Section 1.05 - Non-reimbursable CostsFunds received from Departments may only be used for Reimbursable Operating Costs as defined in 808 CMR 1.02. In addition, funds may not be used for costs specifically identified in 808 CMR 1.05 as non-reimbursable. Expenditures not in accordance with 808 CMR 1.05 are subject to recoupment, intercept, offset, and where appropriate, the Authorized Price is subject to adjustment, as determined by the Commonwealth.
(1)Unreasonable Costs. Any costs not determined to be Reimbursable Operating Costs as defined in 808 CMR 1.02 or any amount paid for goods or services which is greater than either the market price or the amount paid by comparable Departments or other governmental units within or outside of the Commonwealth.(2)Certain Depreciation. (a) Depreciation for assets to the extent that the assets have previously been depreciated by the Contractor.(b) Depreciation which is computed by a method other than the following: an historical cost basis with a straight line method; using a schedule of asset service lives pursuant to OSD policy; and charging one half of the annual depreciation expense in each of the years of acquisition and disposal.(c) Depreciation on idle, excess, or donated assets or on that portion of an asset's historical cost basis which was paid for from Restricted Funds.(d) Depreciation on assets acquired under a capital budget approved by a Department and held in trust for the Commonwealth of Massachusetts or depreciation on assets acquired under a capital budget approved by a Department to which the Contractor holds title under the terms of a contract.(3)Certain Interest.(a) Any interest paid or accrued upon funds advanced or borrowed from any owner, partner, officer, stockholder, Related Party, or affiliated or parent organization which exceeds the prime rate plus 1% as published in The Wall Street Journal for similar obligations issued at the same time and for the same amount of time.(b) Any interest paid or accrued to inter-fund borrowing.(c) Any interest paid or accrued during the 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 schedule, or upon demand, pursuant to a written contract.(d) Any interest or penalties incurred because of late payment of loans or other indebtedness, late filing or payment of federal and state tax returns, municipal taxes, unemployment taxes, social security, and the like.(e) Any interest paid or accrued upon funds advanced or borrowed to the extent of income received or accrued from the investment of Restricted Funds which were available to defray all or a portion of the expenses to which borrowed or advanced funds were applied.(4)Current Expensing of Capital Items. All costs attributable to the current expensing of a Capital Item.(5)Certain Salaries and Consultant Compensation. Those salaries, wages, and consultant compensation considered to be excessive by OSD, in light of salaries, wages and consultant compensation of other comparable Contractors.(6)Bad Debts. Those amounts (whether estimated or actual) which represent the portion of an account or note receivable that proves to be entirely uncollectible despite collection efforts including legal action, and any related legal costs.(7)Taxes. Federal corporate income taxes and the income related portion of the Massachusetts corporate excise tax.(8)Related Party Transaction Costs. Costs which are associated with a Related Party transaction are reimbursable only to the extent that the costs do not exceed the lower of either the market price or the Related Party's actual costs. Notwithstanding the above provision, Related Party transaction costs are reimbursable up to market price when the following conditions are satisfied: (a) the transaction is for a good or service which the Related Party sells to the general public;(b) the Related Party's transactions with the Contractor in the reporting year comprise less than 10% of the Related Party's annual sales of that good or service to the general public (excluding sales to other parties also related to the Related Party under FASB 57); and(c) the Contractor has approved the transaction by vote of independent directors, or a committee of independent directors, following full disclosure of the Related Party's interests. Further, costs associated with a Related Party transaction which would not be Reimbursable Operating Costs to a Contractor under 808 CMR 1.02 and 1.05 are non-reimbursable. Transactions with a Related Party totaling less than $100 annually may be reimbursed at market prices.
