100-06 Medicare Financial Management Manual: Chapter 2 - Budget Execution

Medicare Financial Management
Chapter 2 - Budget Execution
Table of Contents
(Rev. 128, 07-13-07)
Transmittals for Chapter 2
10 - General
20 - Cost Report Forms Supply
30 - Contractors Performing Services for Other Medicare Contractors
30.1 - Servicing Contractor
30.2 - Receiving Contractor
40 - Special Cost Reporting Issues
50 - Exhibit of the Certification Schedule for the Interim Expenditure Report (IER)
60 - Completing the Cumulative (IER)
60.1 - Transmittal and Due Dates
60.2 - Completing the IER
60.3 - Hours - Activity Form
60.4 - Costs and Credits - Activity Form
60.5 - Net Hours Available - Miscellaneous Schedule
60.6 - Administrative Funds Drawn - Certification Schedule
60.7 - Contractor Certification - Certification Schedule
60.8 - Remarks - Activity Form and Certification Schedule
60.9 - Forward Funding
60.10 - Hard Copy Requirements
70 - Exhibit of Variance Analysis
80 - Variance Analysis
80.1 - Transmittal and Due Dates
90 - Explanation of Reporting Requirements for the Variance Analysis
90.1 - Reporting Parameters
90.2 - Instructions for Completing the Variance Analysis Explanation Report
100 - Fiscal Year Over Expenditures - October-September IER
110 - Control of Administrative Funds Drawn
120 - Budget Amount Appears Insufficient
130 - Completing the Final Administrative Cost Proposal (FACP)
130.1 - Transmittal and Due Date
130.2 - Activities
130.3 - Hours (Hours Fields of the Activity Form)
130.4 - Costs (Cost Item Fields of the Activity Form)
130.5 - Forward Funding
130.6 - Workload (Workload Field 1 of the Activity Form)
130.7- Exhibit of Credit Schedule Attachment to the Cost Classification Report

130.8 - Completing the Credit Schedule Attachment to the Cost Classification
Report
140 - Supporting Documentation for the FACP
150 - Financial Procedures for Release of Medicare Information to the Public
160 - Financial Procedures Related to Medicare Projects Funded by HHS Components
Other Than CMS
160.1 - Release of Existing Medicare Information
160.2 - Development of Additional Data
170 - Special One-Time Costs Associated With Non-Continuation of the Medicare
Contract
180 - Budget Execution Check List for Program Management and Medicare Integrity
Program
190 - Intermediary/Carrier Retention of Records for Federal Audit
190.1 - Examination of Records
190.2 - Performance of Audits
190.3 - Records Maintained
190.4 - Availability of Records
190.5 - Preservation and Destruction of Records
190.6 - Appeals, Litigation and Exceptions
190.7 - Subcontracts
190.8 - Fiscal Reviews
200 - Cost Accounting Standards - General
200.1 - Consistency in Estimating, Accumulating, and Reporting Costs
200.2 - Consistency in Allocating Costs Incurred for the Same Purposes
200.3 - Accounting for Unallowable Costs
NOTE: Revision 2, the initial release of this chapter, includes a cross reference to the
source sections in current manuals. The manual is identified by A1, A2, A3, or A4 for
Intermediary Manual Parts 1 through 4; or by B1, B2, B3 or B4 for Carriers Manual Parts
1 through 4. This indicator is followed by a dash and the related section number.

10 - General - (Rev. 2, 08-30-02)
A1-1300, B1-4300
This chapter establishes fiscal controls to ensure efficient use of the Health Insurance
Trust Funds. These controls are necessary to implement program objectives and to carry
them out within established limitations. Each contractor shall plan its operation within the
lower of the approved annual budget, the approved periodic budget distributions and the
certified funds available for Program Management (PM) and Medicare Integrity Program
(MIP) budgets separately, and without co-mingling. It is responsible for performing a
continuing analysis of the approved budget in light of experience and projected future
needs. It shall report any change in fiscal requirements to CMS. (See §120.)
Monthly Interim Expenditure Reports (IERs) prepared for PM and MIP funding, are
required to assure adequate financing of the program and to enable CMS to control its
overall expenditures. A Final Administrative Cost Proposal (FACP) is required after the
expiration of the FY to form the basis for the audit and final determination of allowable
costs. (See §180 for a list of all budget execution reports due.)
The contractor shall prepare a narrative identification of unallowable costs for all cost
reports in accordance with Chapter 7, Section 3, Accountability and Chapter 1, §80.B.
20 - Cost Report Forms Supply - (Rev. 2, 08-30-02)
A1-1301, B1-4301
Copies of all cost reports referred to in the ensuing sections can be obtained from the
Contractor Administrative-Budget and Cost Reporting (CAFM II) System.
30 - Contractors Performing Services for Other Medicare Contractors -
(Rev. 2, 08-30-02)
A1-1302, B3-4302
When services such as provider audit, EDP processing, bill/claims processing, and
appeals are performed by a Medicare contractor for another Medicare contractor, the
receiving contractor shall report costs as subcontract costs. It shall not include the
productive hours associated with the subcontract costs on the Activity Form. See Chapter
1, §210.
The Blue Cross and Blue Shield Association (BCBSA) performs most of the Plan PRRB
appeal activity. However, some Plans still maintain their own Provider Reimbursement
Review Board (PRRB) representation and may require BCBSA assistance periodically. If
a Blue Cross Plan requests the assistance of the BCBSA in connection with a specific
PRRB appeal, BCBSA invoices the Plan for the cost and is paid by the Plan and the
standard procedures for reporting costs are followed.
30.1 - Servicing Contractor
(Rev. 128; Issued: 07-13-07; Effective: 10-01-06; Implementation: 08-13-07)

