these principles, the amount not recoverable as indirect costs
under a program may not be shifted to another federally sponsored
program or contract.
(G) Cost incurred by other agencies of the State.
(1) General. The cost of service provided by other
agencies may only include allowable direct costs of the service
plus a pro rata share of allowable supporting costs and supervision
directly required in performing the service, but not supervision of
a general nature such as that provided by the head of a department
and his staff assistants not directly involved in operations.
However, supervision by the head of a department or agency whose
sole function is providing the service furnished would be an
eligible cost. Supporting costs include those furnished by other
units of the supplying department or by other agencies.
(2) Alternative methods of determining indirect cost. In
lieu of determining actual indirect cost related to a particular
service furnished by other agencies of the State, either of the
following alternative methods may be used provided only one method
is used for a specific service during the fiscal year involved.
(a) Standard indirect rate. An amount equal to ten
percent of direct labor cost in providing the service performed by
other agencies of the State (excluding overtime, shift, or holiday
premiums, and fringe benefits) may be allowed in lieu of actual
allowable indirect cost for that service.
(b) Predetermined fixed rate. A predetermined fixed rate
for indirect cost of the unit or activity providing service may be
negotiated as set forth in section F(2)(a) of these principles.
(H) Cost incurred by State agency for others. The principles
provided in section G will also be used in determining the cost of
services provided by the State agency to another agency.
(I) Cost allocation plan.
(1) A cost allocation will be required to support the
distribution of any indirect costs. All costs allocable to SNAP
under cost allocation plans will be supported by formal accounting
records which will substantiate the propriety of eventual
charges.
(2) There are two types of cost allocation plans:
(a) Statewide or central service cost allocation plan identifies
and distributes the cost of services provided by support
organizations to those departments or units participating in
Federal programs.
(b) Indirect cost proposals distribute the administrative or
joint costs incurred by the State agency and the cost of service
allocable to it under the Statewide or central service cost
allocation plan in a ratio to all work performed by the State
agency. The process involves applying a percentage relationship of
indirect cost to direct cost.
(3) Requirements. The cost allocation plan of the State
agency shall cover all allocated costs of the department as well as
costs to be allocated under plans of other agencies or
organizational units which are to be included in the costs of
federally sponsored programs. The cost allocation plans of all the
agencies rendering services to the State agency, to the extent
feasible, should be presented in a single document.
(4) Instructions for preparation of cost allocation
plans. The Department of Health and Human Services, in
consultation with the other Federal agencies concerned, will be
responsible for developing and issuing the instructions for use by
State agencies in preparation of cost allocation plans. This
responsibility applies to both central support services at the
State and local government level and indirect cost proposals of
individual State agencies.
(5) Submitting plans for approval.
(a) Responsibility for approving cost allocation plans for
individual State agencies has been assigned by the Office of
Management and Budget to the cognizant Federal agency.
(b) State cost allocation plans must be submitted to the
cognizant Federal agency within six months after the last day of
the State's fiscal year. Upon request by the State agency, an
extension of time for submittal of the cost allocation plan may be
granted by the cognizant Federal agency. It is essential that cost
allocation plans be submitted in a timely manner. Failure to submit
the plans when required will cause the State agency to become
delinquent. In the event a State becomes delinquent, FNS will not
provide for the recovery of central service and indirect costs, and
such costs already made and claimed against SNAP funds will be
subject to disallowance.
(6) Negotiation and approval of cost allocation plans for
States. The cognizant Federal agency, in collaboration with
Federal agencies concerned, will be responsible for negotiation,
approval, and audit of cost allocation plans.
(7) Negotiation and approval of cost allocation plans for
local governments. Cost allocation plans will be retained at
the local government level for audit by the cognizant Federal
agency except in those cases where that agency requests that cost
allocation plans be submitted to it for negotiation and
approval.
(8) A current list of cognizant Federal agencies is maintained
by the Office of Management and Budget.
