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DSS FISCAL MANUAL Section II - Determination of Allowable/Unallowable Cost

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Section II-E Indirect Cost Reporting

The purpose of this section is to present certain information and requirements relating to the reimbursement of indirect costs. For information pertaining to the actual preparation of a county-wide central supporting services cost allocation plan (indirect cost plan), counties should refer to N.C. Local Government Publication No. l26 dated January, l980, and entitled "An Introduction to Indirect Costs", as well as "Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts with the Federal Government", which was published in December 1976 by HEW and is usually referred to as OASC-l0.

Indirect Cost Defined - A direct cost is a cost which can be specifically or readily identified with a particular DSS (or contractor), and which may therefore be charged directly and in total to that agency. An indirect cost is one which cannot be so identified, but rather is incurred for the common benefit of the DSS as well as for other activities carried on by the county. Some obvious examples of such joint-benefit costs would be: a) finance department operations, including accounts payable, payroll, and purchasing functions; b) the provision, operation, and maintenance of county government buildings, including the DSS and related buildings; and c) motor pool operations. In addition to the term "indirect costs", these costs are more properly called "central supporting services costs", and to claim reimbursement for them, a county must prepare a cost allocation plan.

Counties now have the options of including all or a part of their cost of space in a county-wide central supporting services cost allocation plan. Cost of space normally is made up of such costs as utilities, security and janitorial services, building maintenance costs and depreciation (or use allowances), and such costs as are usually incidental to rental and lease agreements. The cost of any one of these items can be directly charged to the appropriate "user" departments, or it can be incorporated into a central supporting service "cost pool" and allocated on some equitable basis (such as net usable square feet), also to the appropriate "user" departments. Regardless of the option selected, counties must comply with the applicable regulations governing cost of space:

1. Costs may not be claimed for buildings that have been or would be considered to be fully depreciated.

2. No part of the cost of land may be claimed.

3. No claim may be made for any portion of the cost of buildings or equipment previously donated or otherwise borne directly or indirectly by the federal government.

4. No claim may be made for the cost of idle, excess, or unoccupied space, except with the prior written approval of the grantor federal agency.

Basis for an Indirect Cost Plan

Counties must prepare a plan for each and every year for which they wish to claim indirect costs. The figures used as the basis for the calculations must be the actual costs of the most recent fiscal year for which they are available. Generally, the source of these figures will be the independent CPA report for the fiscal year immediately preceding the fiscal year during which the plan is prepared.

Certifying the Indirect Cost Plan's Existence

Also, for each and every year for which a county wishes to claim indirect costs, they must certify to the Controller, Department of Health and Human Services that a plan has been completed and is on file in the county. The certification should take substantially the following form: (i.e. for SFY 15-16)

Pursuant to the Social Services Fiscal Manual, you are hereby informed that we have completed our cost allocation plan, prepared in accordance with OMB A-87, for the fiscal year ending June 30, 2014. The final indirect cost for the Department of Social Services (i.e. Child Support, Native American County) for fiscal year 14 is $X,XXX,XXX; the roll forward adjustment is $XXX,XXX and costs to be claimed are $X,XXX,XXX .

We are using a roll forward method of indirect cost computations. Therefore, no rate adjustments will be claimed during the present fiscal year (14-15). The roll forward amount due us has been rolled forward into the FY 15-16 rate request, which will be claimed commencing July 1, 2015. The attached schedules reflect the proposed FY 15-16 claim.

County Finance Officer/County Manager: _______________________________________

County DSS Director: ________________________________________

As shown, the certification should be signed by both the County Finance Officer/County Manager and the County Director, and should then be mailed to the County Administration Accounting Unit, Controller’s Office, 2019 Mail Service Center; Raleigh, North Carolina 27699-2019. It is required that an applicable plan be completed and on file as of the time a claim is submitted for reimbursement. This certification should therefore be furnished as soon as the county's annual plan is completed, but in no event later than April 15th following the state fiscal year in which reimbursement is being claimed (ex. SFY 15 -16 by 4/15/2016).

Reconciling Projected Indirect Costs to Actual

Much of the indirect cost plan methodology currently in use culminates in a projection of current or future period costs based on the verified actual costs of a prior period. In such cases, the projected costs must be reconciled to actual when the actual costs become known, and counties are therefore reminded to provide for a mechanism to accomplish this requirement.

When county owned buildings, capital improvements, and/or equipment items are used on behalf of social services programs, counties are entitled to compensation for such use by means of use allowances or depreciation. In the case of use allowances (2% annually for buildings, 6.67% for equipment) the appropriate annual allowance for a given item may be claimed each year, irrespective of the total amount that may have been claimed for preceding years. In the case of depreciation, however, the amounts claimed by the county are considered to apply toward the amortization of the item's acquisition cost, and are therefore subject to certain limits and controls. Foremost among these controls is the requirement that appropriate property records be maintained, so as to insure that the acquisition cost of each item is amortized over an acceptable period, and that the amount amortized does not actually exceed the item's acquisition cost. The following policies apply:

All asset depreciation charges claimed against social services programs must be supported by formal depreciation schedules. If these charges are identified by means of a central supporting services cost allocation plan, the depreciation schedules must henceforth be incorporated into the formal plan, and must include the following information for each asset item:

1. A description of the asset.

2. Date of acquisition (at a minimum, the month and year).

3. Net acquisition cost of the asset.

4. Useful life. This should be in accordance with applicable industry or IRS Guidelines, unless considerable justification can be provided for using an alternate span. The useful life of vehicles must be in accordance with OSBM guidelines (110,000 miles).

5. Depreciation methodology. (Currently, straight-line is the only permissible method.) Useful life should be followed when relating to vehicle purchases.

6. Total amount of depreciation taken in previous periods.

7. Amount of depreciation being taken in the current period.

8. Combined total of depreciation taken in previous and current periods.

9. Remaining undepreciated (net book) value.

Reporting the Indirect Costs - Indirect costs should be reported on the Statement of Administrative Expenditures, Form DSS-1571, Part II. Because of considerations involving the Division's draw down of Federal funds, counties must report their indirect cost in monthly increments.

Counties are cautioned that, with these as with other expenditure reportings, reimbursement by the Division does not constitute final acceptance or endorsement of the methodology used in preparing a plan. If upon audit or otherwise, it is determined that the costs do not meet the requirements specified in the applicable cost principles (such as reasonableness and necessity), the costs may be disallowed.

If there are questions about indirect cost plans, please call the Controller’s Office (919) 527-6150.

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