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K\(XXK5  ;XX.bMarch2004$  (# X$QComplianceRequirements$  (# X$ӈ F X.bX;(2,$ 1  Thesuggestedauditproceduresforcompliancetestingmaybeaccomplishedusingdualpurpose  testing.   InternalControl  0 ConsistentwiththerequirementsofOMBCircularA133,thisPartincludesgenericaudit . objectivesandsuggestedauditprocedurestotestinternalcontrol.However,theauditormust  determinethespecificprocedurestotestinternalcontrolonacasebycasebasisconsidering  factorssuchasthenonFederalentitysinternalcontrol,thecompliancerequirements,theaudit  objectivesforcompliance,theauditorsassessmentofcontrolrisk,andtheauditrequirementto v testinternalcontrolasprescribedinOMBCircularA133. \ Thesuggestedauditproceduresforinternalcontroltestingmaybeaccomplishedusingdual  Z purposetesting. @  ImproperPayments    UnderOMBbudgetaryguidanceandPub.L.107300,Federalagenciesarerequiredtoreview L" Federalawardsand,asapplicable,provideanestimateofimproperpayments.Improper 2# paymentsmean: $h   E.` ` hp x (#X(#E1. ` Anypaymentthatshouldnothavebeenmadeorthatwasmadeinanincorrect %! amount(includingoverpaymentsand_underpayments_)understatutory, &! contractual,administrative,orotherlegallyapplicablerequirements,andincludes '" anypaymenttoanineligiblerecipient;and x(#  2. ` Anypaymentforanineligibleservice,anyduplicatepayment,anypaymentfor &*v%! servicesnotreceived,andanypaymentthatdoesnotaccountforcreditfor  +\&"  applicablediscounts. +B'#   E.` hp x (#` X(#EAuditorsshouldbealerttoimproperpayments,particularlywhentestingA, ActivitiesAllowed   orUnallowed;B, AllowableCosts/CostPrinciples;E, Eligibility;and,insomecasesN,   SpecialTestsandProvisions.  | _`Y_b]  PXX.b A.ACTIVITIESALLOWEDORUNALLOWED    X.bXPComplianceRequirements   ThespecificrequirementsforactivitiesallowedorunallowedareuniquetoeachFederal 2 programandarefoundinthelaws,regulations,andtheprovisionsofcontractorgrant  h agreementspertainingtotheprogram.ForprogramslistedinthisSupplement,thespecific  N requirementsofthegoverningstatutesandregulationsareincludedinPart4AgencyProgram  4 RequirementsorPart5ClustersofPrograms,asapplicable.Thistypeofcompliance   requirementspecifiestheactivitiesthatcanorcannotbefundedunderaspecificprogram.    AuditObjectives  ^    XE.` hp x (#X(#E1.  Obtainanunderstandingofinternalcontrol,assessrisk,andtestinternalcontrolas  \  requiredbyOMBCircularA133___.500(c). B  2.  DeterminewhetherFederalawardswereexpendedonlyforallowableactivities.     XE.` hp x (#X(#E SuggestedAuditProceduresInternalControl  N    XE.` hp x (#X(#E1.  UsingtheguidanceprovidedinPart6InternalControl,performprocedurestoobtainan L  understandingofinternalcontrolsufficienttoplantheaudittosupportalowassessed 2 levelofcontrolriskfortheprogram.  2.  Planthetestingofinternalcontroltosupportalowassessedlevelofcontrolriskfor v activitiesallowedorunallowedandperformthetestingofinternalcontrolasplanned.If \ internalcontroloversomeorallofthecompliancerequirementsislikelytobe B ineffective,seethealternativeproceduresin___.500(c)(3)ofOMBCircularA133, (x includingassessingthecontrolriskatthemaximumandconsideringwhetheradditional ^ compliancetestsandreportingarerequiredbecauseofineffectiveinternalcontrol. D 3.  Considertheresultsofthetestingofinternalcontrolinassessingtheriskof  noncompliance.Usethisasthebasisfordeterminingthenature,timing,andextent(e.g.,   numberoftransactionstobeselected)ofsubstantivetestsofcompliance. n!   XE.` hp x (#X(#E SuggestedAuditProceduresCompliance  #l   XE.` hp x (#X(#E1.  Identifythetypesofactivitieswhichareeitherspecificallyallowedorprohibitedbythe $  laws,regulations,andtheprovisionsofcontractorgrantagreementspertainingtothe %! program. &! 2.  When_allowability_Ԁisdeterminedbaseduponsummaryleveldata,performproceduresto D(# verifythat: *)z$  XE.` ` hp x (#X(#Ea. ` Activitieswereallowable. *(& b. ` Individualtransactionswereproperlyclassifiedandaccumulatedintotheactivity ,'  total. l-(! _ XE.` hp x (#` X(#E3.  Whenallowabilityisdeterminedbaseduponindividualtransactions,selectasampleof  transactionsandperformprocedurestoverifythatthetransactionwasforanallowable  activity. | 4.  Theauditorshouldbealertforlargetransfersoffundsfromprogramaccountswhich *z mayhavebeenusedtofundunallowableactivities.  `   XE.` hp x (#X(#E    c`db  PXX.b B.ALLOWABLECOSTS/COSTPRINCIPLES     X.bXP ApplicabilityofOMBCostPrinciplesCirculars   ThefollowingOMBcostprinciplescircularsprescribethecostaccountingpoliciesassociated 2 withtheadministrationofFederalawardsby:(1)States,localgovernments,andIndiantribal  h governments(StaterulesforexpendituresofStatefundsapplyforblockgrantsauthorizedbythe  N OmnibusBudgetReconciliationActof1981andforotherprogramsspecifiedinAppendixI);  4 (2)institutionsofhighereducation;and(3)nonprofitorganizations.Federalawards   administeredbypubliclyownedhospitalsandotherprovidersofmedicalcareareexemptfrom   OMBscostprinciplescirculars,butaresubjecttorequirementspromulgatedbythesponsoring   Federalagencies(e.g.,theDepartmentofHeathandHumanServices45CFRpart74,appendix |  E).ThecostprinciplesapplicabletoanonFederalentityapplytoallFederalawardsreceived b  bytheentity,regardlessofwhethertheawardsarereceiveddirectlyfromtheFederal H  Governmentorindirectlythroughapassthroughentity.Thecircularsdescribeselectedcost .