(9) Resolution of problems. The Office of Management and
Budget will lend assistance in resolving problems encountered by
Federal agencies on cost allocation plans.
(10) Approval by FNS. FNS reserves the right to disapprove costs
not meeting the general criteria outlined in section C of these
principles. FNS shall promptly notify the State agency in writing
of the disapproval, the reason for the disapproval and the
effective date. Costs incurred by State agencies after disapproval
may not be charged to FNS unless if FNS subsequently approves the
cost.
Standards for Selected Items of Cost
A. Allowable cost. Standards for allowability of costs
are established by Federal Management Circular 74-4. These
standards will apply regardless of whether a particular item of
cost is treated as direct or indirect. Failure to mention a
particular item of cost in these standards is not intended to imply
that it is either allowable or unallowable. Rather, determination
of allowability in each case should be based on the treatment of
standards provided for similar or related items of cost. The
allowability of the selected items of cost is subject to the
general policies and principles as stated in Attachment A to
Federal Management Circular 74-4.
(1) Accounting. The cost of establishing and maintaining
accounting and other information systems required for the
management of SNAP is allowable. This includes costs incurred by
central service agencies of the State government for these
purposes. The cost of maintaining central accounting records
required for overall State or local government purposes, such as
appropriation and fund accounts by the Treasurer, Comptroller, or
similar officials, is considered to be a general expense of
government and is not allowable.
(2) Advertising. Advertising media includes newspapers,
magazines, radio and television programs, direct mail, trade
papers, and the like. The advertising costs allowable are those
which are solely for:
(a) Recruitment of personnel required for the Program;
(b) Solicitation of bids for the procurement of goods and
services required;
(c) Disposal of scrap or surplus materials acquired in the
performance of the agreement; and
(d) Other purposes specifically provided for by FNS regulations
or approved by FNS in the administration of SNAP.
(3) Advisory councils. Costs incurred by State advisory
councils or committees established to carry out SNAP goals are
allowable. The cost of like organizations is allowable when used to
improve the efficiency and effectiveness of the Program.
(4) Audit service. The cost of audits necessary for the
administration and management of functions related to the Program
is allowable.
(5) Bonding. Costs of premiums on bonds covering
employees who handle SNAP funds or food coupons are allowable. The
amount of allowable coverage shall be limited to the anticipated
maximum amount of SNAP funds or food coupons handled at one time by
that employee.
(6) Budgeting. Costs incurred for the development,
preparation, and execution of budgets are allowable. Costs for
services of a central budget office are generally not allowable
since these are costs of general government. However, where
employees of the central budget office actively participate in the
State agency's budget process, the cost of services identifiable to
SNAP are allowable.
(7) Building lease management. The administrative cost
for lease management which includes review of lease proposals,
maintenance of a list of available property for lease, and related
activities is allowable.
(8) Central stores. The cost of maintaining and operating
a central stores organization for supplies, equipment, and
materials used either directly or indirectly for SNAP is
allowable.
(9) Communications. Communication costs incurred for
telephone calls or service, telegraph, teletype service, wide area
telephone service (WATS), centrex, telpak (tie lines), postage,
messenger service and similar expenses are allowable.
(10) Compensation for personal services.
(a) General. Compensation for personal services includes
all remuneration, paid currently or accrued, for services rendered
during the period of performance in the administration of the
program including but not necessarily limited to wages, salaries,
and supplementary compensation and benefits as defined in section
A.(13) of these principles. The costs of such compensation are
allowable to the extent that total compensation for individual
employees: is reasonable for the services rendered; follows an
appointment made in accordance with State or local government laws
and rules and which meets Federal Merit System or other
requirements, where applicable; and is determined and supported as
provided in section A of these principles. Compensation for
employees engaged in federally assisted activities will be
considered reasonable to the extent that it is consistent with that
paid for similar work in other activities of the State or local
government. In cases where the kinds of employees required for SNAP
activities are not found in the other activities of the State or
local government, compensation will be considered reasonable to the
extent that it is comparable to that paid for similar work in the
labor market in which the employing government competes for the
kind of employees involved. Compensation surveys providing data
representative of the labor market involved will be an acceptable
basis for evaluating reasonableness.