The servicing contractor shall accrue the costs involved and submit a monthly invoice to
the receiving contractor. It shall submit invoices promptly to permit the receiving
contractor to submit its IER on a timely basis. It shall include adjustments to previous
invoices in subsequent invoices. The servicing contractor must have adequate
documentation by cost category to support the invoice amount. It shall not include these
costs in its cost reports.
30.2 - Receiving Contractor - (Rev. 2, 08-30-02)
A1-1302.2, B1-4302.2
The receiving contractor shall include the invoiced amount as subcontract costs in all
appropriate functions and activities on the IER, Contractor Auditing and Settlement
Report (CASR) CMS-1525A, (Intermediaries Only), and FACP submitted to CMS. It
shall include the servicing contractor's name in the Remarks section of the Activity Form.
It shall develop estimates for use in cost reports when the servicing contractor does not
submit an invoice in time for inclusion in the cost report.
40 - Special Cost Reporting Issues - (Rev. 2, 08-30-02)
A1-1303, B1-4303
Shared system costs and CWF satellite costs for ongoing maintenance, as well as for the
other costs of the user groups, e.g., travel, are to be allocated according to the following
instructions.
The general rule for allocating costs when more than one Medicare function/activity is
affected is to allocate time and cost equitably to the activities benefiting from the related
work. There are three generally acceptable approaches for allocating such costs.
Charge ongoing costs to Activity 11001, Bills/Claims Processing, if the work primarily
benefits that activity;
Charge ongoing costs to the activities which benefit from the work, if the benefit can be
demonstrated and is documented; or
If the cost is small and the related work generally benefits all Medicare functions, it may
be allocated to all Medicare activities using the same or similar methodology to that
stated in chapter 1, §90.10, on overhead costs. Note that this is not a statement that such
costs are an overhead cost, but only that such costs may be allocated in the same or
similar manner.
50 - Exhibit of the Certification Schedule for the Interim Expenditure
Report (IER)
(Rev. 2, 08-30-02)
A1-1320, B1-4320

Click here to view exhibit of the Certification Schedule for the Interim Expenditure
Report (IER)
60 - Completing the Cumulative (IER) - (Rev. 2, 08-30-02)
A1-1321, B1-4321
The IER provides cumlative costs for each activity, using the same multiple-use
Administrative Budget and Cost Report format referenced in Chapter 1, §80. It adds the
Administrative Funds Drawn section to the Certification Schedule as displayed in §50.
The contractor shall report costs on an "allowable costs" basis in accordance with 48 CFR
52.216-7(b) and on a fully accrued basis including year-end and other adjustments.
It shall follow these instructions unless it has a contract that contains specific terms and
conditions that differ from these instructions. In that case, it shall use these instructions as
general guidance only.
The IERs will generally be submitted on a monthly basis unless otherwise stated in the
contractor's specific contract. The contractor shall make adjustments, within a FY, to
prior interim reports on the subsequent IER. It shall make adjustments to the October-
September IER on the FACP. It shall submit a revised October-September IER prior to
submitting a FACP if the changes are material and the change is discovered prior to
preparation of the FACP. (See §130.) It shall note all material adjustments.
60.1 - Transmittal and Due Dates
(Rev. 128; Issued: 07-13-07; Effective: 10-01-06; Implementation: 08-13-07)
The contractor shall transmit the IER via the Contractor Administrative-Budget and
Financial Management (CAFM II) System. If the due date falls on a Federal holiday or a
weekend, the due date is the next working day. See §180 for CAFM II IER due dates.
60.2 - Completing the IER - (Rev. 2, 08-30-02)
A1-1321.2, B3-4321.2
See descriptions in Chapter 1, §90 and as noted below.
60.3 - Hours - Activity Form - (Rev. 2, 08-30-02)
A1-1321.3, B3-4321.3
The contractor shall furnish cumulative, net working (on-duty) hours directly assigned or
otherwise allocated to a particular activity in accordance with Chapter 1, §200. For
computing net working hours for each activity, it shall use working hours within the
activity. It shall deduct the same company-wide paid leave percentage experienced during
the month or use paid leave hours, if available. It shall exclude non-compensated
overtime hours. It shall include or exclude, as appropriate, personnel hours loaned and
borrowed by each activity. It shall include hours worked by temporary help, furnished by
outside organizations. The hours to report for temporary help are those incurred by non-