~  items,allowableandunallowablecosts,andstandardmethodologiesforcalculatingindirect d  costsrates(e.g.,methodologiesusedtorecoverfacilitiesandadministrativecosts(F&A)at J institutionsofhighereducation).FederalawardsincludeFederalprogramsandcosttype 0 contractsandmaybeintheformofgrants,contracts,andotheragreements.  &  Thethreecostprinciplescircularsareasfollows: t  e (03""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<gXXXX.bFL2 3   4   X.bXXgX OMBCircularA-87, CostPrinciplesforState,Local,andIndianTribal "r Governments.'toKFL=M݌ g Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<hXXXX.bN2 3   4   X.bXXhX OMBCircularA21, CostPrinciplesforEducationalInstitutions. 󀄀All  institutionsofhighereducationaresubjecttothecostprinciplescontainedinOMB   CircularA21,whichincorporatesthefourCostAccountingStandardsBoard  (CASB)StandardsandtheDisclosureStatement(DS2)requirementsasdescribedin  OMBCircularA21,sectionsC.10throughC.14andAppendicesAandB.NO݌ l Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<iXXXX.b\R2 3   4   X.bXXiX OMBCircularA122, CostPrinciplesforNonProfitOrganizations. 󀄀Non  j profitorganizationsaresubjecttoOMBCircularA122,exceptthosenonprofit !_ organizationslistedinOMBCircularA122,AttachmentCthataresubjecttothe !E commercialcostprinciplescontainedintheFederalAcquisitionRegulation(FAR). "+ Also,bycontracttermsandconditions,somenonprofitorganizationsmaybesubject # totheCASBsStandardsandtheDisclosureStatement(DS1)requirements.\RSS݌ $ Ќ ' X(#44X(#'   ThecostprinciplesarticulatedinthethreeOMBcostprinciplescircularsareinmostcases U&! substantiallyidentical,butafewdifferencesdoexist.Thesedifferencesarenecessarybecause ;'"  ofthenatureoftheFederal/State/local/nonprofitorganizationalstructures,programs !(q#! administered,andbreadthofservicesofferedbysomegranteesandnotothers.Exhibit1ofthis )W$" partoftheSupplement,SelectedItemsofCost,liststhetreatmentoftheselectedcostitemsin )=%#  thedifferentcirculars. *#&$ &   ComplianceRequirementsAllowabilityofCostsGeneralCriteria(applicabletoboth  directandindirectcosts)   ThegeneralcriteriaaffectingallowabilityofcostsunderFederalawardsare: D / /""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<jXXXX.bCZ2 3   4   X.bXXjXReasonableandNecessaryCostsmustbereasonableandnecessaryforthe B performanceandadministrationofFederalawards.'XCZ:[݌  7 Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<kXXXX.b\2 3   4   X.bXXkXAllocableCostsmustbeallocabletotheFederalawardsundertheprovisionsofthe   costprinciplesorCASBStandards,asapplicable.Acostisallocabletoaparticular   costobjective(e.g.,aspecificfunction,program,project,department,orthelike)if p  thegoodsorservicesinvolvedarechargedorassignedtosuchcostobjectivein V  accordancewithrelativebenefitsreceived.\]݌ <  Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<lXXXX.bw`2 3   4   X.bXXlXConsistencyCostsmustbegivenconsistenttreatmentthroughapplicationofthose :  generallyacceptedaccountingprinciplesappropriatetothecircumstances.Acost /  maynotbeassignedtoaFederalawardasadirectcostifanyothercostincurredfor   thesamepurposeinlikecircumstanceswasallocatedtotheFederalawardasan   indirectcost.w`na݌  Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<mXXXX.bd2 3   4   X.bXXmXConformitytoLaws,RegulationsandSponsoredAgreementsCostsmustconformto ? anylimitationsorexclusionssetforthinthecirculars,Federallaws,Stateorlocal 4 laws,sponsoredagreements,orothergoverningregulationsastotypesoramountsof j costitems.dd݌ P Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<nXXXX.b%g2 3   4   X.bXXnXTransactionsthatReduceorOffsetDirectorIndirectCostsCostsmustbenetofall  applicablecreditsthatresultfromtransactionsthatreduceoroffsetdirectorindirect  costs.Examplesofsuchtransactionsincludepurchasediscounts,rebatesor  allowances,recoveriesorindemnitiesonlosses,insurancerefundsorrebates,and o adjustmentsforoverpaymentsorerroneouscharges.%gh݌ U Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<oXXXX.bj2 3   4   X.bXXoXCostsDocumentationCostsmustbedocumentedinaccordancewithOMBCircular  S A110fornonprofitorganizationsandinstitutionsofhighereducationortheA102  H CommonRuleforState,localandIndiantribalgovernments.jk݌ !. Ќ ' X(#44X(#'   ComplianceRequirementsIndirectCosts #  Indirectcostsarethosecoststhatbenefitcommonactivitiesand,therefore,cannotbereadily :%  assignedtoaspecificdirectcostobjectiveorproject.Threedifferenttypesofindirectcostrates  &p! canbeapprovedbythecognizantagencyforindirectcostnegotiation:predetermined,fixed,and 'V" provisional/final. '<# / /""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<pXXXX.bo2 3   4   X.bXXpXPredeterminedrates󀄀ratesestablishedforthecurrentormultiplefutureperiod(s) )$  basedoncurrentdata(usuallydatafromthemostrecentlyendedfiscalyear,known *%! asthebaseperiod).Predeterminedratesarenotsubjecttoadjustment,exceptunder u+&" veryunusualcircumstances.op݌ [,'# Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<qXXXX.br2 3   4   X.bXXqXFixedrates󀄀ratesbasedoncurrentdatainthesamemanneraspredeterminedrates,  exceptthatthedifferencebetweenthecostsofthebaseperiodusedtoestablishthe  rateandtheactualcostsofthecurrentperiodiscarriedforwardasanadjustmentto  theratecomputationforasubsequentperiod.rs݌ q Ќ ' X(#44X(#'   ""  ,E.