(b) Payroll and distribution of time. Amounts charged to
the program for personal services, regardless of whether treated as
direct or indirect costs, will be based on payrolls documented and
approved in accordance with the generally accepted practice of the
State or local agency. Payrolls must be supported by time and
attendence or equivalent records for individual employees.
Distribution of salaries and wages of employees chargeable to more
than one program or other cost objective will be supported by
appropriate time reports or approved time study methodologies. The
method used should be included in the cost allocation plan and
should be approved by FNS.
(11) Depreciation and use allowance.
(a) State agencies may be compensated for the use of buildings,
capital improvements, and equipment through use allowances or
depreciation. Use allowances are the means of providing
compensation in lieu of depreciation or other equivalent costs.
However, a combination of the two methods may not be used in
connection with a single class of fixed assets.
(b) The computation of depreciation or use allowances will be
based on acquisition cost. Where actual cost records have not been
maintained, a reasonable estimate of the original acquisition cost
may be used in the computation. The computation will exclude the
cost of any portion of the cost of buildings and equipment donated
or borne directly or indirectly by the Federal Government through
charges to Federal programs or otherwise, irrespective of where
title was originally vested or where it presently resides. In
addition, the computation will also exclude the cost of acquisition
of land. Depreciation or a use allowance on idle or excess
facilities is not allowable, except when specifically authorized by
FNS.
(c) Where the depreciation method is followed, adequate property
records must be maintained, and any generally accepted method of
computing depreciation may be used. However, the method of
computing depreciation must be consistently applied for any
specific asset or class of assets for all affected federally
sponsored programs and must result in equitable charges considering
the extent of the use of the assets for the benefit of such
programs.
(d) In lieu of depreciation, a use allowance for buildings and
improvements may be computed at an annual rate not exceeding two
percent of acquisition cost. The use allowance for equipment
(excluding items properly capitalized as building cost) will be
computed at an annual rate not exceeding six and two-thirds percent
of acquisition cost of usable equipment.
(e) No depreciation or use charge may be allowed on any assets
that would be considered as fully depreciated, provided, however,
that reasonable use charges may be negotiated for any such assets
if warranted after taking into consideration the cost of the
facility or item involved, the estimated useful life remaining at
time of negotiation, the effect of any increased maintenance
charges or decreased efficiency due to age, and any other factors
pertinent to the utilization of the facility or item for the
purpose contemplated.
(12) Disbursing service. The cost of disbursing program
funds by the State Treasurer or other designated officer is
allowable. Disbursing services cover the processing of checks or
warrants, from preparation to redemption, including the necessary
records of accountability and reconciliation of such records with
related cash accounts.
(13) Employee fringe benefits. Costs identified are
allowable to the extent that total compensation for employees is
reasonable as defined in paragraph (10)(a) of these principles.
(a) Employee benefits in the form of regular compensation paid
to employees during periods of authorized absences from the job,
such as for annual leave, sick leave, court leave, military leave,
and the like, if they are provided pursuant to an approved leave
system, and the cost thereof is equitably allocated to all related
activities, including federally assisted programs.
(b) Employee benefits in the form of employers' contributions or
expense for social security, employees' life and health insurance
plans, unemployment insurance coverage, workers' compensation
insurance, pension plans, severance pay, and the like, provided
such benefits are granted under approved plans and are distributed
equitably to programs and to other activities.
(14) Employee morale, health And welfare costs. The costs
of health or first-aid clinics and/or infirmaries, recreational
facilities, employees' counseling services, employee information
publications, and any related expenses incurred in accordance with
general State or local policy, are allowable. Income generated from
any of these activities will be offset against expenses.