employees who are under the contractor's direct supervision. (See Chapter 1, §90.9P.)
The contractor shall round entries to the nearest hour.
60.4 - Costs and Credits - Activity Form - (Rev. 2, 08-30-02)
A1-1321.4, B3-4321.4
The contractor shall round all costs and credits to the nearest dollar.
60.5 - Net Hours Available - Miscellaneous Schedule - (Rev. 2, 08-30-02)
A1-1321.5, B3-4321.5
The contractor shall enter the number of net cumulative productive hours required to
convert total incurred productive hours to equivalent staff-years for the reporting period.
See chapter 1, §200.
60.6 - Administrative Funds Drawn - Certification Schedule - (Rev. 2,
08-30-02)
A1-1321.6, B1-4321.6
This screen is used only with the IER. The contractor shall report only those draws made
during the report month. Reporting of administrative funds drawn is NOT on a
cumulative basis. The contractor shall complete as follows:
Date - Contractor shall enter the date the draw is received through Smartlink, not the date
requested.
Draw for Current Year:
Intermediary - enter each draw made during the report month for the current FY
Carrier - Enter the draw amount for the corresponding date for the funding FY of the IER
Prior Year - Contractor shall enter any draws made during the report month for prior
years under the identified year column.
Total - CAFM II will calculate the total draws for the month by year. It must agree to the
totals reported through Smartlink.
60.7 - Contractor Certification - Certification Schedule - (Rev. 2, 08-30-
02)
A1-1321.7, B1-4321.7
An authorized official signs and dates the report.

60.8 - Remarks - Activity Form and Certification Schedule - (Rev. 2, 08-
30-02)
A1-1321.8, B1-4321.8
Contractor shall add any appropriate remarks including discussion of items reported in
Other Adjustments and Forward Funding.
60.9 - Forward Funding - (Rev. 2, 08-30-02)
A1-1321.9, B1-4321.9
Projected costs must be reported on the September IER if the contractor has been
approved for forward funding of a project.
60.10 - Hard Copy Requirements - (Rev. 2, 08-30-02)
A1-1321.10, B1-4321.10
Hard copies of the IER and attachments are not required in the RO or CO. The contractor
shall retain the signed copy in its files.
NOTE: See §180 for required attachments and due dates.
70 - Exhibit of Variance Analysis
(Rev. 128; Issued: 07-13-07; Effective: 10-01-06; Implementation: 08-13-07)
Variance Version 1
Click here to view exhibit of Variance Analysis Version 1.
Variance Version 2
Click here to view exhibit of Variance Analysis Version 2.
Variance Version 3
Click here to view exhibit of Variance Analysis Version 3.
80 - Variance Analysis
(Rev. 128; Issued: 07-13-07; Effective: 10-01-06; Implementation: 08-13-07)
The variance analysis consists of two parts. The first part is the CAFM II generated report
that shows all variances for the report period and highlights those variances which fall
outside established tolerances and require an explanation. Using the data on the generated
report, the contractor sends the RO a memo that explains any variance above
predetermined tolerance levels.