` hp x (#X(#E  ,<%4 4hp x (#X(#<rXXXX.b=v2 3   4   X.bXXrXProvisionalrates󀄀temporaryratesusedforfundingandbillingindirectcosts,  o pendingtheestablishmentofafinalrateforaperiod.=v4w݌  d Ќ ' X(#44X(#'   Sometimesawardspecificindirectcostratesarenegotiatedthataredifferentfromthosesetforth   innegotiatedrateagreements.Termsandconditionsinanawardspecifictoindirectcostrates   takeprecedenceoverindirectcostratessetforthinnegotiatedagreements.    OrganizationbyApplicableCostPrinciplesCircular <   ThefollowingsectionsareorganizedbytheapplicableOMBcostprinciplescircular(i.e.,A87, :  A21,andA122).Thecompliancerequirementsfordirectandindirectcostsinthefollowing   sectionsidentifygeneralinformation,specialcompliancerequirements,theavailabilityofother   information,auditobjectives,andsuggestedauditproceduresforeachofthethreeOMBcost   principlescirculars.% s %s:|% t %tX|% u %uv|    0 vc{d  @ r@OMBCIRCULARA87  COSTPRINCIPLESFORSTATE,LOCAL,ANDINDIANTRIBALGOVERNMENTS    Introduction D  OMBCircularA87(A87)establishesprinciplesandstandardsfordeterminingallowabledirect B andindirectcostsforFederalawards.Thissectionisorganizedintothefollowingareasof  ( allowablecosts:State/LocalWideCentralServiceCosts;State/LocalDepartmentorAgency   Costs(DirectandIndirect);andStatePublicAssistanceAgencyCosts.    CognizantAgency R   A87,AttachmentA,paragraphB.6.defines cognizantagencyastheFederalagency P  responsibleforreviewing,negotiating,andapprovingcostallocationplansorindirectcost 6  proposalsdevelopedunderA87onbehalfofallFederalagencies.OMBpublishesalistingof   cognizantagencies(FederalRegister,51FR552,January6,1986).Referencestocognizant   agencyinthissectionshouldnotbeconfusedwiththecognizantFederalagencyforaudit   responsibilities,whichisdefinedinOMBCircularA133,SubpartD.____.400(a). ~   AvailabilityofOtherInformation ,|  AdditionalinformationoncostallocationplansandindirectcostratesisfoundintheDepartment * ofHealthandHumanServices(HHS)publications:AGuideforState,LocalandIndianTribal  Governments(ASMBC10);ReviewGuideforStateandLocalGovernmentsState/LocalWide  CentralServiceCostAllocationPlansandIndirectCostRates;andtheReviewGuideforPublic  AssistanceCostAllocationPlanswhichareavailableontheInternetat% | 4}O  5  +  http://rate%|% ~ %~Y%  s.psc.gov/+   6Ԅirec  7&! (h)  Notbeincludedasacostorusedtomeetcostsharingormatching  requirementsofanyotherFederalaward,exceptasspecifically  providedbyFederallaworregulation. |  (i)  Benetofallapplicablecredits.(RefertoA87,AttachmentA, *z paragraphC.4foradditionalinformationonapplicablecredits.)  ` (j)  Beadequatelydocumented.    ` E.` ` hp x (#X(#Eb. ` SelectedItemsofCost l   E. ` hp x (#` X(#E(1) Sections1through42ofA87,AttachmentB,providetheprinciplestobe j  appliedinestablishingtheallowabilityorunallowabilityofcertainitems P  ofcost.(Foralistingofcosts,refertoExhibit1ofthispartofthe 6  Supplement.)Theseprinciplesapplywhetheracostistreatedasdirector   indirect.FailuretomentionaparticularitemofcostinthissectionofA   87isnotintendedtoimplythatitiseitherallowableorunallowable;   rather,determinationofallowabilityineachcaseshouldbebasedonthe ~  treatmentorstandardsprovidedforsimilarorrelateditemsofcost. d (2) AcostisallowableforFederalreimbursementonlytotheextentof b benefitsreceivedbyFederalawardsanditsconformancewiththegeneral H policiesandprinciplesstatedinA87,AttachmentA. .  E.` ` hp x (# X(#Ec. ` SubmissionRequirements   E. ` hp x (#` X(#E(1) SubmissionrequirementsareidentifiedinA87,AttachmentC,paragraph : D.  p (2) AStateisrequiredtosubmitaStatewidecentralserviceCAPtoHHSfor  eachyearinwhichitclaimscentralservicecostsunderFederalawards.  (3) Alocalgovernmentthathasbeendesignatedasa majorlocal b  governmentbyOMBisrequiredtosubmitacentralserviceCAPtoits H! cognizantagencyannually.Allotherlocalgovernmentsclaimingcentral ."~ servicecostsmustdevelopaCAPinaccordancewiththerequirements #d describedinA87andmaintaintheplanandrelatedsupporting #J documentationforaudit.Localgovernmentsarenotrequiredtosubmit $0  theplanforFederalapprovalunlesstheyarespecificallyrequestedtodo %! sobythecognizantagency.Ifalocalgovernmentreceivesfundsasa &! subrecipientonly,theprimaryrecipientwillberesponsiblefornegotiating '" and/ormonitoringthelocalgovernmentsplan. x(#  (4) AllcentralserviceCAPswillbepreparedand,whenrequired,submitted &*v%! withinthe6monthspriortothebeginningofthegovernmentalunits  +\&" fiscalyearsinwhichitproposestoclaimcentralservicecosts.Extensions +B'# maybegrantedbythecognizantagency. ,(($  E.` ` hp x (# X(#Ed. ` DocumentationRequirements   E. ` hp x (#` X(#E(1) ThecentralserviceCAPmustincludeallcentralservicecoststhatwillbe ^ claimed(eitherasanallocatedorabilledcost)underFederalawards. D CostsofcentralservicesomittedfromtheCAPwillnotbereimbursed. *z (2) ThedocumentationrequirementsforallcentralserviceCAPsare  ( containedinA-87,AttachmentC,paragraphE.Allplansandrelated   documentationusedasabasisforclaimingcostsunderFederalawards   mustberetainedforauditinaccordancewiththerecordretention   requirementscontainedintheA102CommonRule. p   ?