Cost Report

1. Cost Report By: Kristi Klein, Management Analyst & Sacha Wise, Provider Reimbursement & Grants Manager Department of Human Services Office of Budget & Finance

2. Cost Report Information • General Overview of Cost Report • Updates • Things to Remember • Use of Cost Report in Rate Setting • Per Unit Cost We’re on the web at: http://www.state.sd.us/dhs/BF/Cost%20Report.htm *You can find changes to the FY05 cost report, frequently asked questions, examples, guidelines, and forms for the cost report.

3. Overview of Cost Report Guidelines • When is the cost report due to the Department of Human Services? • The deadline for returning the required annual cost report to the Department is four months after the reporting period. All incomplete or incorrect reports will be returned to the provider for corrections. • If your reporting period ends June 30, your cost report is due November 1. • Who is required to submit a cost report? • As required by contract, a cost report should be submitted by agencies receiving funding from the Division of Alcohol and Drug Abuse and should coincide with the provider’s fiscal year, unless waived by the Department of Human Services.

4. Overview of Cost Report Guidelines • What is the purpose of the cost report? • The purpose of the cost report is to define the cost of each service by service center. • What are the 3 components of the cost report? • The cost report is comprised of Schedule A – Expenses, Schedule B - Revenues, and Attachment 1-Personnel.

5. Overview of Cost Report Guidelines • The cost report must be completed on an accrual basis of accounting. • Information to complete the cost report may come from various sources depending on each agency's method of tracking costs. Personnel, payroll, provider expense records, and activity logs are examples of tools that may be used to compile information to complete the cost report.

6. Overview of Cost Report Guidelines • Funded Depreciation Accounts • A funded depreciation account can be established for the replacement of capital assets and can be funded at a rate not greater than current annual depreciation. • The establishment of the fund and the procedures governing the fund must be specifically approved by the agency’s board of directors. • The approved procedures must stipulate the rate by which the account will be funded and shall delineate the items to be purchased with the fund. • Agencies must use the account for the purchase of capital items as defined by their internal procedures. Transfers from the funded depreciation reserve account will be allowed for necessary cash flow purposes as long as the transfer does not cause the agency to exceed operating reserve standards set forth in the Cost Report Preparation Guidelines. (See Reserve Funds policy, page 7).

7. Overview of Cost Report Guidelines • Funded Depreciation Accounts cont. • Agencies with funded depreciation accounts shall use the account heading “Designated for Capital Asset Replacement” and identify the composition of any Funded Depreciation account in their annual audited financial statement. • See page 4 of the guidelines for additional details

8. Overview of Cost Report Guidelines Reserve Funds Policy • The reserve funds should not exceed what? • Reserve funds shall not exceed 90 days total operating expenses. Please refer to the memorandum sent to all providers September 6, 2005 for additional information. • What is the formula for calculating reserves? • Reserves = (Unrestricted Funds – Funded Depreciation and Endowments) • If reserves exceed the 90 day total operating expense, what must the provider do? • If reserves exceed 90 days total operating expenses, the provider must submit a plan to the Department for reinvesting the excess into the program. The Department will notify the provider of approval or disapproval within 30 days.

9. Overview of Cost Report Guidelines Independent Audit • Who should test Schedules A & B included in the audit report? • An independent auditor • The provider shall have an annual entity-wide independent audit. To ensure the consistency and validity of the cost report data, we require Schedules A and B to be included in the paper audit report and to be tested by the independent auditor. • This requirement became effective SFY04.

10. Overview of Cost Report Guidelines • Non- Allowable Costs • Report in adjustments column on Schedule A • Governed by Title XIX unless further limited by cost report guidelines or Purchase of Service Agreement • Examples of Non-Allowable Costs • Advertising, public relations, and clothing expenses as identified by Provider Reimbursement Manual Part II provided by CMS (formerly HCFA-15) • Costs which have not been incurred by the agency, including the value of donated goods and services • Depreciation costs for idle facilities except when such facilities are necessary to meet caseload fluctuations • Fines and penalties resulting from failure to comply with Federal, State and local laws • Telephone costs attributed to personal usage by employees and consumers • Any expenses incurred by the provider for the sale of goods or services (example: production) • Entertainment costs for activities including staff only (i.e. holiday parties not involving consumers, flowers or other gifts for staff) • All dues and costs associated with individual or agency memberships to fraternal organizations, country clubs, etc. • All costs associated with payment to registered lobbyists • Additional Non-Allowable costs can be found on page 8 & 9 of guidelines.

11. Overview of Cost Report Guidelines • Schedule A (Expenses) • Contains the Total, Adjustments, Administration and Support and Fund Raising columns as well as the program services unique to each provider group. • Cost allocated by assignment to Administration and Support or to the benefiting service center based on time study or activity logging unless otherwise indicated. • Total Column - Represents the total expenses from the operating statement of the organization for the reporting period. The total of the expenses must reconcile to the independently audited financial statements.

