PART 277—PAYMENTS OF CERTAIN ADMINISTRATIVE COSTS OF STATE AGENCIES Authority: 7 U.S.C. 2011-2036. Source: Amdt. 188, 45 FR 85702, Dec. 30, 1980, unless otherwise noted. Editorial Note: OMB control numbers relating to this part 277 are contained in § 271.8. § 277.1 General purpose and scope. (a) Purpose. (b) Scope and applicability. § 277.2 Definitions. For the purpose of this part the term: Accrued expenditures Accrued income Acquisition cost Approval or authorization by FNS Applicable credits Disbursements Expendable personal property Program funds Funds available to the State agency In-kind contributions Nonexpendable personal property Obligations Offset OMB Personal property Program Program closeout Project costs Real property State agency State agency costs Subagency Terms and conditions Unliquidated obligation Unobligated balance § 277.3 Budgets and budget revision procedures. The preparation, content, submittal, and revision requirements for the State SNAP Budget shall be as specified in § 272.2. The application for funds and budget requirements for the Food Distribution Program on Indian Reservations shall be as specified in § 283.9. State agencies must submit a budget to FNS as part of the State Plan each fiscal year. Upon approval of the budget by FNS, administrative funds will be provided. § 277.4 Funding. (a) General. (b) Federal reimbursement rate. (1) Funding of demonstration projects approved by FNS will be at a rate agreed to by FNS in accordance with the requirements outlined in part 282. (2) The reimbursement of administrative costs to State agencies administering the program on Indian reservations shall be in accordance with the requirements of parts 281 and 283. (3) The federally funded share of administrative costs, as identified in paragraph (b) of this section may be decreased based upon its payment error rate as described in § 275.23. The rates of Federal funding for the activities identified in paragraphs (b)(1) and (b)(2) of this section shall not be reduced based upon the agency's payment error rate. (4) Employment and training program grants, as outlined in § 273.7(d) shall be 100 percent federally-funded. (5) The Federal reimbursement rate shall include reimbursement for SNAP informational activities, but shall not include the following: (i) Recruitment activities designed to persuade an individual to apply for SNAP benefits through the use of persuasive practices. Persuasive practices constitute coercing or pressuring an individual to apply, or providing incentives to fill out an application for SNAP benefits. Communicating factual information pertaining to SNAP so that an individual can make an informed choice is not a recruitment activity designed to persuade an individual to apply for SNAP benefits. (ii) Television, radio or billboard advertisements that are designed to promote SNAP benefits and enrollment, excepting the use of such advertisements for programmatic activities undertaken with respect to benefits provided under § 280.1 of this chapter. This restriction does not apply to radio, television, or billboard advertisements that are not designed to promote SNAP benefits and enrollment and that provide factual information identifying retail food stores where SNAP benefits are accepted. (iii) Agreements with foreign governments that are designed to promote SNAP benefits and enrollment. (6) Any entity that receives funding from the programs identified by this section and § 251.4 of this chapter is prohibited from compensating any person for conducting outreach activities relating to participation in, or for recruiting individuals to apply to receive benefits under, the Supplemental Nutrition Assistance Program, if the amount of the compensation would be based on the number of individuals who apply to receive the benefits. (c) Matching costs. (1) Charges reported on a cash or accrual basis by the State agency as project costs. (2) Project costs financed with cash contributed or donated to the State agency by other non-Federal public agencies and institutions. (3) Project costs represented by services and real or personal property donated by other non-Federal public agencies and institutions. (d) All cash or in-kind contributions except as provided in paragraph (e) of this section shall be allowable as part of the State agency's share of program costs when such contributions: (1) Are verifiable; (2) Are not contributed for another federally-assisted program, unless authorized by Federal legislation; (3) Are necessary and reasonable for accomplishment of project objectives; (4) Are charges that would be allowable under this part; (5) Are not paid by the Federal Government under another assistance agreement unless authorized under the other agreement and its subject laws and regulations; and (6) Are in the approved budget. (e) The value of services rendered by volunteers or the value of goods contributed by third parties, exclusive of the State and Federal agencies, are unallowable for reimbursement purposes under the SNAP. The value of services rendered by volunteers shall be allowable only to meet any matching administrative costs requirements for the Food Distribution Program on Indian Reservations. (f) The expenses (e.g. travel, lodging, meals) of persons working with volunteer or nonprofit organizations which receive training and assistance pursuant to § 272.4(d)(2) are not allowable. (g) Investigations of authorized retail or wholesale food concerns when performed in coordination with the USDA Office of Inspector General and FNS shall be funded at the 50 percent Federal reimbursement rate. [Amdt. 188, 45 FR 85702, Dec. 30, 1980] Editorial Note: For Federal Register www.govinfo.gov. § 277.5 Methods of payment. (a) This section