016.14.14 Ark. Code R. 004
The Financial Guidelines for Purchased Services (hereinafter referred to as Financial Guidelines) provides the rules and regulations governing financial control of purchase of services funds administered by the Arkansas Department of Human Services, Office of Finance and Administration. The Financial Guidelines are applicable to all funding sources unless exceptions or additions appear in regulations governing specific funding sources.
The following state and federal laws, regulations, and policy govern the operation of the purchase of services program.
requires the timely transfer of funds between a federal agency and a state to encourage development of efficient cash management systems;
requires contractors and grantees of federal agencies to certify that they will provide drug-free workplaces; and
The major federal regulations governing the operation of the programs are:
addresses the cost principles to which organizations, vendors, and subcontractors are subject;
www.gpoaccess.gov/cfr/index.html
Federal regulations and OMB circulars may be found at: www.whitehouse.gov/omb/circulars.
The State of Arkansas regulates the operation of all state agencies through the enactment of legislation pertaining to their funding and practices.
http://www.dfa.arkansas.gov/offices/accounting/financialManageme nt Guide/Pages/default.aspx
A purchase of service contract is a legally binding agreement between Arkansas Department of Human Services and a provider of services (hereinafter referred to as contractor). A contractor may be a private entity (i.e., an individual, partnership, or corporation) or a public entity (i.e., a governmental agency or entity.) The contract shall contain mutually binding obligations and a description of the services to be provided, with payment contingent on delivery of services in conformity with the contract.
The following are the major types of purchase of services agreements entered into by the Arkansas Department of Human Services and addressed in this Financial Guidelines document:
Technical service contracts are for the purchase of services which are more technical in nature, i.e., the services are provided by skilled individuals who are furnishing time, labor, a degree of expertise, and the work performed does not require special skills or extensive training. Examples of technical services include janitorial services, pest control, copier maintenance, and trash collection.
Interlocal agreements are authorized under Arkansas Code § 25-20-104 to facilitate cooperation and sharing of resources at the local level between state agencies.
Construction contracts are developed and approved in accordance with Arkansas Building Authority regulations.
With the Fixed Rate method, contractors are reimbursed in accordance with the rates approved by Arkansas Department of Human Services and standardized for a particular service or group of services. Rate schedules are developed by the program division funding the program in accordance with the Arkansas Department of Human Services criteria for a cost study (see Appendix C).
In developing a full disclosure budget, contractor shall enter all expenses (including those considered unallowable for reimbursement under specific funding sources) for the entire agency related to all service program areas. Contractor shall categorize these projected expenses into line items conforming to the contractor's own chart of accounts.
Department of Human Services clients, the following should also be included:
If the budget is being used to calculate a unit rate, contractor or division shall project the total number of units for each service funded wholly or in part under the contract, including all units provided to clients for each service whether or not they are paid by the contract. Contractor or division shall divide the total cost for the service by the projected number of units of service to compute the unit rate. (See Appendix B.)
Due to the rates/unit/service definitions for Medicaid reimbursable services being subject to change, (division or office) will use the current Medicaid rates for any Medicaid reimbursable service. The (division or office) rates will be changed after official notice is received from the Division of Medical Services."
Amendments to contracts are required when any element on the contract form or any of the legal attachments is revised to the extent that it materially affects the contractor or Arkansas Department of Human Services in any way. Minor revisions or administrative corrections that affect only the internal administration of a contract do not require an amendment; these may be accomplished as a change action.
The matching requirement may be satisfied by any one or a combination of the following methods unless specific funding source restrictions apply.
for acceptable methods of establishing fair rental or fair market value. One independent appraisal of current fair market rental value is required for property donated to and considered as match by the contractor.
The contractor is required by law and by contractual agreement to maintain an adequate financial system which records and documents all transactions affecting assets and equities. Financial records must report accurately and completely all fiscal data according to generally accepted accounting principles. The financial system must be comprehensive enough to show an adequate audit trail. (Audit trail refers to the capability of the financial records to provide documentary evidence of every financial transaction of the contractor.)
statistical records, and all other records pertinent to the agreement for a minimum of five years following the termination of the contract (or six years for records containing protected healthcare information, as identified in the Heath Information Portability and Accountability Act), except when:
Authorized agents of the United States Government and appropriate Arkansas Department of Human Services staff shall have full access to any financial records and all supporting documents for the purpose of conducting an audit or fulfilling any other official review requirements. Other disclosure will be made only as required by state and federal laws and regulations.
Contractors shall ensure that documents are on file which verifies that billed services were actually delivered to eligible clients. Depending on the type of service rendered, one or more of the documentation methods listed in the following sections may be used.
In average daily attendance programs, such as congregate meals and socialization, the attendance rate is based on the average number of clients attending each day. In fixed enrollment programs, such as day care and sheltered workshops, the attendance rate is based on the attendance of specific clients.