There are three versions of the variance analysis. Version 1 is created three times during
the FY. It shows all year-to-date variances for the report period (Annualized IER vs. the
approved NOBA). Version 2 is created with the submission of the September IER. It
shows the preliminary end of the year variance (September IER vs. NOBA). Version 3 is
created after the submission of the FACP. It shows the final variances (September IER
vs. FACP).
80.1 - Transmittal and Due Dates
(Rev. 128; Issued: 07-13-07; Effective: 10-01-06; Implementation: 08-13-07)
Variance reports are required with the IER for the variance periods and with the FACP.
(See §180 for due dates.) Contractors shall transmit the variance narrative via email to
CO.
90 - Explanation of Reporting Requirements for the Variance Analysis -
(Rev. 2, 08-30-02)
A1-1332, B1-4332
90.1 – Reporting Parameters
(Rev. 23, 10-24-03)
A1-1332.1, B1-4332.1
The CMS will determine which activity codes at either the activity (detail) or function
(summary) level will need explanations if a tolerance variance level is exceeded. CAFM
II has standard reports to identify which activity (detail level) or function (summary level)
codes are part of the variance analysis, the required periods and the specified tolerances
for these periods. Based on the codes and tolerances indicated in these reports, the
CAFM II generated variance report will indicate which activity codes need explanations.
Codes, reporting periods and tolerances can vary from one fiscal year to another.
90.2 - Instructions for Completing the Variance Analysis Explanation
Report
(Rev. 2, 08-30-02)
A1-1332.2, B1-4332.2
The contractor's explanation must include the reason for the variance and what action is
being taken to correct the variance by the next IER, e.g., redirection of efforts, abatement
of activities (CMS approval required), a supplemental budget request, reduction or
increase in staff, or temporary workload backlog. Statements such as "We have exceeded
the variance tolerance because adequate funds were not provided by CMS in the budget
approval" are neither responsive nor acceptable. All variances between the September
IER and the FACP must be explained as defined in §140.

A. 	The contractor shall identify the month and FY of the report.
B. 	For each activity cost or workload that exceeds the tolerance percentage as indicated
in CAFM II, the contractor shall complete the following in its narrative explanation to the
RO:
It shall enter the code number and name for the function or activity.
It shall enter the variance percentage as displayed in CAFM II, and
It shall enter the explanation of the variance.
C. 	The contractor shall submit narrative explanations to the RO via electronic media.
Specific instructions on the type of word processing package to use can be obtained from
the contractor's RO.
100 - Fiscal Year Over Expenditures - October-September IER - (Rev.
2, 08-30-02)
A1-1333, B1-4333
The contractor's contract with CMS requires staying within approved budget amounts and
levels of certified funds. It shall analyze its financial position in order to advise CMS, in a
timely manner, of any anticipated significant deviations. In the event the administrative
costs reported in the October-September IER exceed the total approved budget, it shall
furnish documentation justifying the over expenditure to its RO with a copy to CO. The
request for funding will not necessarily be approved.
The CMS reviews justifications for adequacy and, where appropriate and if funding is
available, issues a revised NOBA that enables the contractor to draw additional funds.
The RO may advise the contractor that consideration of a budget revision is postponed
until the FACP is received and analyzed, e.g., where the amount of the over-expenditure
is relatively minor or where the contractor has not justified the over-expenditure. This
does not adversely affect the claim for the funds.
110 – Control of Administrative Funds Drawn
(Rev. 23, 10-24-03)
A1-1340, B1-4340
The funding level approved by Congress limits the approval of funds. The contractor
shall draw funds to the lower of the cumulative quarterly distribution certified on the
NOBA or the Total Costs (amount expended) as reported on the IER or FACP. It shall
draw administrative funds during the period in line with expenditures. Funds drawn
during the subsequent month must be adjusted for administrative funds drawn in excess
of actual costs reported.

120 - Budget Amount Appears Insufficient - (Rev. 2, 08-30-02)
A1-1351, B1-4351
A. 	Submission of SBR
The contractor shall submit an SBR whenever it appears that the budgeted amount is
insufficient to adequately perform the required functions and the need for additional
funds can be adequately documented. As a general rule, it shall submit the SBR no later
than 90 days prior to the exhaustion of funds so as to allow CMS sufficient time to
respond prior to the need to submit an abatement notice. (See B below.) The SBR should
never be submitted less than 60 days prior to the exhaustion of funds unless it can be
demonstrated that it could not have been given in advance. Resolution of the SBR may
include:
An increase in the budget;
Institution of additional efficiencies;
A reduction of functions to be performed; or
Other ways and means agreeable to both parties.
The contractor shall discuss these alternatives in the SBR and, if after negotiating in good
faith, there is no satisfactory resolution, CMS will send a written rationale denying all or
part of the SBR.
B. 	Abatement Notice
The contractor shall submit a written abatement notice to the RO no less than 60 days
prior to the date on which it appears that the budgeted amount is insufficient to
adequately perform the required functions in accordance with the Cost of Administration
Article in the Contract/Agreement.
130 - Completing the Final Administrative Cost Proposal (FACP) -
(Rev. 2, 08-30-02)
A1-1361, B1-4361
The contractor shall prepare the FACP allocated by PM and MIP funds. It shall include
all Medicare costs incurred during the FY or other period as mutually agreed upon. It
shall not include adjustments related to prior years' costs on the current FACP. It shall
include them as an amendment to the FACP for the year affected.
The report is the final allocation of all costs, both direct and indirect, including
adjustments to previously reported costs. It represents the final claim and serves as the
basis for audit and final settlement of allowable costs.
130.1 - Transmittal and Due Date
(Rev. 128; Issued: 07-13-07; Effective: 10-01-06; Implementation: 08-13-07)

