Section 4.04 - Reasonable Cost Principles(1)Allowable Costs. Except as provided elsewhere in 114. 5 CMR 4.04, all expenses determined in accordance with the Principles of Reimbursement for Provider Costs under 42 U.S.C. §§ 1395 et seq. as set forth in 42 CFR 413et.seq. and the Provider Reimbursement Manual, are allowable costs.(2)Allocation of Costs and Income. If a provider conducts more than one program, it must allocate costs to each program using a basis which the Division deems reasonable. When a provider initiates a new program it may not allocate costs from any established program to the new program during the first year of operations.(3)Inputed Values. The fair market value of donated goods and services is allowable to the extent that:(a) this value can be objectively and reliably determined; and(b) the provider would have to expend agency funds if the donated goods and services were not available and(c) the provider controls the donated goods in the same manner as goods owned by the agency and controls the donated services in the same manner as it controls its employees, including control over time, location, nature, and performance of the service. The amount of allowable program cost shall be reduced by the inputed value of donated goods and services which are reported as income during the same period.
(4)Payments to Related Parties. The provider must identify any such related party and the expenses attributable to it and must demonstrate that such expenses do not exceed the lower of the cost to the related party or the price of comparable services, facilities or supplies that could be purchased elsewhere. The Division may request either the provider or the related party, or both, to submit information, books and records relating to such expenses for the purpose of determining their allowability.(5)Fringe Benefits. Employer contributions to generally-available fringe benefits are allowable if the benefits are available to all employees under an established policy of the provider. Benefits may vary only in relation to disparities in length of service, collective bargaining agreements or regular hours of employment.(6)Pension. Employer contributions to pension, annuity and retirement plans are allowable if:(a) the contributions are based on fair, reasonable and necessary compensation for services performed by employees,(b) the contributions are costs incurred on current year payrolls and do not include payments for prior year payrolls,(c) the plan does not provide for contributions by the employer based on the contingency of profit or at the discretion of the employer,(d) the pension plan must have met the current requirements of and, if applicable, received the approval of the Internal Revenue Service. The provider must file with the Division all applicable Internal Revenue Service forms documenting Internal Revenue Service approval along with copies of the plan; and(e) any forfeiture by an employee must be applied against the cost to reduce the premiums paid by the employer. A forfeiture shall be considered to have occurred when any employee who participated in the pension plan terminates employment prior to becoming vested. This reduction in the claim for reimbursement shall be made notwithstanding the terms or lack of terms in the pension plan.(7)Reimbursement of Capital Expenditures.(a)Current Expensing of Capital Items. The full cost of acquisition of an asset having a useful life of more than one year and the full cost of repair, betterment or improvement of an asset which adds to the permanent value of the asset or which appreciably prolongs its useful life may be treated as an allowable cost of the period in which it was incurred, if the cost does not exceed $500.00 or; in the case of a group of related assets, repairs, betterments, or improvements, the aggregate cost does not exceed $500.00.(b)Depreciation. Except as excluded by 114. 5 CMR 4.04(8)(j), depreciation on plant, equipment and other assets is an allowable cost provided the amount thereof is computed: 1. upon an historical cost basis consistent with that used by the Internal Revenue Service;2. using a straight line method;3. charging 1/2 of the annual depreciation expense in each of the years of acquisition and disposal; and4. using the following schedule of useful lives: Asset Category | Life (Years) | Yearly Rate (%) |
Buildings |
1. | Class I or II as classified by the Dept. of Public Safety | 40 | 2.5 |
2. | Class III or IV as classified by the Dept. of Public Safety | 33.3 | 3 |
Improvements/Betterments | 20 | 5 |
Equipment, Furniture and Fixtures | 10 | 10 |
Motor Vehicles | 5 | 20 |
Software used directly for benefit of publicly aided clients | 3 | 33.3 |
(8)Disallowed Costs. (a)Bad Debts. Those amounts which represent uncollectible accounts receivable (whether estimated or actual) and any related costs including related legal costs.(b)Free Care. The cost of care furnished to individuals other than publicly assisted clients who, at the time of delivering care, have been or reasonably could have been determined to be financially unable to pay for such care.(c)Certain Salaries and Compensation. Those salaries and wages and other compensation determined by the Division to be excessive in light of salaries, wages and other compensation of comparable providers, and such other criteria of reasonableness as the Division may employ.(d)Fundraising. The cost of activities which have as their primary purpose the raising of capital or obtaining contributions, including the costs associated with financial campaigns, endowment drives, solicitation of gifts and bequests.(e)Research. These costs related to the conduct of grants, contracts investigations, or programs directed at the understanding, cure or alleviation of physical, mental or behavioral conditions. All costs of salaries, supplies, equipment, and occupancy which are directly related to research are to be excluded. Data gathering and program analysis are not considered to be research.(f)Federal Corporate Income Taxes and the Income Related Portion of the Massachusetts Corporate Excise Tax.(g)Certain Travel Allowances. Any amount advanced, paid or accrued to reimburse the provider's employees for use of a private motor vehicle on official agency business in excess of the amount allowed to employees of the Commonwealth.(h)Security Deposits. Money deposited by the provider with a lessor of real property as security for full and faithful performance of the terms of a lease.(i)Certain Interest.1. Any interest paid or accrued upon funds advanced or borrowed from any owner, partner, officer, stockholder, related party, or affiliated or parent organization to the extent that it exceeds the rate on obligations of the United States Treasury having comparable terms.2. Any interest accrued to inter-fund borrowings.3. Any interest paid or accrued during a reporting year which is not supported by documentation and certification to demonstrate that payment of interest and repayment of principal are required under a definite repayment schedule pursuant to a written contract.4. Any interest or penalties incurred because of late payments of loans or other indebtedness, late filing or payment of federal and state tax returns, municipal taxes, unemployment taxes, social security and the like.5. Any interest paid or accrued upon funds advanced or borrowed to the extent of any income received or accrued from the investment of restricted or unrestricted funds which were available to defray all or a portion of the expenses to which borrowed or advanced funds were applied.(j)Certain Depreciation. 1. Depreciation on idle or excess assets except such assets as are reasonably necessary for standby purposes.2. Depreciation on donated assets.3. Depreciation on any assets after the expiration of the applicable useful lives set forth in 114. 5 CMR 4.04(7)(b)4.4. Depreciation of that portion of an asset's historical cost basis, as determined under 114. 5 CMR 4.04(7)(b)1., which was paid from restricted funds.5. Where there has been a transfer of ownership of any asset, no depreciation shall be allowed on any increase in the cost basis or valuation of the assets resulting from the transfer.(k)Lobbying Costs. Funds used to compensate or reward lobbyists, consultants or staff to promote, oppose or influence legislation, or influence the governor's approval or veto thereof or to influence the decision of any Executive branch where such decision concerns legislation or the adoption, defeat, or postponement of a standard, rate, rule or regulation pursuant thereto, and any costs associated with lobbying activities. This prohibition shall apply where the lobbyists, consultants or staff, as any part of their regular and usual employment and not simply incidental thereto, attempt to promote, oppose or influence legislation, approval or veto, or regulations, whether or not any compensation in addition to the salary for such employment is received for such services.(l)Unreasonable Operating Costs. Costs which the Division determines exceed those justified under the prudent buyer concept.(m)Unauthorized Expenditures. Costs which are not reasonably necessary or appropriate for the provision of care or the efficient administration of the program. In determining whether a particular expenditure is unauthorized, the Division may rely upon the judgment of the principal purchasing governmental unit or the agreement of the parties.114 CMR, § 114. 4, § 4.04