As a minimum requirement, a residential program must maintain a weekly or monthly attendance sheet indicating the name of the client and each day the client was a resident of the program. A record of specific components of the program delivered to each client is required either as notes in case records or in rosters of residents attending a specific component such as group therapy. Case notes or rosters must be signed and dated by the person delivering the service.
To ensure that the state meets its obligations under the Omnibus Budget Reconciliation Act, all Professional and Consultant Services contractors are required to comply with the "DHS Audit Guidelines"
If the division determines that recoupment from the contractor, or additional payment to the contractor, is indicated the following action shall be taken.
The purpose of the Administrative Hearing Process is to provide a mechanism by which a contractor may appeal audit findings, disallowances/ or recoupments, or any other action taken by Department of Human Services adversely affecting a contract, including termination. This appeal procedure is subject to the authority of the State Purchasing Director or his designee to resolve or settle a dispute as provided in Arkansas Code § 19-11-246 or according to the State Plan or federal requirement.
A written request for a waiver of any guideline published in this manual must be submitted to Arkansas Department of Human Services Office of Finance and Administration Chief Fiscal Officer or designee for approval. A copy of the signed waiver should be attached to the contract when it is submitted for review.
When prior approval is referenced as a requirement in this manual, such approval must be submitted to the Arkansas Department of Human Services Office of Finance and Administration Chief Fiscal Officer or designee. A copy of the signed approval should be attached to the contract when it is submitted for review.
The primary bases for the following cost principles include:
The following are applicable to all funding sources unless different terms are specifically required by individual funding sources or unless a waiver is approved by Department of Human Services. Other items may be allowable in accordance with generally accepted accounting principles
The cost of the required annual independent audit of all program-related costs is allowable.
Costs associated with building space and related facilities used for the benefit of the program are generally allowable. (See Depreciation and Use Allowance and Rental Costs.) Funds may not be utilized for the purchase, construction, or permanent improvement of any building or other facility, unless specifically approved in advance by the funding source.
Costs incurred for telephone services, local and long distance telephone calls, telegrams, postage, mobile phones, faxes, pagers, electronic or computer transmittal services and the like are allowable if necessary for the performance of the agreement.
Compensation for personnel services includes but is not limited to salaries, wages, incentive compensation, fringe benefits, pension plan costs, and the like. These costs are allowable to the extent that they are:
Compensation for the use of buildings, other capital improvements, and equipment necessary to the performance of the agreement may be made through depreciation or use allowances. In general, a combination of the two methods (depreciation and use allowances) may not be used in connection with a single class of fixed assets (ex., buildings, office equipment computer equipment, etc.)
The value of donated or volunteer services, donated goods and donated use of spaces are not allowable as reimbursable costs. Their value may, however, be used to meet cost sharing or matching requirements under certain circumstances. See, Depreciation and Use Allowances)
The costs of employee information publications, health or first-aid clinics or infirmaries, recreational activities, employees' counseling services, and other expenses incurred in accordance with the organization's established practice or custom for the improvement of working conditions, employer-employee relations, employee morale, and employee performance are allowable to the extent that they relate to the performance of the agreement. Such costs will be equitably apportioned to all activities of the organization. Income generated from any of these activities will be credited to the cost thereof unless such income has been irrevocably set over to employee welfare organizations.
In general, costs of insurance and indemnification required or approved and maintained pursuant to the agreement are allowable to the extent that the types and amount of coverage are in keeping with sound business practice and the rates and premiums are reasonable for the circumstances.
Parti cipant support costs are direct costs for items such as stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with meetings, conferences, symposia, or training projects. These costs are allowable only with the prior approval of Department of Human Services.
Necessary and reasonable expenses incurred for routine and homeland security to protect facilities, personnel, and work products are allowable. Such costs include, but are not limited to, wages and uniforms of personnel engaged in security activities; equipment; barriers; contractual security services; consultants; etc. Capital expenditures for homeland and plant security purposes are subject to the criteria in the Equipment and Other Capital Expenditures section of the applicable Office of Management and Budget circular.
Pre-award costs are those incurred prior to the effective date of the award directly pursuant to the negotiation and in anticipation of the award where such costs are necessary to comply with the proposed delivery schedule or period of performance. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the agreement and only with the written approval of the Department of Human Services.
Costs of preparing proposals for potential federal awards are allowable, but only to the extent that they have direct relevance to the performance of the agreement and only if the terms of the contract or grant specifically allow them. Proposal costs should normally be treated as indirect costs and should be allocated equitably to all activities of the organization.
Costs incurred for ordinary or normal rearrangement and alteration of facilities are allowable. Special arrangement and alteration costs incurred specifically for the project are allowable with the prior written approval of the Department of Human Services.
Costs incurred in the restoration or rehabilitation of the organization's facilities to approximately the same condition existing immediately prior to commencement of the agreement, less costs related to normal wear and tear, are allowable.
Costs of "help wanted" advertising are allowable provided that the size of the staff recruited and maintained is in keeping with workload requirements and to the extent the costs relate to the performance of the agreement. Where the organization uses employment agencies, costs not in excess of standard commercial rates for such services are allowable.