(` ` hp x (# X(#?e. ` RequiredCertificationNoproposaltoestablishacentralserviceCAP,whether n  submittedtoaFederalcognizantagencyormaintainedonfilebythe T  governmentalunit,shallbeacceptedandapprovedunlesssuchcostshavebeen :  certifiedbythegovernmentalunitusingtheCertificateofCostAllocationPlanas   setforthinA87,AttachmentC.   E.` ` hp x (#` ` X(#Ef. ` AllocatedCentralServiceCosts(SectionICosts)󀄀CEUS.,Acarryforwardadjustmentis d notpermittedforacentralserviceactivitythatwasnotincludedinthepreviously J approvedplanorforunallowablecoststhatmustbereimbursedimmediately 0 (A87,AttachmentC,paragraphG.3). f g. ` BilledCentralServiceCosts(SectionIICosts)   E. ` hp x (#` X(#E(1) USCE.,Internalservicefundsforcentralserviceactivitiesareallowedaworking r capitalreserveofupto60dayscashexpensesfornormaloperating X purposes(A87,AttachmentC,paragraphG.2).Aworkingcapital > reserveexceeding60daysmaybeapprovedbythecognizantFederal $t agencyinexceptionalcases.  Z CEUS.,(2) USCE.,Adjustmentsofbilledcentralservicesarerequiredwhenthereisa  differencebetweentherevenuegeneratedbyeachbilledserviceandthe   actualallowablecosts(A87,AttachmentC,paragraphG.4).The ! adjustmentswillbemadethroughoneofthefollowingmethods: j"  ` E.` hp x (# X(#E(a)  AcashrefundtotheFederalGovernmentfortheFederalshareof $h theadjustment,ifrevenueexceedscosts, $N  CEUS.,(b)  USCE.,Creditstotheamountschargedtotheindividualprograms, &! (c)  Adjustmentstofuturebillingrates,or Z(# (d)  Adjustmentstoallocatedcentralservicecosts(SectionI)ifthe *X%  totalamountoftheadjustmentforaparticularservicedoesnot *>&!  exceed$500,000. +$'"  ` E. ` hp x (#X(#E(3) Wheneverfundsaretransferredfromaselfinsurancereservetoother   accounts(e.g.,generalfund),refundsshallbemadetotheFederal  Governmentforitsshareoffundstransferred,includingearnedorimputed | interestfromthedateoftransfer(A87,AttachmentB,paragraph25).CEUS., b   E.` hp x (# X(#EUSCE., 2.  AuditObjectivesState/LocalWideCentralServiceCosts   `   E.` ` hp x (#X(#Ea. ` Obtainanunderstandingofinternalcontroloverthecompliancerequirementsfor   centralservicecosts,assessrisk,andtestinternalcontrolasrequiredbyOMB   CircularA133___.500(c).   b. ` DeterminewhetherthegovernmentalunitcompliedwiththeprovisionsofA87 8  asfollows: n   E. ` hp x (#` X(#E(1) DirectchargestoFederalawardswereforallowablecosts.   (2) ChargestocostpoolsallocatedtoFederalawardsthroughthecentral z  serviceCAPswereforallowablecosts. `  (3) Themethodsofallocatingthecostsareinaccordancewiththeapplicable ^  costprinciples,andproduceanequitableandconsistentdistributionof D costs,whichbenefitfromthecentralservicecostsbeingallocated(e.g., * costallocationbasesincludeallactivities,includingallStatedepartments  andagenciesand,ifappropriate,nonStateorganizationswhichreceive  services).  (4) CostallocationswereinaccordancewithcentralserviceCAPsapproved : bythecognizantagencyor,incaseswheresuchplansarenotsubjectto  p approval,inaccordancewiththeplanonfile. V  XE.` hp x (# X(#E 3.  SuggestedInternalControlAuditProceduresState/LocalWideCentralServiceCosts   XE.` ` hp x (#X(#E a. ` UsingtheguidanceprovidedinPart6InternalControlforallowablecosts/cost b  principles,performprocedurestoobtainanunderstandingofinternalcontrol H! sufficienttoplantheaudittosupportalowassessedlevelofcontrolriskforthe ."~ program. #d  a E. ` hp x (#` X(#Eb. ` Planthetestingofinternalcontroltosupportalowassessedlevelofcontrolrisk $  forallowablecosts/costprinciplesandperformthetestingofinternalcontrolas %  planned.Ifinternalcontroloversomeorallofthecompliancerequirementsis &! likelytobeineffective,seethealternativeproceduresin___.500(c)(3)ofOMB t'" CircularA133,includingassessingthecontrolriskatthemaximumand Z(# consideringwhetheradditionalcompliancetestsandreportingarerequired @)$  becauseofineffectiveinternalcontrol. &*v%! c. ` Considertheresultsofthetestingofinternalcontrolinassessingtheriskofnon +$'" compliance.Usethisasthebasisfordeterminingthenature,timing,andextent , (# (e.g.,numberoftransactionstobeselected)ofsubstantivetestsofcompliance. -($  a XE.` hp x (# X(#E 4.  SuggestedComplianceAuditProceduresState/LocalWideCentralServiceCosts   XE.` ` hp x (#X(#E a. ` Considertheresultsofthetestingofinternalcontrolinassessingtheriskof ^ noncompliance.Usethisasthebasisfordeterminingthenature,timing,and D extent(e.g.,numberoftransactionstobeselected)ofsubstantivetestsof *z compliance.  `  E. ` hp x (#` X(#E(1) InreviewingtheState/localwidecentralservicecosts,theauditormaynot   needtotestallcentralservicecosts(allocatedorbilled)everyyear;for   example,theauditorinobtainingsufficientevidencefortheopinionmay   considertestingeachcentralserviceatleastevery5years,andperform p  additionaltestingforcentralserviceswithoperatingbudgetsof$5million V  ormore. <  (2) Ifthelocalgovernmentalentityisnotrequiredtosubmitthecentral :  serviceCAPandrelatedsupportingdocumentation,theauditorshould   considertheriskofthereducedlevelofoversightindesigningthenature,   timingandextentofcompliancetesting.   E.