12. Overview of Cost Report Guidelines • Schedule A (Expenses) • Chart of Accounts • Personnel Services (1000) • Personnel Benefits and Taxes (1100) • Professional Fees & Contractual Services (1200) • Travel/Transportation (1300) • Supplies (1400) • Occupancy (1500) • Equipment (1600) • Depreciation (1700) • Miscellaneous (1800)

13. Overview of Cost Report Guidelines • Schedule A (Expenses) • This only shows a portion of Schedule A

14. Overview of Cost Report Guidelines • Schedule B (Revenues) • Contains the Total, Adjustments, Administration and Support and Fund Raising columns as well as the program services unique to each provider group. • Accounts • Fees (2000) • Grants (2100) • Contributions (2200) • Other Income (2300)

15. Overview of Cost Report Guidelines • Schedule B (Revenues)

16. Overview of Cost Report Guidelines • Attachment 1 • Contains hours and wages for all personnel whose costs were reported in accounts 1010, 1020 and 1040 on Schedule A • Information Reported • Staff Credentials • Position Numbers • Position Titles • Staff Names • Start/End Dates • Total Hours Paid • Salary • Hourly/Salary Wage • Bonus • # of Hours Worked in a Service Center • Total Hours Worked

17. Overview of Cost Report Guidelines • Attachment 1 • This only shows a portion of Attachment1

18. Overview of Cost Report Guidelines • Notes for Schedules A & B • Notes for Schedule A • Describe line item expenses • Adjustment column items • Reconcile between Audited Financial Statement and Schedule A • Breakdown of the expenses by type and cost in the “other” accounts (1190, 1290, 1390, etc) if the account equals or exceeds the % (listed in the guidelines) of the agency’s total expenses • Any other notes you may want to provide • Notes for Schedule B • Describe line item revenues • Adjustment column items • Reconciliation between Audited Financial Statement and Schedule B • Any other notes you may want to provide

19. Overview of Cost Report Guidelines • APPENDIX A, B, & C • Provides information about program services of each Division • APPENDIX A • Division of Developmental Disabilities • APPENDIX B • Division of Mental Health • APPENDIX C • Division of Alcohol & Drug Abuse

20. Updates: General • Some cells have been protected (you will not be able to click the cell) so that changes can not be made to the formulas. Some cells will automatically calculate and be displayed. • Schedule A, Schedule B, Notes for Schedule A and Notes for Schedule B have all been included in one excel work book.

21. Updates: General • Please use the following naming conventions when submitting the files: AgencyName_Schedules.xls and AgencyName_Attachment1.xls. AgencyName should be the full or abbreviated name of your agency. • Examples:BMS_Schedules.xls (Behavior Management Systems) SHAD_Attachment1.xls (Southern Hills Alcohol and Drug) • Cost reports should be emailed to Kristi Klein or Sacha Wise at kristi.klein@state.sd.us or sacha.wise@state.sd.us

22. Updates: Attachment 1 • If you are a combination provider, please make sure administrative time is broken out into each area. • Please make sure to fill staff in the proper tabs of 1010, 1020, 1040. Do not include all staff in one tab. • If you are a combination provider, all of the service centers have been included in one spreadsheet. Therefore, if you are a MH and ADA provider, you will complete one Attachment 1 for the whole agency. This is a sample of the cost report that shows where to break out the administrative time if you are a combination provider (Provide MH, DD, and ADA services). When in the Excel spreadsheet, click on the correct tab for the staff you are inputting.

23. Updates: Schedule A • Under 1200 Professional Fees & Contract Services, accounts 1211, 1212,1213, 1214, 1215 and 1216 have been combined into one account. The new account is 1210 Administrative/Financial. • Under 1300 Travel/Transportation, the accounts of 1310 and 1390 have been combined into one account. The account name is now 1390 Other. • Under 1500 Occupancy, the accounts of 1520 and 1530 have been combined into one account. The account name is now 1520 Utilities & Telephone. • The “other” accounts (1190, 1290, 1390, etc.) have increases in their percentages in relation to total expenditures. Please refer to the guidelines to double check the percentages for those accounts as you may not have to list the expenses on the Notes Page.

24. Updates: Schedule A • T or F: Temporary employees need to be included in attachment 1? • False. 1060 Temporary Staff do not need to be included in Attachment 1. On Schedule A under 1000 Personnel Services, a new account of 1060 Temporary Staff has been created. The costs for temporary staff should only be included on Schedule A.

25. Updates: Schedule A • Examples of Temporary Staff: • Staff hired staff to fill-in or cover for administration or support staff on maternity leave, FMLA, extended disability, etc. • Staff hired for a short-term project. These staff are supplements to existing staff and do not provide direct care (i.e. staff hired to do production work along side people served in a workshop to meet production deadlines, staff hired for a grant position that is short lived and will not continue, or staff hired to provide summer maintenance/yard work). • Staff hired as on-call or relief direct care staff. These staff fill-in when a full-time direct care staff uses vacation or sick leave or other times as needed (i.e. additional staff needed due to illness or behavior of people served). The number of on-call staff and the hours available for them to work varies at any point in time.  

26. Update - Schedule B • Under 2100 Grants, the accounts of 2140, 2150, 2160, 2170 and 2190 have been combined into one account. The account name is now 2100 Grants.