The contractor shall submit the complete FACP consisting of the Activity Forms with all
attachments and supporting schedules (see §§130.7 and 140) 3 months after the end of
the FY (i.e., December 31). If CMS has approved projects for forward funding, then
supplemental FACPs should be submitted. If the due date falls on a Federal holiday or a
weekend, the due date is the next working day. The contractor shall transmit the Activity
Form data for the FACP electronically on the CAFM II System. It shall forward a signed
hardcopy to CO via regular mail. Contractors shall not use overnight delivery.
See §180 for transmission deadlines.
NOTE: After submission of the September cost report but prior to submission of the
FACP, the contractor shall continue to draw funds for costs incurred not to exceed the
total budget. Once the FACP is submitted, additional draws shall not be made until the
contractor is liable for payment (forward funded items). Supplemental FACPs shall be
submitted no later than 30 days after the close of each subsequent quarter, until all
projects are completed, but not later than 30 days after the close of the subsequent FY
when these funds expire.
130.2 - Activities - (Rev. 2, 08-30-02)
A1-1361.2, B1-4361.2
Descriptions of these items are in Chapter 1, §100.
130.3 - Hours (Hours Fields of the Activity Form) - (Rev. 2, 08-30-02)
A1-1361.3, B1-4361.3
The contractor shall enter hours as developed using instructions in §60.3. It shall round
entries to the nearest hour.
130.4 - Costs (Cost Item Fields of the Activity Form) - (Rev. 2, 08-30-02)
A1-1361.4, B1-4361.4
The contractor shall enter costs and credits as in §60.4. It shall round entries to the
nearest dollar.
130.5 - Forward Funding - (Rev. 2, 08-30-02)
A1-1361.5, B1-4361.5
Projected costs must be reported on the FACP if the contractor has been approved for
forward funding of a project.
130.6 - Workload (Workload Field 1 of the Activity Form) - (Rev. 2, 08-
30-02)
A1-1361.6, B1-4361.6

The contractor shall enter the workloads for the period. (See chapter 1, §90.9O.)
Remarks - The contractor shall use for any additional comments and to reference
attachments.
Net Hours Available - On the Miscellaneous Screen the contractor shall enter the number
of net productive hours required to convert total productive hours to equivalent staff-
years for the reporting period. (See chapter 1, §200.)
130.7-Exhibit of Credit Schedule Attachment to the Cost Classification
Report
(Rev. 2, 08-30-02)
A1-1361.7, B1-4361.7
Click here to view exhibit of Credit Schedule Attachment to the Cost Classification
Report.
130.8 - Completing the Credit Schedule Attachment to the Cost
Classification Report
(Rev. 2, 08-30-02)
A1-1361.8, B1-4361.8
See chapter 1, §140 for descriptions of credits.
The credit schedule supports the Cost Classification Report (CMS-2580) attachment to
the FACP.
Transferee Name - The contractor shall list the insurers to whom claims are being
transferred for complementary insurance (including both internal and external transfers),
Medicaid, and Other.
Transfer Type - The method of transfer (electronic or hard copy).
Frequency - The contractor shall indicate whether the transfer is an occasional request or
by agreement for ongoing transfer.
Number of Claims Transferred - The number of claims transferred to complementary
insurers (including both internal and external transfers), Medicaid, and Other.
Credit Received (Including Transfer Costs) - The total credit received, including transfer
costs, for claims transferred to complementary insurers (including both internal and
external transfers), Medicaid, and Other. The total credit received for complementary,
Medicaid, and other must agree with the totals on the Preliminary Data Entry Screen.
Unit Cost - The credit received divided by the number of claims transferred.