(15) Exhibits. Costs of exhibits relating specifically to
SNAP are allowable.
(16) Legal expenses. The cost of legal expenses required
in the administration of the program is allowable. Legal services
furnished by the chief legal officer of a State or local government
or his staff solely for the purpose of discharging his general
responsibilities as legal officer are unallowable. Legal expenses
for the prosecution of claims against the Federal Government is
unallowable.
(17) Maintenance and repair. Costs incurred for necessary
maintenance, repair, or upkeep of property which neither add to the
permanent value of the property nor appreciably prolong its
intended life, but keep it in an efficient operating condition, are
allowable.
(18) Materials and supplies. The cost of materials and
supplies necessary to carry out the program is allowable. Purchases
made specifically for the program should be charged thereto at
their actual prices after deducting all cash discounts, trade
discounts, rebates, and allowances received by the State agency.
Withdrawals from general stores or stockrooms should be charged at
cost under any recognized method of pricing consistently applied.
Incoming transportation charges are a proper part of material
cost.
(19) Memberships, subscriptions and professional
activities.
(a) The cost of membership in civic, business, technical,
and professional organizations is allowable, provided:
(i) The benefit from the membership is related to the
program,
(ii) The expenditure is for agency membership,
(iii) The cost of the membership is reasonably related to the
value of the services or benefits received, and
(iv) The expenditure is not for membership in an organization
which devotes a substantial part of its activities to influencing
legislation.
(b) Reference material. The cost of books, and
subscriptions to civic, business, professional, and technical
periodicals is allowable when related to the program.
(c) Meetings and conferences. Costs are allowable when
the primary purpose of the meeting is the dissemination of
technical information relating to the program and they are
consistent with regular practices followed for other activities of
the State agency.
(20) Motor pools. The costs of a service organization
which provides automobiles to user State agencies at a mileage or
fixed rate and/or provides vehicle maintenance, inspection and
repair services are allowable.
(21) Payroll preparation. The cost of preparing payrolls
and maintaining necessary wage records is allowable.
(22) Personnel administration. Costs for the recruitment,
examination, certification, classification, training, establishment
of pay standards, and related activities for the program are
allowable.
(23) Printing and reproduction. Cost for printing and
reproduction services necessary for program administration
including but not limited to forms, reports, manuals, and
information literature, is allowable. Publication costs of reports
or other media relating to program accomplishments or results are
allowable.
(24) Procurement service. The cost of procurement
service, including solicitation of bids, preparation and award of
contracts, and all phases of contract administration in providing
goods, facilities and services for the program is allowable.
(25) Prosecution activities. The costs of investigations
and prosecutions of intentional SNAP violations are allowable.
Costs of investigation, prosecution, or claims collection which are
performed by agencies other than the State agency shall be based on
a formal agreement between the State or local agency and provider
agency. These interagency agreements shall meet the requirements of
this part in regard to allowable charges. Funding under these
interagency agreements shall be provided by the State agency from
their funds and funds made available by FNS.
(26) Taxes. In general, taxes or payments in lieu of
taxes which the State agency is legally required to pay are
allowable.
(27) Training and education. The cost of in-service
training, customarily provided for employee development which
directly or indirectly benefits the program is allowable.
Out-of-service training involving extended periods of time is
allowable only when specifically authorized by FNS.
(28) Transportation. Costs incurred for freight, cartage,
express, postage, and other transportation costs relating either to
goods purchased, delivered, or moved from one location to another
are allowable.