In general, taxes which the organization is required to pay and which are paid or accrued in accordance with generally accepted accounting principles are allowable. Refer to the applicable Office of Management and Budget circular for exceptions.
Costs of preparation and maintenance of a program of instruction including but not limited to on-the-job, classroom, and apprenticeship training, designed to increase the vocational effectiveness of employees, are allowable to the extent they relate to the performance of the agreement. These costs include:
The costs defined below are generally unallowable unless specifically stated as allowable by the specific funding source or unless a waiver is approved by the Arkansas Department of Human Services. Refer to the applicable law.
Advertising and public relations costs incurred for fund raising or solely to promote the organization are unallowable.
The cost of alcoholic beverages is unallowable.
Bad debts, including losses arising from uncollectable accounts and other claims, related collection costs, and related legal costs, are unallowable.
Department of Human Services approves, title to the equipment or property shall be vested in Arkansas Department of Human Services unless the Arkansas Department of Human Services or the applicable federal grantor agency specifically agrees in writing to a title transfer or other disposition. No department property may be sold, transferred, or used in another program without the consent of the Arkansas Department of Human Services. All department property will be clearly marked and properly maintained. The contractor or grantee will reimburse the Arkansas Department of Human Services for loss or damage to the Arkansas Department of Human Services property unless the Arkansas Department of Human Services directs otherwise.
Contributions to a contingency reserve or any similar provision made for events the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of their happening, are unallowable.
Contributions and donations for any purpose, when made by the organization, are unallowable.
Deposits made on such items as telephone or utilities are unallowable without prior written approval of the Arkansas Department of Human Services. These amounts are refundable at a later date and, as such, are generally considered assets of the program
Costs of entertainment, including amusement, diversion, and social activities, and any costs directly associated with such costs, such as tickets to shows or sports events, meals, lodging, rentals, transportation and gratuities are unallowable. Reimbursing the cost to employees who are on duty and providing supervision of a client in the course of socialization services, congregate meal services, field trips, mentor services, and diversion or social activities is only permissible with prior approval of the division director and the Department of Human Services Chief Fiscal Officer.
Costs of fines and penalties resulting from violations of or failure of the organization to comply with federal, state, and local laws and regulations are unallowable.
Profits and losses of any nature arising from the sale or exchange of capital assets are unallowable except in highly specific circumstances as detailed in the Office of Management and Budget circulars.
Costs of goods or services for personal use, housing, and personal living expenses for the organization's employees are unallowable regardless of whether the cost is reported as taxable income to the employees. (See exception in Compensation for Personnel Services)
Gratuities, tips, and similar costs are unallowable.
Investment management, and fund raising costs are generally unallowable except in highly specific circumstances as outlined in the applicable law.
Costs of idle facilities or idle capacity costs such as maintenance, repair, housing, rent, and other related costs are generally unallowable.
The cost of legal defense of criminal actions, anti-trust suits, or any other action brought by any governmental unit and the prosecution of claims against the government is unallowable.
Lobbying costs are generally unallowable except in highly specific circumstances as detailed in the applicable law.
Any excess of costs over income under one grant or contract is unallowable as a cost of any other grant or contract.
Expenditures in connection with establishment or reorganization of an organization are unallowable except with prior written approval of Arkansas Department of Human Services.
Costs associated with obtaining patents are generally unallowable except in highly specific circumstances as detailed in the applicable law.
In addition to the unallowable costs listed in (hh) Unallowable Costs, the following costs are unallowable for Social Services Block Grant funding:
Arkansas Department of Human Services
Financial Guidelines for Purchased Services
Appendix A
The following are suggested methods for distributing expenses to cost centers or activities when the facility provides more than one service or activity. Any method of distribution which will produce an equitable distribution of cost may be used. In selecting one method over another, consideration should be given to the additional effort required to achieve a greater degree of accuracy.
II. Method of Allocation | Examples of Applicable Expenses |
Number of clients | ALL Program and Administrative Expenses |
Direct charge to department or cost center | ALL Program expenses |
Square footage | Rental, Building Depreciation, Insurance, Maintenance and Repair, Material and Supplies, Taxes, Utilities |
Number of employees | Communication, Insurance, Material and Supplies, Memberships, Meetings and Conferences, Subscriptions, Travel |
Time and effort, supported by appropriate documentation | Salaries and Fringe |
Total dollar volume | Accounting, Auditing |
Number of transactions processed | Accounting, Auditing |
Direct hours | Accounting, Auditing |
Number of calls | Communication |
Number of calls | Travel, Training |
Number of calls | Food |
Arkansas Department of Human Services
Financial Guidelines for Purchased Services
Appendix B
Example: 40 clients x 250 days = 10,000 client units
Example: 200 clients x 50 units = 10,000 client units
Example: 146 one-way trips per day x 250 days = 36,500 units of transportation
Example: 30 clients x 250 days = 7,500 client units
Arkansas Department of Human Services
Financial Guidelines for Purchased Services
Appendix C
016.14.14 Ark. Code R. 004