Credit Code - Indicate the type of transfer:
C = Complementary Insurance;
N = Medicaid;
M = Medigap; or
O = Other (as defined by CMS).
140 - Supporting Documentation for the FACP - (Rev. 2, 08-30-02)
A1-1362, B1-4362
If there are any variances between the September IER and the FACP, e.g., charges or
credits or other adjustments that may have been received after the close of the FY, the
contractor shall prepare a detailed narrative explanation. If total costs claimed are more
than the NOBA for the FY, it shall include a justification for the additional requested
funds. (See §120 and chapter 1, §250.1.)
The RO reviews the narrative justification for adequacy and may issue a revised NOBA,
where appropriate, allowing the drawing of additional funds. (See Chapter 1.)
If costs claimed on the FACP are less than the administrative funds drawn, the contractor
shall make an adjustment to current cash draws for administrative costs to reduce funds
drawn for the applicable fiscal period.
It shall include the attachments in §180 as supporting documentation for the FACP.
150 - Financial Procedures for Release of Medicare Information to the
Public - (Rev. 2, 08-30-02)
A1-1380, B1-4380
Costs incurred for releasing Medicare information to the public should be reported on the
IER and the FACP.
160 - Financial Procedures Related to Medicare Projects Funded by
HHS Components Other Than CMS - (Rev. 2, 08-30-02)
A1-1381, B1-4381
Requests may be received to furnish information and/or perform Medicare services by
HHS components other than CMS, or from other third parties under contract with other
HHS components. The contractor shall handle charges for such services in accordance
with the following instructions.
160.1 - Release of Existing Medicare Information - (Rev. 2, 08-30-02)
A1-1381.1, B1-4381.1

If an outside organization has a contract/grant with a HHS component other than CMS to
carry out independent studies or projects and requests existing data and/or specific
records for purposes of aiding the study, the contractor shall not charge the outside
organization.
160.2 - Development of Additional Data - (Rev. 2, 08-30-02)
A1-1381.2, B1-4381.2
A. 	Outside Organizations
If an outside organization requests data which must be developed or requests other
services, the contractor shall invoice such services to the organization and not include
those costs on the IER or FACP.
B. 	HHS Components Other Than CMS
When receiving requests from HHS components, other than CMS, to perform services on
various studies, the contractor shall invoice directly to the requesting HHS component
and not include these costs on the IER or FACP.
170 - Special One-Time Costs Associated With Non-Continuation of the
Medicare Contract - (Rev. 2, 08-30-02)
A1-1382, B1-4382
Special one-time costs associated with a contractor leaving the program are not handled
through the normal budget and cost reporting process. Instead, these costs, which may
include severance pay for employees or penalty payments for terminating contracts, are
handled through a separate voucher process subsequent to submission and approval of a
budget request. The voucher should state the period of time covered and itemize the
expenses. CMS reviews the voucher and determines whether payment should be made.
Approved vouchered costs are paid separately by check or EFT and not through the
NOBA process.
180 – Budget Execution Check List for Program Management and
Medicare Integrity Program
(Rev. 128; Issued: 07-13-07; Effective: 10-01-06; Implementation: 08-13-07)
Form NAME 	Due Date
Interim Expenditure Report – Activity Forms 	20 days after end of reporting
(with following attachments) month
Miscellaneous Schedule
Special Project Schedule (if applicable)
Certification Schedule
Variance Analysis 	27 days after end of variance
month, 4 period annually

Final Administrative Cost Proposal – Activity 	3 months after end of FY,
Forms with following attachments: 	Quarterly thereafter as needed
Miscellaneous Schedule
Special Project Schedule (if applicable)
Certification Schedule
Credit Schedule
Cost Classification Report
Narrative Explanation of FACP/IER
Differences
If the due date falls on a Federal holiday or a weekend, the due date is the next working
day.
190 - Intermediary/Carrier Retention of Records for Federal Audit –
(Rev. 2, 08-30-02)
190.1 - Examination of Records - (Rev. 2, 08-30-02)
A1-1500, B1-4500
The Secretary and the Comptroller General of the United States shall have access to and
the right to examine those books, records, documents and other supporting data which
will permit adequate evaluation of the cost or pricing data submitted by the intermediary,
along with the computations and projections used therein. The purpose of the
examination shall be to verify that cost or pricing data submitted in conjunction with the
negotiation of the agreement, including changes thereto, and the preparation of any fiscal
report or settlement, are accurate, complete and current. The right to examination of
records shall continue as long as records are maintained.
It should be noted that the Secretary and Comptroller General's right of access to these
records does not interfere with the intermediary's or carrier's file maintenance program.
However, where records which have been retired to a record center are needed, they
should be retrieved.
190.2 - Performance of Audits - (Rev. 2, 08-30-02)
A1-1502, B1-4502
As soon as practicable after the receipt of the intermediary's final cost proposal following
the close of the intermediary's accounting year, the Department of Health and Human
Services Audit Agency will make an audit of the books of accounts and records
pertaining to the health insurance program. Intermediaries will be notified in advance of a
scheduled audit. Negotiations on a final determination of the allowable cost of
administering the agreement shall be undertaken as rapidly as possible after receipt of the
final cost proposal and completion of the audit.
190.3 - Records Maintained - (Rev. 2, 08-30-02)

