Cost Allocation Issues For StatesNASCAT Annual Conference

Chris M. Zitzow,Senior Vice President

August 12, 2008

Cost Allocation Issues For States

• Issues Important to States

• Circular A-87 Work Group

• Survey on Federal reimbursement

• What you can do in your state

3 Primary Areas of Concern for States

OMB requirements have a direct impact on the financial management of your state.

Issue One

•Section II Billed Services have excess balances which may require States to Pay Back Federal Funds

•Many States have IT Operations that have produced large pay backs of federal funds to the DCA Offices

•Rates have not reflected actual costs and these funds have built up significant fund balances

•The time is coming when the DCA Offices will reduce these balances and require pay back.

Cost Allocation Issues For States

• Issue Two

– Inconsistent Treatment Of Costs By DCA Offices• Dallas DCA Office is setting the standard for other regions

• East/West Coast States will be impacted by this

• Circular A-87 Working Group is studying this issue

• The impact of disallowing projected plans

Cost Allocation Issues For States

• Issue Three

– Exclusion of Interest As an Allowable Cost in ERP Systems

• The new requirement to amortize the cost of software projects will be a big problem for states going forward

• In the past states have been allowed to expense both the cost of equipment and software in a single fiscal year.

• This new requirement will only allow states to expense/amortize the interest on the equipment, not software

• This issue has been raised to OMB

Circular A-87 Work Group

• Purpose of the Work Group

– The AGA in partnership with OMB has developed a work group that is tasked with determining if the requirements of 2 CFR, Part 225 ( Circular A-87) are:

• Clear

• Logical

• Equitable

• Consistently applied across all federal agencies and regions

• Survey state and local fiscal officers

Survey of Federal Reimbursement

• Survey Results Are In

– Meetings with various groups are complete

– MAXIMUS met with the Work Group and made some recommendations for improvement.

– What happens after the results are tabulated is very important to states

– Needs to be an on-going dialogue with OMB

What You Can Do In Your State

• What Can You Do– Answer the survey– Talk to other states, contractors etc– Monitor your Billed Services Accounts– Examine the revenues and expenses for all billed services– Adjust your billing rates to reflect actual costs of service– Make sure that you are fully allocating your overhead costs to

these billed services by service area– Have an independent party review rates– Speak up and let OMB know what issues give you heartburn– Give and Take a little– Maintain a sense of humor- you will need it!!