(29) Travel. Travel costs are allowable for expenses for
transportation, lodging, subsistence, and related items incurred by
employees who are in travel status on official business incident to
the program. Such costs may be charged on an actual basis, on a per
diem or mileage basis in lieu of actual costs incurred, or on a
combination of the two. The charges must be consistent with those
normally allowed in like circumstances in nonfederally sponsored
activities. The difference in cost between first-class air
accommodations and less-than-first-class air accommodations is
unallowable except when less-than-first-class air accommodations
are not reasonably available. Notwithstanding the provisions of
paragraphs C (7) and (10), travel costs of officials covered by
those paragraphs, when specifically related to grant programs, are
allowable with the prior approval of a grantor agency.
B. Costs allowable with approval of FNS.
(1) Automated Data Processing. The costs of acquiring
data processing equipment and services used in the administration
of SNAP are allowable. The costs of ADP equipment and services
acquisitions which exceed the prior approval cost thresholds
specified in § 277.18(c) are allowable upon the prior written
approval of FNS. Requests for prior approval of such costs shall be
in accordance with the provisions of § 277.18.
(2) Building space and related facilities. The cost of
space in privately or publicly owned buildings used for the benefit
of the Program is allowable subject to the following
conditions.
(a) The total cost of space, whether in a privately or publicly
owned building, may not exceed the rental cost of comparable space
and facilities in a privately owned building in the same
locality.
(b) The cost of space may not be charged to FNS for periods of
nonoccupancy, without authorization of FNS.
(i) Rental cost. The rental cost of space in a
privately-owned building is allowable.
(ii) Maintenance and operation. The cost of utilities,
insurance, security, janitorial services, elevator service, upkeep
of grounds, normal repairs and alterations and the like, are
allowable to the extent they are not otherwise included in rental
or other charges for space.
(iii) Rearrangements and alterations. Costs incurred for
rearrangement and alteration of facilities required specifically
for the program or those that materially increase the value or
useful life of the facilities (section B(3) of these principles)
are allowable when specifically approved by FNS.
(iv) Depreciation and use allowances on publicly owned
buildings. These costs are allowable as provided in paragraph
A(11) of these principles.
(v) Occupancy of space under rental-purchase or a lease with
option-to-purchase agreement. The cost of space procured under
such arrangements is allowable when specifically approved by
FNS.
(3) Capital expenditures. The cost, net of any credits,
of facilities, equipment, other capital assets, and repairs which
materially increase the value or useful life of capital assets,
and/or of nonexpendable personal property, having a useful life of
more than one year and a net acquisition cost of more than $5,000
per unit after allocation to FNS as projected for one year after
purchase, is allowable when such procurement is specifically
approved by FNS. No such approval shall be granted unless the State
agency shall demonstrate to FNS that such a cost is:
(a) Necessary and reasonable for proper and efficient
administration of the program, and allocable thereto under the
principles provided herein; and
(b) That procurement of such item or items has been or will be
made in accordance with the standards set out in § 277.14. In no
case shall such a cost become a program charge against FNS prior to
approval in writing by FNS of the procurement and the cost. When
assets acquired with SNAP funds are (i) sold, (ii) no longer
available for use in a federally sponsored program, or (iii) used
for purposes not authorized by FNS, FNS's equity in the asset will
be refunded in the same proportion as Federal participation in its
cost. In case any assets are traded on new items, only the net cost
of the newly acquired assets is allowable.
(4) Insurance.
(a) Cost of insurance to secure the State agency against
financial losses involved in the acceptance, storage, and issuance
of food coupons and ATP cards is allowable with FNS approval.
(b) Costs of other insurance in connection with the general
conduct of activities are allowable subject to the following
limitations:
(i) Types and extent and cost of coverage will be in accordance
with general State or local government policy and sound business
practice.
(ii) Costs of insurance or contributions to any reserve covering
the risk of loss of, or damage to, Federal Government property are
unallowable except to the extent that FNS approves such cost.
(5) Management studies. The cost of management studies to
improve the effectiveness and efficiency of program management for
SNAP is allowable. However, FNS must approve cost in excess of
$2,500 for studies performed by outside consultants or agencies
other than the State agency.