` ` hp x (# X(#Eb. ` GeneralAuditProceduresforState/LocalWideCentralServiceCAPs󀄀The J followingproceduresapplytodirectchargestoFederalawardsaswellascharges 0 tocostpoolsthatareallocatedwhollyorpartiallytoFederalawardsorusedin f formulatingindirectcostratesusedforrecoveringindirectcostsunderFederal L awards. 2  E. ` hp x (#` X(#E(1) Testasampleoftransactionsforconformancewith:   ` 9" hp x (# X(#9(a)  Thecriteriacontainedinthe BasicGuidelinessectionofA87, > AttachmentA,paragraphC. $t (b)  Theprinciplestoestablishallowabilityorunallowabilityofcertain " itemsofcost(A87,AttachmentB).   ` E. ` hp x (#X(#E(2) Iftheauditoridentifiesunallowablecosts,theauditorshouldbeawarethat f! directlyassociatedcostsmighthavebeencharged.Directlyassociated L" costsarecostsincurredsolelyasaresultofincurringanothercost,and 2# wouldhavenotbeenincurrediftheothercosthadnotbeenincurred. $h Whenanunallowablecostisincurred,directlyassociatedcostsarealso $N  unallowable.Forexample,occupancycostsrelatedtounallowable %4! generalcostsofgovernmentarealsounallowable. &"  E.` ` hp x (# X(#Ec. ` SpecialAuditProceduresforState/LocalWideCentralServiceCAPs x(#   ] SE. ` hp x (#` X(#E(1) VerifythatthecentralserviceCAPincludestherequireddocumentationin &*v%! accordancewithA87,AttachmentC,paragraphE.  +\&"  ] SE. ` hp x (# X(#E(2) TestingoftheState/LocalWideCentralServiceCAPsAllocated , (# SectionICosts -($  ` 9" hp x (# X(#9(a)  Ifnewallocatedcentralservicecostswereadded,reviewthe  justificationforincludingtheitemasSectionIcoststoascertainif  thecostsareallowable(e.g.,ifcostsbenefitFederalawards). | (b)  Identifythecentralservicecoststhatincurredasignificant *z increaseinactualcostsfromtheprioryearscosts.Testasample  ` oftransactionstoverifytheallowabilityofthecosts.  F ?( 4hp x (#X(#?(c)  Determinewhetherthebasesusedtoallocatecostsareappropriate,   i.e.,costsareallocatedinaccordancewithrelativebenefits   received. p  ?" hp x (#4X(#?(d)  Determinewhethertheproposedbasesincludeallactivitiesthat n  benefitfromthecentralservicecostsbeingallocated,includingall T  usersthatreceivetheservices.Forexample,theStatewidecentral :  serviceCAPshouldallocatecoststoallbenefitingState   departmentsandagencies,and,whereappropriate,nonState   organizations,suchaslocalgovernmentagencies.  ?( 4hp x (#X(#?(e)  Performananalysisoftheallocationbasesbyselectingagencies J withsignificantFederalawardstodetermineifthepercentageof 0 costsallocatedtotheseagencieshasincreasedfromtheprioryear. f Forthoseselectedagencieswithsignificantallocationpercentage L increases,determinethatthedataincludedinthebasesarecurrent 2 andaccurate.  (f)  Verifythatcarryforwardadjustmentsareproperlycomputedin v accordancewithA87,AttachmentC,paragraphG.3. \  ` K. ` hp x (#4X(#K(3) TestingoftheState/LocalWideCentralServiceCAPsBilledSectionII  Z Costs @  ` 9" hp x (# X(#9(a)  Forbilledcentralserviceactivitiesaccountedforinseparatefunds   (e.g.,internalservicefunds),ascertainif: !   ` E.h` hp x (#X(#E(i) h Retainedearnings/fundbalances(includingreserves)are 2# computedinaccordancewiththeapplicablecostprinciples; $h (ii) h Workingcapitalreservesarenotexcessiveinamount %! (generallynotgreaterthan60daysforcashexpensesfor &! normaloperationsincurredfortheperiodexclusiveof '" depreciation,capitalcosts,anddebtprincipalcosts);and x(#  (iii) h Adjustmentsweremadewhenthereisadifferencebetween &*v%! therevenuegeneratedbyeachbilledserviceandtheactual  +\&"  allowablecosts. +B'#   ` E.` hp x (#hX(#ENote:A60dayworkingcapitalreserveisnotautomatic.Referto   theHHSpublication,AGuideforState,Local,andIndianTribal  Governments(ASMBC10)forguidelines. |  (b)  Testtoensurethatallusersofservicesarebilledinaconsistent *z manner.Forexample,examineselectedbillingstodetermineifall  ` users(includingusersoutsidethegovernmentalunit)arecharged  F thesamerateforthesameservice.  , (c)  Testthatbillingratesexcludeunallowablecosts,inaccordance   withapplicablecostprinciplesandFederalstatutes. p  9" hp x (#X(#9(d)  Test,wherebilledcentralserviceactivitiesarefundedthrough n  generalrevenueappropriations,thatthebillingrates(orcharges) T  aredevelopedbasedonactualcostsandwereadjustedtoeliminate :  profits.    > ` <%z z hp x (#X(#<(e) z Forselfinsuranceandpensionfunds,ascertainifindependent ~  actuarialstudiesappropriateforsuchactivitiesareperformedatleast d bienniallyandthatcurrentperiodcostswereallocatedbasedonan J appropriatestudythatisnotovertwoyearsold. 0 (f) z DetermineifrefundsweremadetotheFederalGovernmentforits . shareoffundstransferredfromtheselfinsurancereservetoother  accounts,includingimputedorearnedinterestfromthedateofthe  transfer.   > H.