(9)Certain Fringe Benefits.(a) Fringe benefits determined to be excessive in light of salary levels and benefits of other comparable Contractors and fringe benefits to the extent that they are not available to all employees under an established policy of the Contractor. Disparities in benefits among employees attributable to length of service, collective bargaining agreements or regular hours of employment shall not result in the exclusion of such costs.(b) Employer contributions to pension, annuity, and retirement plans which have been denied approval by the Internal Revenue Service.(10)Fundraising Expense. 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, and solicitation of gifts and bequests. However, if a Program which receives Commonwealth funds does not, or cannot be reasonably expected to, receive federal funds, the fundraising expenses specifically for raising capital or obtaining contributions for that Program may be off-set against the revenue generated by the fundraising activity except no loss will be reimbursable. In those circumstances, the Contractor must maintain and make available for review, subject to donor restrictions on confidentiality, accounting systems which adequately document and segregate those fundraising activity expenses and revenues associated with Programs which receive Commonwealth funds from other Contractor Programs in accordance with generally accepted accounting principles.(11)Travel Allowances. Any amount advanced, paid, or accrued to reimburse the Contractor's employees for the use of a private motor vehicle on official agency business in excess of the amount allowed under the United States Internal Revenue Code §§61 and 62.(12)Non-program Expenses. Expenses of the Contractor which are not directly related to the social service Program purposes of the Contractor.(13)Security Deposits. Money deposited by the Contractor with a lessor of real property as security for full and faithful performance of the terms of a Contractor's lease.(14)Free Care. Costs associated with free service and use.(15)Research. The costs related to the conduct of grants, contracts, investigations, or Programs directed at the understanding, cause or alleviation of physical, mental or behavioral conditions. All costs of salaries, supplies, equipment, and overhead which are directly related to research are to be excluded. Data gathering and Program analysis are not considered to be research.(16)Management Agency Fees. Fees charged to the Contractor by a management agency which exceed the costs the Contractor would have incurred had it not entered into a management agreement.(17)Costs Resulting from a Change of Assets.(a) Any costs related to a change of Program ownership that has not been recognized by the Commonwealth because of one or more of the following conditions: 1. The transfer of Program ownership occurred between Related Parties;2. The transfer of Program ownership was not made for reasonable compensation;3. The transfer of Program ownership was not a genuine transfer of all the powers and rights of ownership;4. The transfer of Program ownership did not show an intent to sell the assets or the transfer increased the cost basis of either the transferor or transferee; or5. In the case of a financing agreement between the transferor and the transferee, the agreement was not designed to bring about a complete transfer of Program ownership or there was not compliance with the terms of the agreement.(b) When a change of Program ownership has been recognized by the Commonwealth, as follows: 1. For land, costs that exceed the lower of the acquisition cost or the basis allowed the immediate prior owner.2. For furnishings and fixtures and equipment, costs that exceed the lower of the acquisition cost or the basis allowed the immediate prior owner, reduced by the amount of actual depreciation (or principal payments in lieu of depreciation) included as a Reimbursable Operating Cost.3. For buildings, costs that exceed the lower of the acquisition cost, 100% of the most recent 100% property valuation reduced by the amount of actual depreciation (or principal payments in lieu of depreciation) included as Reimbursable Operating Costs to the immediate prior owner, or an independent appraisal made by a qualified appraiser. Appraisals using the income approach to establish value will not be recognized.(c) Where there has been an exchange of assets by a Related Party, costs in excess of the cost previously allowed to the Contractor with the Related Party relationship for the exchanged assets.(d) Where there has been an exchange of assets between Contractors and such exchange results in a sale-lease back, costs in excess of the transferor's allowable costs for the exchanged assets.(18)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 member of the 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.(19)Certain Reporting Year Expenditures. Reporting year expenditures in the operating fund for which Restricted Funds were available but not used.(20)Itemized Deductions. All expenses not qualifying as itemized business deductions under the United States Internal Revenue Code.(21)Litigation Costs. All costs incurred in connection with the prosecution or defense of claims against the State or any of it subdivisions, including, but not limited to, legal, accounting, and consulting costs. Reasonable expenses of a successful price appeal under 808 CMR 1.06(6) will not be considered non-reimbursable.(22)Unallowable Costs under OMB Circular A-122 and A-21. Costs which are not allowable under OMB Circular A-122 and A-21 are non-reimbursable to Programs which receive federal financial assistance.(23)Luxury Items. All costs associated with luxury items including, but not limited to luxury passenger automobiles as defined in the Internal Revenue Code, §§ 4001 or 4002, airplanes, boats, vacation homes, alcoholic beverages, charitable contributions and donations, and all non-Program entertainment expenses.(24)Salaries of Officers and Managers. Salaries of officers and managers to the extent they exceed the rate paid to state managers in job group M-XII, step seven.(25)Mortgage Principal. Mortgage principal on an amortized or other basis: no Department shall reimburse a Contractor for the principal portion of any note secured by a mortgage on property owned directly or indirectly by the Contractor.(26)Undocumented Expenses. Costs which are not adequately documented in the light of the American Institute of Certified Public Accountants statements on auditing standards for evidential matters.(27)Administration and Support Costs. Costs which are otherwise non-reimbursable under the provisions of 808 CMR 1.05 may not be reimbursed through Administration and Support Costs.(28)Payments by the State for Contracted Services in Support of or in Opposition to Unions or Employee Organizations. Pursuant to M.G.L. c. 7, § 56, costs associated with any attorney, consultant or other person to advise, consult or provide any other service to such contracting person or entity relative to persuading employees thereof to support or oppose any organization of said employees or any other employee self-organization or concerted activity for mutual aid or protection. 808 CMR 1.05 shall not apply to the costs of attorneys or consultants to assist in collective bargaining with a union or other employee organization recognized as said employees' bargaining agent or to administer a collective bargaining agreement.Amended by Mass Register Issue 1325, eff. 11/4/2016.