(6) Preagreement costs. Costs incurred prior to the
effective date of approval of the amended indirect cost proposal or
the revised Statewide cost allocation plan, whether or not they
would have been allowable thereunder if incurred after such date,
are allowable only when subsequently provided for in the plan or
approved indirect cost proposal.
(7) Professional services. Cost of professional services
rendered by individuals or organizations not a part of the State
agency is allowable. Prior authorization must be obtained from FNS
for cost exceeding a total of $2,500.
(8) Proposal costs. Costs of preparing indirect cost
proposals or amendments for allocating, distributing, and
implementing provisions for payment of portions of the costs of
administering SNAP by the State agency are allowable.
(9) Cost incurred by agencies other than the State. The
cost of services provided by other agencies (including municipal
governments) may only include allowable direct costs plus a pro
rata share of allowable supporting costs and supervision directly
required in performing the service. Allowable supporting costs are
those services which may be centralized and includes such functions
as procurement, payroll, personnel services, maintenance and
operation of space, data processing, accounting, budgeting,
auditing, mail and messenger service and the like. Supervision
costs will not include supervision of a general nature such as that
provided by the head of a department and his staff assistants not
directly involved in the operation of the program. In lieu of
determining actual indirect cost related to a particular service
performed by another agency, either of the following alternative
methods may be used during the fiscal year involved and is
specifically provided for in the indirect cost proposal:
(a) Standard indirect rate equal to ten percent of direct labor
cost in providing the service (excluding overtime, shift or holiday
premiums, and fringe benefits) may be allowed in lieu of actual
allowable cost.
(b) A predetermined fixed rate for indirect cost of the unit or
activity providing service may be negotiated.
C. Unallowable costs. The following costs shall not be
allowable:
(1) Costs of determining SNAP eligibility incidental to the
determination of TANF eligibility are not chargeable to
FNS.
(2) Bad debts. Any losses arising from uncollectible
accounts or other claims, and related costs, are unallowable.
(3) Contingencies. Contributions to a contingency reserve
or any similar provision for unforeseen events are unallowable.
(4) Contributions and donations. Unallowable.
(5) Entertainment. Costs whose purpose is for amusement,
social activities, and incidental costs relating thereto, such as
meals, beverages, lodgings, rentals, transportation, and gratuities
are unallowable.
(6) Fines and penalties. Costs resulting from violations
of or failure to comply with Federal, State and local laws and
regulations are unallowable.
(7) Governor's expenses. The salaries and expenses of the
Office of the Governor of a State or the chief executive of a
political subdivision are considered a cost of general State or
local government and are unallowable. However, for a
federally-recognized Indian tribal government, only that portion of
the salaries and expenses of the office of the chief executive that
is a cost of general government is unallowable. The portion of
salaries and expenses directly attributable to managing and
operating programs is allowable.
(8) Indemnification. The cost of indemnifying the State
against liabilities to third parties and other losses not
compensated by insurance is unallowable.
(9) Interest and other financial costs. Interest on
borrowings, bond discounts, cost of financing and refinancing
operations, and legal and professional fees paid in connection
therewith, are unallowable.
(10) Legislative expenses. Salaries and other expenses of
the State legislature or similar local governmental bodies are
unallowable.
(11) Losses. Losses which could have been covered by
permissible insurance are unallowable.
(12) Underrecovery of cost under agreements. Any excess
of cost over Federal contribution under one agreement is
unallowable under another agreement.
(13) The acquisition of land or buildings is an unallowable
cost.
[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 207, 47
FR 52338, Nov. 19, 1982; Amdt. 298, 52 FR 36400, Sept. 29, 1987;
Amdt. 316, 54 FR 24531, June 7, 1989; Amdt. 319, 55 FR 4361, Feb.
7, 1990; Amdt. 342, 59 FR 2733, Jan. 19, 1994; Amdt. 385, 65 FR
33441, May 24, 2000]