` hp x (#z z X(#H AllowableCosts!State/LocalDepartmentorAgencyCostsDirectandIndirect >  TheindividualState/localdepartmentsoragencies(alsoknownasoperatingagencies)are < responsiblefortheperformanceoradministrationofFederalawards.Inordertoreceivecost " reimbursementunderFederalawards,thedepartmentoragencyusuallysubmitsclaimsasserting  thatallowableandeligiblecosts(directandindirect)havebeenincurredinaccordancewith   A87. ! Whiledirectcostsarethosethatcanbeidentifiedspecificallywithaparticularfinalcost 2# objective,theindirectcostsarethosethathavebeenincurredforcommonorjointpurposes,and $h notreadilyassignabletothecostobjectivesspecificallybenefitedwithouteffortdisproportionate $N  totheresultsachieved.IndirectcostsarenormallychargedtoFederalawardsbytheuseofan %4! indirectcostrate. &" Theindirectcostrateproposal(ICRP)providesthedocumentationpreparedbyaState/local x(#  departmentoragency,tosubstantiateitsrequestfortheestablishmentofanindirectcostrate. ^)$! Theindirectcostsinclude:(1)costsoriginatinginthedepartmentoragencycarryingoutFederal D*%" awards,and(2)costsofcentralgovernmentalservicesdistributedthroughtheState/localwide *+z&# centralserviceCAPthatarenototherwisetreatedasdirectcosts.TheICRPsarebasedonthe ,`'$  mostcurrentfinancialdataandareusedtoeitherestablishpredetermined,fixed,orprovisional ,F(% indirectcostratesortofinalizeprovisionalrates(forratedefinitionsrefertoA87,  AttachmentE,paragraphB).    XB+ ` hp x (#X(#B 1.  ComplianceRequirementsState/LocalDepartmentorAgencyCostsDirectand D Indirect *z  X?(` ` hp x (#X(#? a. ` BasicGuidelines󀄀Refertotheprevioussection, AllowableCosts!State/Local  ( WideCentralServiceCosts,1.aComplianceRequirementsBasicGuidelines,   fortheguidelinesaffectingtheallowabilityofcosts(directandindirect)under   Federalawards.   b. ` SelectedItemsofCost󀄀Refertotheprevioussection, AllowableCosts! 8  State/LocalWideCentralServiceCosts,1.bComplianceRequirementsSelected n  ItemsofCost,fortheprinciplestoestablishallowabilityorunallowabilityof T  certainitemsofcost.Theseprinciplesapplywhetheracostistreatedasdirector :  indirect.   c. ` AllocationofIndirectCostsandDeterminationofIndirectCostRates ~   E. ` hp x (#` ` X(#E(1) Thespecificmethodsforallocatingindirectcostsandcomputingindirect ,| costratesareasfollows: b  ` E.` hp x (# X(#E(a)  SimplifiedMethodThismethodisapplicablewherea  governmentalunitsdepartmentoragencyhasonlyonemajor  function,orwhereallitsmajorfunctionsbenefitfromtheindirect  costtoapproximatelythesamedegree.Theallocationofindirect r costsandthecomputationofanindirectcostratemaybe X accomplishedthroughsimplifiedallocationproceduresdescribed > inthecircular(A87,AttachmentE,paragraphC.2). $t (b)  MultipleAllocationBaseMethodThismethodisapplicable " whereagovernmentalunitsdepartmentoragencyhasseveral  majorfunctionsthatbenefitfromitsindirectcostsinvarying   degrees.Theallocationofindirectcostsmayrequirethe ! accumulationofsuchcostsintoseparategroupingswhicharethen j" allocatedindividuallytobenefitingfunctionsbymeansofabase P# whichbestmeasurestherelativedegreeofbenefit.(Fordetailed 6$ information,refertoA87,AttachmentE,paragraphC.3.) %l  (c)  SpecialIndirectCostRatesInsomeinstances,asingleindirect &" costrateforallactivitiesofadepartmentoragencymaynotbe '#  appropriate.Differentfactorsmaysubstantiallyaffecttheindirect (#! costsapplicabletoaparticularprogramorgroupofprograms,e.g., |)$" thephysicallocationofthework,thenatureofthefacilities,or b*%# levelofadministrativesupportrequired.(Fortherequirementsfor H+&$ aseparateindirectcostrate,refertoA87,AttachmentE, .,~'% paragraphC.4.) -d(& (d)  CostAllocationPlansIncertaincases,thecognizantagencymay  requireaStateorlocalgovernmentalunitsdepartmentoragency  toprepareaCAPinsteadofanICRP.Theseareinfrequently | occurringcasesinwhichthenatureofthedepartmentoragencys b Federalawardsmakesimpracticabletheuseofaratetorecover H indirectcosts.ACAPrequiredinsuchcasesconsistsofnarrative . ~ descriptionsofthemethodsthedepartmentoragencyusesto  d allocateindirectcoststoprograms,awards,orothercost  J objectives.LikeanICRP,theCAPmustbeeithersubmittedtothe  0 cognizantagencyforreview,negotiationandapproval,orretained    onfileforinspectionduringaudits.     ` E.` ` hp x (#X(#Ed. ` SubmissionRequirements Z   E. ` hp x (#` X(#E(1) SubmissionrequirementsareidentifiedinA87,AttachmentE,paragraph X  D.1.Alldepartmentsoragenciesofagovernmentalunitclaimingindirect >  costsunderFederalawardsmustprepareanICRPandrelated $ documentationtosupportthosecosts.   (2) AState/localdepartmentoragencyforwhichacognizantFederalagency h hasbeenassignedbyOMBmustsubmititsICRPtoitscognizantagency. N Smallerlocalgovernmentdepartmentsoragencieswhicharenotrequired 4 tosubmitaproposaltothecognizantFederalagencymustdevelopan j ICRPinaccordancewiththerequirementsofA87,andmaintainthe P proposalandrelatedsupportingdocumentationforaudit.Wherealocal 6 governmentreceivesfundsasasubrecipientonly,theprimaryrecipient  willberesponsiblefornegotiatingand/ormonitoringthesubrecipients  plan.  (3) EachIndiantribalgovernmentdesiringreimbursementofindirectcosts F mustsubmititsICRPtotheDepartmentoftheInterior. ,| (4) ICRPsmustbedeveloped(and,whenrequired,submitted)within6  * monthsafterthecloseofthegovernmentalunitsfiscalyear. !  E.` ` hp x (# X(#E& F e. ` DocumentationandCertificationRequirements n#  ThedocumentationandcertificationrequirementsforICRPsareincludedin %l  A-87,AttachmentE,paragraphsD.2and3,respectively.Theproposaland &R! relateddocumentationmustberetainedforauditinaccordancewiththerecord &8"  retentionrequirementscontainedintheA102CommonRule.'Fn#c  '#!  E.` hp x (#` X(#E 2.  AuditObjectivesState/LocalDepartmentorAgencyCostsDirectandIndirect |)$"   E.