Circular No. A-87
CENTRAL SERVICE COST ALLOCATION PLANS
TABLE OF CONTENTS
1. Billed central
of the Central Service Cost Allocation Plans
2. Allocated central services
3. Agency or operating agency
D. Submission Requirements
E. Documentation Requirements for Submitted Plans
and Approval of Central Service Plans
2. Allocated central services
3. Billed services
4. Required certification
b. Internal service funds
c. Self-insurance funds
d. Fringe benefits
G. Other Policies
1. Billed central
2. Working capital reserves
3. Carry-forward adjustments of allocated central service costs
4. Adjustments of billed central services
5. Records retention
7. OMB assistance
- 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.
- 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 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."
A copy of this brochure may be obtained from the Superintendent of
Documents, U.S. Government Printing Office.
- "Billed central
services" means central services that are billed to benefitted agencies
and/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.
- "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.
- "Agency or operating
agency" means an organizational unit or sub-division within a governmental
unit that is responsible for the performance or administration of
awards or activities of the governmental unit.
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. Costs of central services
omitted from the plan will not be reimbursed.
- 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
costs used for either the most recently completed year or the year
immediately preceding the most recently completed year.
- Each local government
that has been designated as a "major local government" by the Office
of Management and Budget (OMB) is also required to submit a plan to
its cognizant agency annually. OMB periodically lists major local
governments in the Federal Register.
- All other local
governments claiming central service costs must develop a plan in
accordance with the requirements described in this Circular 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.
Where a local government only receives funds as a sub-recipient, the
primary recipient will be responsible for negotiating indirect cost
rates and/or monitoring the sub-recipient's plan.
- 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 on
a case-by-case basis.
Documentation Requirements for Submitted Plans. The documentation
requirements described in this section may be modified, expanded, or reduced
by the cognizant agency 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.
- 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 benefiting 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 Circular, 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.
- 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. shall also be included.
- Billed services.
- a. General.
The information described below shall be provided for all billed
central services, including internal service funds, self-insurance
funds, and fringe benefit funds.
- b. Internal
each internal service fund or similar activity with an operating
budget of $5 million or more, the plan shall 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 Generally Accepted Accounting Principles (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 Circular,
with an explanation of how variances will be handled.
shall 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 shall be provided. Expenses
shall be broken out by object cost categories (e.g., salaries,
funds. For each self-insurance fund, the plan shall 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.
benefits. For fringe benefit costs, the plan shall 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 shall 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.
- Required certification.
Each central service cost allocation plan will be accompanied by a
certification in the following form:
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:
- 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 OMB Circular A-87, "Cost
Principles for State and Local Governments," 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.
- 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 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
that the foregoing is true and correct.
Negotiation and Approval of Central Service Plans.
- All proposed
central service cost allocation plans that are required to be submitted
will be reviewed, negotiated, and approved by the Federal cognizant
agency on a timely basis. The cognizant agency 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 funding agency has reason to believe that special operating
factors affecting its awards necessitate special consideration, the
funding agency will, prior to the time the plans are negotiated, notify
the cognizant agency.
- The results
of each negotiation shall be formalized in a written agreement between
the cognizant agency 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 shall be made available to all Federal agencies
for their use.
- 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 Attachment B of this Circular, or (iii) by the
terms and conditions of Federal awards, or (b) are unallowable because
they are clearly not allocable to Federal awards, shall be adjusted,
or a refund shall be made at the option of the Federal cognizant agency.
These adjustments or refunds are designed to correct the plans and
do not constitute a reopening of the negotiation.
- 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.
- 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 days cash
expenses for normal operating purposes is considered reasonable. A
working capital reserve exceeding 60 days may be approved by the cognizant
Federal agency in exceptional cases.
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.
of billed central services. Billing rates used to charge Federal awards
shall 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 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.
- 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 the Common Rule.
- Appeals. If
a dispute arises in the negotiation of a plan between the cognizant
agency and the governmental unit, the dispute shall be resolved in
accordance with the appeals procedures of the cognizant agency.
- OMB assistance.
To the extent that problems are encountered among the Federal agencies
and/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.