A1-1504, B1-4504
The intermediary or carrier shall maintain books, records, documents and other evidence
pertaining to the costs and expenses of the agreement, as well as accounting procedures
and practices (hereinafter collectively called "records"). These records shall be
maintained to the extent and in such detail as will properly reflect all net costs, direct and
indirect, of labor, materials, equipment, supplies and services, and other costs and
expenses of whatever nature claimed to have been incurred, and for which reimbursement
is claimed under the provisions of the agreement.
190.4 - Availability of Records - (Rev. 2, 08-30-02)
A1-1506, B1-4506
The intermediary's or carrier's facilities, or such part thereof as may be engaged in the
performance of the agreement, and its records shall be subject at all reasonable times to
inspection and audit by the Secretary.
190.5 - Preservation and Destruction of Records - (Rev. 2, 08-30-02)
A1-1508, B1-4508
The intermediary or carrier shall maintain and destroy its records in accordance with
manual procedures governing records destruction.
190.6 - Appeals, Litigation and Exceptions - (Rev. 2, 08-30-02)
A1-1514, B1-4514
Records which are related to
Appeals under a disputes clause of the agreement,
Litigation or the settlement of claims arising out of the performance of the agreement, or
Cost and expenses of the agreement to which exception has been taken by audit shall be
retained by the intermediary until such appeals, litigation, claims or exceptions have been
settled, and for a period of three years from the date of such settlement.
190.7 - Subcontracts - (Rev. 2, 08-30-02)
A1-1516, B1-4516
The intermediary or carrier shall include in each of his subcontracts a provision to the
effect that the Secretary and the Comptroller General of the United States shall, until the
expiration of three years after termination of the agreement, have access to and the right
to examine any books, documents, papers and records of such subcontractors, involving
transactions related to the subcontract. The term "subcontract" as used in this paragraph,
excludes:

Purchase orders not exceeding $2,500 and
Subcontracts or purchase orders for public utility services at rates established for uniform
applicability to the general public.
The foregoing does not apply to subcontracts to perform provider audits.
190.8 - Fiscal Reviews - (Rev. 2, 08-30-02)
A1-1518, B1-4518
Required budgetary, expenditures, and other fiscal reports, submitted monthly, quarterly,
and annually by intermediaries and carriers, will be reviewed currently by CMS to
determine, primarily, whether the types and amounts of expenditures as reported are in
accordance with the provisions of the agreement and properly reflect the intermediary's or
carriers' accountability for advances of Federal funds under the program. The CMS will
contact the intermediary or carrier to resolve any financial questions relative to
expenditure of funds for administrative expenses and care costs.
Problems of a fiscal nature will be reviewed with intermediaries and carriers to determine
that fiscal policies and procedures relating to the agreement are geared toward prudent,
effective and economical operations and reflect adequate consideration of the interests of
both the intermediary or carrier and the Federal Government. These reviews will be a
cooperative process from which the intermediary or carrier and Federal Government will
mutually benefit. Reviews may be initiated by either party to the agreement. Where fiscal
problems arise relative to expenditure of Federal funds under the agreement and an
intermediary or carrier requests assistance from CMS, fiscal specialists will be made
available promptly.
Periodic cost studies of intermediary and carrier operations will be made in order to carry
out the congressional mandate relative to making comparative analyses of individual
intermediary and carrier performance.
200 - Cost Accounting Standards - General - (Rev. 2, 08-30-02)
A1-1520, B1-4520
The Medicare contracts, include a provision for the application of through cost
accounting standards to the contractors' accounting systems. The three standards included
in the contract are intended to achieve a degree of uniformity and consistency in the
contractors' cost accounting practices to be used in connection with their Medicare
operations. Following is a discussion concerning the interpretation of the applicable
standards:
200.1 - Consistency in Estimating, Accumulating, and Reporting Costs -
(Rev. 2, 08-30-02)
A1-1521, B1-4521