27. Attachment 1 • The total hours paid column should match what column? • The total hours paid should match the total hours. If they do not match, check the service centers to make sure the hour information is entered correctly. • If you are a combination provider (MH & ADA), please break out the administrative time spent in each area.

28. Attachment 1 • If the administrative staff manage/direct the overall or specific programs of the agency but spend more than 10% of their time doing direct service which tab should they be included in on Attachment1? • They should be included in the 1020 (Professional/Program Staff) rather than the 1010 (Administrative). Their pay should also be included in the 1020 account on Schedule A.

29. Total Hours Paid • In the total hours paid, please put the number of hours that the employee was paid during that time period and not the number of hours they could have worked.

30. Attachment 1 & Schedule A • Double check to make sure that Attachment 1 matches Schedule A. In this example, there are hours reported in Attachment 1 for Day Treatment but there are no personnel costs reported in Schedule A. If hours are reported in Attachment 1 there should be costs reported in Schedule A. The same should be true if there are costs reported in Schedule A, Attachment 1 should reflect hours spent in that service center.

31. Start/End Date • T or F: Start and end dates need to be included on the cost report. • True • Enter the date that the individual began employment with your agency. • If the individual has been employed for more than a year, use the first day of the current fiscal year as the start date. • Example: Jane Doe started 8/14/1999. For the reporting period on the cost report for FY04, you would enter 7/1/2004 as the start date.

32. Start/End Date • Please include an end date for everyone. • Enter the date the individual terminated employment with your agency. • If the individual is currently employed with your agency at the end of the fiscal year, enter the last day of the current fiscal year. • For FY04, if the individual was still employed at the end of the fiscal year, you would enter 6/30/2005 as the end date.

33. Position Numbers • True or False: Position Numbers are not used to analyze data. • False • Position numbers are used to count employees and develop a turnover ratio. • Please include position numbers so that turnover rates can be analyzed (refer to yellow comment). • If one employee replaces another employee, the same position number should be used (refer to orange comment).

34. Wages and Bonus • Bonuses should not be included in the salary per hour or hourly wage. • Do not include the bonus amount in the total wages paid column. • The bonus and total wages paid added together should match what is reported on Schedule A for the appropriate account (1010, 1020, 1040).

35. Rate Setting • Cost-Based Rates should include all direct and indirect costs related to the provision of the service by the provider. • Direct Costs: Those costs attributed to a single cost objective. Salary and material costs within a unit are directly attributable to services. • Indirect Costs: Those costs “incurred for a common or joint purpose benefiting more than one cost objective.” • The goal of any effective rate setting methodology is to include all allowable costs and allow the public provider to recover the full cost incurred for the provision of the service.

36. Rate Setting • STEP 1: • Define the Service • Who delivers the service? (CCDC Level I, II, III, trainee, etc.) • How is the Cost Report used? • Credentials and salary information from Attachment 1

37. Rate Setting • STEP 1Cont.: • Staff Salaries: Average Wage

38. Rate Setting • STEP 2: • Identify Cost Components (Numerator) • Staff Salaries + Staff Benefits and Taxes + Operating Expenses (including supplies, occupancy, contractual services, etc) = Total Cost • How is the Cost Report used? • Attachment 1 - Salaries • Schedule A - Total Personnel Services and Total Benefits and Taxes • Schedule A - Operating Expenses

39. Rate Setting • STEP 2Cont.: • Determining Benefits Percentage

40. Rate Setting • STEP 2Cont. : • Determining Operating Costs

41. Rate Setting • STEP 3 • Determine Billable Contacts (Denominator) • Often requires conducting surveys and/or time studies to obtain accurate data

42. Rate Setting • Validating the Model • Compare the modeled cost to the per unit cost • Do they match or is there a large gap between the modeled rate and the per unit cost? • How is the Cost Report used? • Per unit cost taken from Schedule A- Total Expenditures divided by MMIS/STARS units as reported by agency.

43. Per Unit Cost • How do you check your per unit cost? • Use Schedule A to check to see what the total expense was for a service center. • Use the number of units reported by the agency to the Division per MMIS/STARS (Include contract, non-contract, and Title XIX units). • Take the expenses divided by the number of units to get the per unit cost.

44. Per Unit Cost Variations • There are variations on the per unit costs. • Group, IOP • Per Unit Cost range for FY04 from $13.78 to $54.98 • FY04 rate was $17.00 • Clinically Managed Low Intensity Residential • Per Unit Cost ranges for FY04 from $34.83 to $167.02 • FY04 rate was $32.00

45. Per Unit Cost: Standard Deviation

46. Per Unit Cost: Standard Deviation

47. Reminder • Due to this training, we have extended the FY05 Cost Report due date for ADA providers from November 1, 2005 to November 15, 2005. • Please understand that the cost reports need to be submitted in a timely manner in order for us to ensure adequate time for analysis and preparation of information prior to the Legislative session.

48. Any Questions? If you have any questions or concerns, please feel free to contact us. Thank you for your time!