` ` hp x (#X(#E a. ` Obtainanunderstandingofinternalcontroloverthecompliancerequirementsfor *+z&# State/localdepartmentoragencycosts,assessrisk,andtestinternalcontrolas ,`'$ requiredbyOMBCircularA133___.500(c). ,F(% b. ` DeterminewhetherthegovernmentalunitcompliedwiththeprovisionsofA87  asfollows:   <% hp x (#` X(#<(1) DirectchargestoFederalawardswereforallowablecosts. D (2) Chargestocostpoolsusedincalculatingindirectcostrateswerefor B allowablecosts.  ( (3) Themethodsforallocatingthecostsareinaccordancewiththeapplicable   costprinciples,andproduceanequitableandconsistentdistributionof l  costs(e.g.,allactivitiesthatbenefitfromtheindirectcost,including R  unallowableactivities,mustreceiveanappropriateallocationofindirect 8  costs). n  (4) Indirectcostrateswereappliedinaccordancewithapprovedindirectcost   rateagreements(ICRA),orspecialawardprovisionsorlimitations,if   differentfromthosestatedinnegotiatedrateagreements.   (5) ForlocaldepartmentsoragenciesthatdonothavetosubmitanICRPto F  thecognizantFederalagency,indirectcostrateswereappliedin ,| accordancewiththeICRPmaintainedonfile. b  XE.` hp x (#  X(#E 3.  SuggestedInternalControlAuditProceduresState/LocalDepartmentorAgency  CostsDirectandIndirect    Refertotheprevioussection, AllowableCostsState/LocalWideCentralService T Costs,items3.athrough3.c,forsuggestedinternalcontrolauditprocedures. :  & > 4.  SuggestedComplianceAuditProceduresState/LocalDepartmentorAgencyCosts 8 DirectandIndirect   XE.` ` hp x (#X(#E a. ` Considertheresultsofthetestingofinternalcontrolinassessingtheriskof | noncompliance.Usethisasthebasisfordeterminingthenature,timing,and b  extent(e.g.,numberoftransactionstobeselected)ofsubstantivetestsof H! compliance.IfthelocaldepartmentoragencyisnotrequiredtosubmitanICRP ."~ andrelatedsupportingdocumentation,theauditorshouldconsidertheriskofthe #d reducedlevelofoversightindesigningthenature,timing,andextentof #J compliancetesting. $0  b. ` GeneralAuditProcedures(DirectandIndirectCosts)󀄀Thefollowingprocedures &! applytodirectchargestoFederalawardsaswellaschargestocostpoolsthatare t'" allocatedwhollyorpartiallytoFederalawardsorusedinformulatingindirect Z(# costratesusedforrecoveringindirectcostsfromFederalawards.'>  @)$   E. ` hp x (#` X(#E(1) Testasampleoftransactionsforconformancewith: *>&!  ` E.` hp x (# X(#E(a)  Thecriteriacontainedinthe BasicGuidelinessectionofA87, ,'" AttachmentA,paragraphC. -(# (b)  Theprinciplestoestablishallowabilityorunallowabilityofcertain  itemsofcost(A87,AttachmentB).   ` E. ` hp x (#X(#E(2) Iftheauditoridentifiesunallowablecosts,theauditorshouldbeawarethat D directlyassociatedcostsmighthavebeencharged.Directlyassociated *z costsarecostsincurredsolelyasaresultofincurringanothercost,and  ` wouldhavenotbeenincurrediftheothercosthadnotbeenincurred.  F Whenanunallowablecostisincurred,directlyassociatedcostsarealso  , unallowable.Forexample,occupancycostsrelatedtounallowable   generalcostsofgovernmentarealsounallowable.    E.` ` hp x (# X(#Ec. ` SpecialAuditProceduresforState/LocalDepartmentorAgencyICRPs V   E. ` hp x (#` X(#E(1) VerifythattheICRPincludestherequireddocumentationinaccordance T  withA87,AttachmentE,paragraphD. :  (2) TestingoftheICRP󀄀Theremaybeatimingconsiderationwhentheaudit   iscompletedbeforetheICRPiscompleted.Inthisinstance,theauditor ~  shouldconsiderperforminginterimtestingofthecostschargedtothecost d poolsandtheallocationbases(e.g.,determinefrommanagementthecost J poolsthatmanagementexpectstoincludeintheICRPandtestthecosts 0 forcompliancewithA87).Shouldtherebeauditexceptions,corrective f actionmaybetakenearliertominimizequestionedcosts.Inthenext L yearsaudit,theauditorshouldcompletetestingandverifymanagements 2 representationsagainstthecompletedICRP.   ` E.` hp x (# X(#E(a)  WhentheICRAisthebasisforindirectcostchargedtoamajor v program,theauditorisrequiredtoobtainappropriateassurance \ thatthecostscollectedinthecostpoolsandallocationmethodsare B incompliancewiththeapplicablecostprinciples.Thefollowing (x proceduresaresomeacceptableoptionstheauditormayuseto ^ obtainthisassurance: D   ` E.h` hp x (#X(#E(i) h IndirectCostPool󀄀Testtheindirectcostpooltoascertain ! ifitincludesonlyallowablecostsinaccordancewithA87. "   E.` hp x (#hX(#E(A)  Testtoensurethatunallowablecostsareidentified 6$ andeliminatedfromtheindirectcostpool(e.g., %l  capitalexpenditures,generalcostsofgovernment). &R! (B)  Identifysignificantchangesinexpensecategories '#  betweenthepriorICRPandthecurrentICRP.Test (#! asampleoftransactionstoverifytheallowabilityof |)$" thecosts. b*%# (C)  Tracethecentralservicecoststhatareincludedin ,`'$  theindirectcostpooltotheapprovedState/local ,F(% widecentralserviceCAPortoplansonfilewhen  submissionisnotrequired.    E.h` hp x (#X(#E(ii) h DirectCostBase󀄀Testthemethodsofallocatingthecosts D toascertainiftheyareinaccordancewiththeapplicable *z provisionsofA87andproduceanequitabledistributionof  ` costs.  F   E.` hp x (#hX(#E(A)  Determinethattheproposedbase(s)includesall   activitiesthatbenefitfromtheindirectcostsbeing   allocated. p  (B)  Ifthedirectcostbaseisnotlimitedtodirectsalaries n  andwages,determinethatdistortingitemsare T  excludedfromthebase.Examplesofdistorting :  itemsincludecapitalexpenditures,flowthrough   funds(suchasbenefitpayments),andsubaward   costsinexcessof$25,000persubaward.  (C)  Determinetheappropriatenessoftheallocation J base(e.g.,salariesandwages,modifiedtotaldirect 0 costs). f   6h hp x (#X(#6&   (iii) h OtherProcedures    E.` hp x (#hhX(#E(A)  Examinetheemployeetimereportsystemresults r (whereandifused)toascertainiftheyareaccurate, X andarebasedontheactualeffortdevotedtothe > variousfunctionalandprogrammaticactivitiesto $t whichthesalaryandwagecostsarecharged.  Z (RefertoA87,AttachmentB,paragraph11.hfor @ additionalinformationonsupportofsalariesand & wages.)   (B)  ForanICRPusingthemultipleallocationbase j" method,teststatisticaldata(e.g.,squarefootage, P# audithours,salariesandwages)toascertainifthe 6$ proposedallocationorratebasesarereasonable, %l  updatedasnecessary,anddonotcontainany &R! materialomissions.' 13 &8"   E. ` hp x (#X(#E(3) TestingofChargesBasedUpontheICRA󀄀Performthefollowing (#! procedurestotesttheapplicationofchargestoFederalawardsbasedupon |)$" anICRA: b*%#  ` E.` hp x (# X(#E(a)  ObtainandreadthecurrentICRAanddeterminethetermsin ,`'$ _effect. ,F(% @     (b)  Selectasampleofclaimsforreimbursementandverifythatthe  ratesusedareinaccordancewiththerateagreement,thatrates  wereappliedtotheappropriatebases,andthattheamounts | claimedweretheproductofapplyingtheratetotheapplicable b base.Verifythatthecostsincludedinthebase(s)areconsistent H withthecoststhatwereincludedinthebaseyear(e.g.,ifthe . ~ allocationbaseistotaldirectcosts,verifythatcurrentyeardirect  d costsdonotincludecostsitemsthatweretreatedasindirectcosts  J inthebaseyear).  0  ` E. ` hp x (#X(#E(4) OtherProceduresNoNegotiated_ICRA_     ` E.` hp x (# X(#E(a)  Ifanindirectcostratehasnotbeennegotiatedbyacognizant <  Federalagency,asrequired,theauditorshoulddeterminewhether "r  documentationexiststosupportthecosts.Wherethe_auditee_Ԁhas X  documentation,thesuggestedgeneralauditprocedures(directand >  indirectcostsunderparagraph4.bofthissection)shouldbe $ performedtodeterminetheappropriatenessoftheindirectcost   chargestoawards.  B+ 4` hp x (#X(#B& F (b)  Ifanindirectcostratehasnotbeennegotiatedbyacognizant N agency,asrequired,anddocumentationtosupporttheindirect 4 costsdoesnotexist,theauditorshouldquestionthecostsbasedon j alackofsupportingdocumentation. P   ` H.` hp x (#4` X(#H AllowableCosts!StatePublicAssistanceAgencyCosts'FNe@   Statepublicassistanceagencycostsare(1)definedasallcostsallocatedorincurredbytheState \ agencyexceptexpendituresforfinancialassistance,medicalvendorpayments,andpaymentsfor B servicesandgoodsprovideddirectlytoprogramrecipients(e.g.,daycareservices);and(2) (x normallychargedtoFederalawardsbyimplementingthepublicassistancecostallocationplan ^ (CAP).ThepublicassistanceCAPprovidesanarrativedescriptionoftheproceduresthatare D usedinidentifying,measuringandallocatingallcosts(directandindirect)toeachofthe  * programsadministeredorsupervisedbyStatepublicassistanceagencies. ! AttachmentDofA87statesthatsincethefederallyfinancedprogramsadministeredbyState n# publicassistanceagenciesarefundedpredominantlyby_HHS_,_HHS_Ԁisresponsibleforthe T$ requirementsforthedevelopment,documentation,submission,negotiationandapprovalof :%  publicassistance_CAPs_.TheserequirementsarepublishedinSubpartEof45_CFR_Ԁpart95.  &p!  MajorFederalprogramstypicallyadministeredbyStatepublicassistanceagenciesinclude: '#! TemporaryAssistanceforNeedyFamilies(_CFDA_Ԁ93.558),Medicaid(_CFDA_Ԁ93.778),Food ($" Stamps(_CFDA_Ԁ10.561),ChildSupportEnforcement(_CFDA_Ԁ93.563),FosterCare(_CFDA_ )$#  93.658),AdoptionAssistance(_CFDA_Ԁ93.659),andSocialServicesBlockGrant(_CFDA_Ԁ93.667). *%$ @     & F  1.  ComplianceRequirementsStatePublicAssistanceAgencyCosts    E.` ` hp x (#X(#E a. ` BasicGuidelines󀄀Refertotheprevioussection, AllowableCosts!State/Local ^ WideCentralServiceCosts,1.a,ComplianceRequirementsBasicGuidelines, D fortheguidelinesaffectingthe_allowability_Ԁofcosts(directandindirect)under *z Federalawards.'FJ  ` b. ` SelectedItemsofCost󀄀Refertotheprevioussection, AllowableCosts!   State/LocalWideCentralServiceCosts1.b,ComplianceRequirementsSelected   ItemsofCost,fortheprinciplestoestablish_allowability_Ԁor_unallowability_Ԁof   certainitemsofcosts.Theseprinciplesapplywhetheracostistreatedasdirector p  indirect. V  ?(` ` hp x (#` X(#?c. ` SubmissionRequirements T   E. ` hp x (#` ` X(#E(1) UnlikemostState/localwidecentralservice_CAPs_Ԁand_ICRPs_,anannual   submissionofthepublicassistanceCAPisnotrequired.Onceapublic   assistanceCAPisapproved,Statepublicassistanceagenciesarerequired ~  topromptlysubmitamendmentstotheplanifanyofthefollowingevents d occur(45_CFR_Ԁsection95.509): J  ` E.` hp x (# X(#E(a)  Theproceduresshownintheexistingcostallocationplanbecome H outdatedbecauseoforganizationalchanges,changestotheFederal . laworregulations,orsignificantchangesintheprogramlevels,  affectingthevalidityoftheapprovedcostallocationprocedures.  (b)  Amaterialdefectisdiscoveredinthecostallocationplan. X (c)  TheStateplanforpublicassistanceprogramsisamendedsoasto V affecttheallocationofcosts. < (d)  Otherchangesoccurwhichmaketheallocationbasisor  proceduresintheapprovedcostallocationplaninvalid.     ` E. ` hp x (#X(#ETheamendmentsmustbesubmittedto_HHS_Ԁforreviewandapproval. ."~   E.` ` hp x (#