The objective of this standard is to maintain a consistency in the cost accounting practices
employed by a contractor in its methods used for estimating costs and in its practices
used in accumulating and reporting cost during the course of the contract of fiscal period.
Consistency in cost accounting practices provides reasonable assurance that comparable
transactions are treated alike. This assurance is critical to our program since it provides a
reliable basis for valid comparisons between estimated, incurred, and reported costs.
This consistency requirement addresses the accounting structure of the contractor's
proposed budget - that is the cost accounting practices used in preparing the budget - not
to the amounts estimated or the estimating techniques used. The standard also requires
that a contractor's cost accounting practices used in accumulating and reporting actual
costs for the Medicare contract shall be consistent with its practices used for estimating
costs for the related budget for the same fiscal year. The contractor must comply with this
requirement through the term of the contract.
This standard extends to all levels of the contractor's cost accounting system. Therefore,
it is necessary that the contractors periodically review their methodologies for preparing
their budgets in order to obtain the consistency required with the accounting records.
The standard essentially requires that significant items of costs be accorded the same
accounting treatment in the estimate and the cost records.
There is no presumption that either of the requirements described above is violated when
a contractor groups homogeneous costs in his estimate, but accumulates and reports such
costs in greater detail during contract performance. If it is not practicable to estimate by
individual cost element or function, the contractor may use groupings of homogeneous
costs in his estimate provided:
Such grouping does not impair ability to compare any significant cost in an estimate with
the actual cost accumulated and reported, and
Estimating practices and accounting practices are consistent with respect to:
The classification of costs as direct or indirect,
The indirect cost pool assignments to which each element or function of cost is
charged or proposed to be charged, and
The methods of allocating indirect costs to the contract.
200.2- Consistency in Allocating Costs Incurred for the Same Purposes -
(Rev. 2, 08-30-02)
A1-1522, B1-4522
The purpose of this standard is to require that each type of cost is allocated only once and
on only one basis to our contract or other cost objective. Thus, no cost may be allocated
to a final cost objective as an indirect cost if other costs incurred for the same purpose

and in like circumstances have been included as a direct cost of that same or any other
cost objective. Conversely, no cost may be allocated to an objective as a direct cost if
other costs incurred for the same purpose have been included in any indirect cost pool to
be allocated to the same or any other cost objective. The requirement of the standard,
though stated in terms of costs incurred, is equally applicable to estimates of costs as used
in the contractors' budget preparation.
For the sake of practicality, minor items of direct costs may be treated as indirect costs,
provided that the treatment is consistently applied to all final cost objectives and provided
that the results are substantially the same as would have been produced if each such cost
had been treated as a direct cost. This materiality provision is an integral part of this
standard.
200.3 - Accounting for Unallowable Costs - (Rev. 2, 08-30-02)
A1-1523, B1-4523
The purpose of this standard is to establish guidelines for the early identification of
unallowable costs and the treatment to be accorded such costs. It is based on the premise
that costs should be allocated to their appropriate cost objectives according to beneficial
or casual relationships and without regard to their allowability. The standard is concerned
with the broad accounting principles that govern cost allocation, not with making
otherwise allowable costs unallowable.
Generally, identification is required under varying circumstances for the following
classes of unallowable costs:
Those which are expressly unallowable or mutually agreed to be unallowable,
Those which become designated as unallowable by reason of the Secretary's
determination,
Those which are directly associated with either (l) or (2),
Those which arise out of a work project not contractually authorized, and
Those costs for which reimbursement has been previously withheld by BHI.
In addition, costs incurred for the same purpose under like circumstances as unallowable
costs must be identified.
Expressly unallowable costs consist primarily of those specified as unallowable in the
principles of reimbursement. These costs, as well as costs mutually agreed to be
unallowable or mutually agreed to be directly associated with unallowables, must be
identified in the contractors' accounting records and excluded from any submitted budget
and cost reports.

When the Secretary's determination designates certain costs unallowable because they are
directly associated with other unallowables, those costs, too, must be identified if used in
budgets and cost reports.
Costs designated as unallowable by the Secretary's determination, as well as costs
incurred for the same purpose under like circumstances as those mutually agreed to be
unallowable, must be identified if included in a budget or cost report.
The costs of work not contractually authorized must be accounted for in a manner that
permits ready separation from the costs of authorized work projects.

70exhibit1

70exhibit2

70exhibit3

Transmittals Issued for this Chapter
Rev # 	Issue Date 	Subject 	Impl Date 	CR#
R128FM 	07/13/2007 	Revisions to Instructions on Chapter 1-
Budget Preparation-Intermediaries and
Carriers and Chapter 2-Budget
Execution of the Medicare Financial
Management (Pub. 100-06)
08/13/2007 	5682
R23FM 	10/24/2003 	Completing the Budget Distribution
(BD)
11/07/2003 	2876
R02FM 	08/30/2002 	Initial Publication of Chapter 	N/A 	N/A
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