sets forth FNS methods for authorizing funds for State agencies. (b) The “Letter of Credit” (LOC) (SF-1193A) is the document by which an official of FNS authorizes a State agency to draw funds from the United States Treasury. This shall be the preferred method of payment for State agencies which receive at least $120,000 per year and meet the requirements prescribed in 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 and part 415. (c) State agencies shall request payment(s) by submitting Request for Payment on Letter of Credit and Status of Funds Report (Treasury Form SF-183) to the appropriate United States Treasury Regional Disbursing Office with a copy to FNS. (d) State agencies not meeting the requirements for the LOC method of payment or failing to meet LOC reporting requirements, including those requiring adjustments to cash balances to liquidate amounts owed to FNS, shall be provided funds by Treasury check in accordance with the provisions of Department of the Treasury Circular 1075. (e) Payments for proper charges incurred by State agencies will not be withheld unless such payments are suspended or disallowed pursuant to § 277.16. When a payment is withheld, payment adjustments will be made in accordance with § 277.16. When FNS collects an indebtedness, whether due to a disallowance or an offset for amounts which the State agency has been billed but which it has failed to pay without cause acceptable to FNS, FNS shall provide reasonable notice to the State agency, and shall require appropriate accounting adjustment to cash balances for which the State agency is accountable to the Federal government to liquidate the indebtedness. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 81 FR 66499, Sept. 28, 2016] § 277.6 Standards for financial management systems. (a) General. (b) Responsibilities. (1) Accurate, current, and complete disclosure of the financial results of program activities in accordance with Federal reporting requirements. (2) Records which identify the source and application of funds for FNS or State agency activities supporting the administration of the Program. These records shall show authorizations, obligations, unobligated balances, assets, liabilities, outlays and income of the State agency, its sub- agencies and agents. (3) Records which identify unallowable costs and offsets resulting from FNS or other determinations as specified in § 277.16 and the disposition of these amounts. Accounting procedures must be in effect to prevent a State agency from claiming these costs under ongoing program administrative cost reports. (4) Effective control and accountability by the State agency for all program funds, property, and other assets acquired with program funds. State agencies shall adequately safeguard all such assets and shall assure that they are used solely for program authorized purposes unless disposition has been made in accordance with § 277.13. (5) Controls which minimize the time between the receipt of Federal funds from the United States Treasury and their disbursement for program costs. In the Letter of Credit system, the State agency shall make drawdowns from the U.S. Treasury through a U.S. Treasury Regional Disbursing Office as nearly as possible to the time of making the disbursements. (6) Procedures to determine the reasonableness, allowability, and allocability of costs in accordance with the applicable provisions prescribed in 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 and part 415. (7) Support and source documents for costs. (8) An audit trail including identification of time periods, initial and summary accounts, cost determination and allocation procedures, cost centers or other accounting procedures to support any costs claimed for program administration. (9) Periodic audits by qualified individuals who are independent of those who maintain Federal program funds as prescribed in § 277.17. (10) Methods to resolve audit findings and recommendations and to follow up on corrective or preventive actions. (c) The standards in § 277.6(b) apply to subagencies or contractors involved with program funding. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 79 FR 11, Jan. 2, 2014; 81 FR 66499, Sept. 28, 2016] § 277.7 Cash depositories. (a) The term “cash depositories” refers to banks or other institutions which maintain accounts where SNAP funds are deposited and from which withdrawals are made to meet administrative costs of the State agency. (b) State agencies are encouraged to use minority owned banks to expand opportunities for minority enterprises. (c) FNS shall not: (1) Require physical segregation in a cash depository of program funds from other State agency funds. (2) Establish any eligibility requirements for cash depositories in which program funds are deposited by the State agency. § 277.8 Bonding and insurance. (a) General. (b) Loan guarantees. § 277.9 Administrative costs principles. (a) This section prescribes specific policies and procedures governing State agencies for funding under this part. (b) The incremental cost of certifying TANF households for SNAP benefits are allowable costs for FNS reimbursement. (c) When costs for administering the program are claimed for reimbursement, the audit trail must identify the specific activities, locations, or time periods as defined in this section. (1) Direct cost. (2) Indirect cost. (3) Direct and indirect costs claimed for program cost reimbursement must be incurred for the time periods, the activities or for the locations for which the rates are approved by FNS. (d) All State agency Cost Allocation Plans for determining the costs of administering the program must be approved by the cognizant Federal agency. All Cost Allocation Plans involving program funds shall be submitted to FNS for review. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 385, 65 FR 33440, May 24, 2000; 79 FR 11, Jan. 2, 2014; 81 FR 66499, Sept. 28, 2016; 83 FR 14174, Apr. 3, 2018] § 277.10 Program income. (a) Program income is gross income resulting from activities financed with program funds. Such earnings exclude interest income but include income from service fees, usage or rental fees, sale of assets purchased with program funds, and royalties on patents and copyrights. (b) Interest earned on advances of program administrative funds shall be remitted to FNS except for interest earned on advances to States or instrumentalities of a State as provided by the Intergovernmental Cooperation Act of 1968 (Pub. L. 90-577) and advances to tribal organizations under the Indian Self-Determination Act (sections 102 through 104). (c) Income resulting from the sale of real and personal property whose acquisition cost was borne in whole or in part with Program funds shall be remitted to FNS or applied to the Federal share of current program costs in accordance with § 277.13. All other sales proceeds will be handled in accordance with § 277.13. (d) Unless there is a prior agreement between FNS and the State agency, the State agency shall have no obligation to FNS with respect to royalties received from copyrights or patents produced as a result of activities financed with program administrative funds. (e) Any other income earned under activities supported by program administrative funds may be retained by the State agency if they are deducted from the gross program administrative costs for the purposes of determining net costs and FNS's share of net cost. (f) State agencies shall record the receipt and expenditure of revenues such as taxes, special assessments, levies, fines, etc., as a part of program fund transactions when such revenues are specifically earmarked for program fund projects. § 277.11 Financial reporting requirements. (a) General. (b) Authorized forms and instructions. (2) All instructions for use in connection with the form specified in § 277.11(c) shall be followed. FNS may prescribe supplementary instructions. (3) State agencies shall submit the original and two copies of forms required by this section unless FNS approves a waiver of this requirement. (4) The forms and instructions in this part shall be available to the State agency and to the public upon request to FNS Regional Offices as set out in § 271.6(b). (c) Financial status report Form. (2) Frequency. (3) Exceptions. (4) Due dates. (d) Time limit for State agencies to file claims. (2) Subject to the availability of funds from the appropriation for the year in which the expenditure was incurred, FNS may reimburse State agencies for an allowable expenditure only if the State agency files a claim with FNS for that expenditure within two years after the calendar quarter in which the State agency (or local agency) incurred the cost. FNS will consider non-cash expenditures such as depreciation to have been made in the quarter the expenditure was recorded in the accounting records of the State agency in accordance with generally accepted accounting principles. (3) For Automated Data Processing (ADP) expenditures approved under § 277.18(c), subject to the availability of funds and required FNS approval related to the Advance Planning Document, FNS may reimburse State agencies for allowable expenditures at the appropriate rate in effect at the time the equipment or service was received only if the State agency files for a claim with FNS within two years after the calendar quarter in which the cost was incurred. FNS will consider non-cash expenditures such as depreciation to have been made in the quarter the expenditure was recorded in the accounting records of the State agency in accordance with generally accepted accounting principles. (4) States wishing to request an extension of the deadline in paragraphs (d)(2) and (d)(3) of this section must submit the request in writing to FNS prior to the applicable deadline. The State agency's request for an extension must include a specific explanation, justification, and documentation of why the claim will be late and when the claim will be filed. (5) The time limits in paragraphs (d)(2) and (d)(3) of this section will not apply to any of the following: (i) Any claim for an adjustment to prior year costs previously claimed under an interim rate concept; (ii) Any claim arising from an audit exception as defined in this section. An audit exception means a proposed adjustment by the Department to any expenditure claimed by a State agency by virtue of a Federal-or State-initiated audit. The audit must comply with the requirements of § 277.17 and 2 CFR part 200, subpart F and Appendix XI, Compliance Supplement and USDA implementing regulations 2 CFR part 400 and part 415, and must have been started within 3 years of the date of submission of the final SF-425, using FNS-778/FNS-778A worksheet of the relevant Federal fiscal year to which it applies. (iii) Any claim resulting from a court-ordered retroactive payment. However, this provision does not bind FNS to a State or Federal court decision when FNS was not a party to the action; (iv) Any claim for which FNS determines there was good cause for the State agency's not filing it within the time limit. Good cause is lateness due to circumstances beyond the State agency's control such as Acts of God or documented action or inaction of the Federal Government. It does not include neglect or administrative inadequacy on the part of the State, State agency, legislature, or any of their offices or employees. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 385, 65 FR 33440, May 24, 2000; 81 FR 66499, Sept. 28, 2016] § 277.12 Retention and custody of records. (a) Retention period. (1) If any litigation, claim, or audit is started before the expiration of the three-year period, the applicable records shall be retained until these have been resolved. (2) In the case of a payment by a State agency to a subagency or contractor using program funds, the State agency, USDA, the Comptroller General of the United States, or any of their duly authorized representatives, shall have access to any book, documents, papers and records of the subagency or contractor which the State agency, USDA, or the Comptroller General of the United States or any of their duly authorized representatives, determine are pertinent to administration of the specific FNS program funds, for the purpose of making audit, examination, excerpts, and transcripts. (b) Restrictions on public access. § 277.13 Property. (a) General. (b) Nonexpendable personal property Title. (2) Use. (ii) When there is no longer a need for the property to accomplish the purpose of the program, the State agency shall use the property where needed in administration of other programs in the following order of priority: (A) Other federally-funded programs of FNS. (B) Other federally-funded programs of USDA. (C) Other federally-funded programs. (iii) When the State agency no longer has need for such property in any of its federally financed activities, the property may be used for the State agency's own official activities in accordance with the following standards: (A) If the property had a total acquisition cost of less than $5,000, the State agency may use the property without reimbursement to FNS. (B) For all such property not covered under paragraph (b)(2)(iii)(A) of this section, the State agency may retain the property for its own use, provided a fair compensation is made to FNS for the FNS share of the property. The amount of compensation shall be computed by applying the percentage of FNS participation in the cost of the property to the current fair market value of the property. (3) Disposition. (i) If the property had a total acquisition cost of less than $5,000 per unit, the State agency may sell the property and retain the proceeds. (ii) If the property had an acquisition cost of $5,000 or more per unit, the State agency shall: (A) If instructed to ship the property elsewhere, the State agency shall be reimbursed with an amount which is computed by applying the percentage of the State agency's participation in the cost of the property to the current fair market value of the property, plus any shipping or interim storage costs incurred. (B) If instructed to otherwise dispose of the property, the State agency shall be reimbursed by FNS for the cost incurred in such disposition. (C) If disposition or other instructions are not issued by FNS within 120 days of a request from the State agency, the State agency shall sell the property and reimburse FNS an amount which is computed by applying the percentage of FNS participation in the cost of the property to the sales proceeds. The State agency may, however, deduct and retain from FNS' share $500 or 10 percent of the proceeds, whichever is greater, for the State agency's selling and handling expenses. (c) Transfer of title to certain property. (2) Such reservation shall be subject to the following: (i) The right to require transfer of title may be reserved only by means of an expressed special condition under which funds were authorized for acquisition of the property, or, if approval for the acquisition of the property is given after the funds are awarded, by means of a written stipulation at the time such approval is given. (ii) The property must be sufficiently described to enable the State agency to determine exactly what property is involved. (3) FNS may not exercise the right to reserve until the State agency no longer needs the property in the activity for which it was acquired. Such need shall be assumed to end with termination of the activity in which the property was used unless the State agency continues to use the property in other program-related activities after the termination date and demonstrates to FNS a continued need for such use in the program. (4) To exercise the right, FNS must issue disposition instructions to the State agency not later than 120 days after the State agency no longer needs the property in the activity for which it was acquired. If instructions are not issued within that time, FNS's right shall lapse, and the State agency shall act in accordance with the applicable standards in paragraphs (b)(2) and (b)(3) of this section. (5) The State agency shall be entitled to reimbursement with an amount which is computed by applying the percentages of the State agency's participation in the acquisition cost of the property to the current fair market value of the property, and for any reasonable shipping and interim storage costs it incurs pursuant to FNS's disposition instructions. (d) Property management standards. (1) Property records shall be maintained accurately and provide for: (i) A description of the property. (ii) Manufacturer's serial number or other identification number. (iii) Acquisition date and cost. (iv) Source of the property. (v) Percentage of FNS funds used in the acquisition of the property, or sufficient information to be able to compute the percentage, if and when the property is disposed of. (vi) Location, use and condition of the property. (vii) Ultimate disposition data including sales price or the method used to determine current fair market value if the State agency reimburses FNS for its share. (viii) Trade-in value of any property purchased with Federal funds where their trade-in value reduces the acquisition cost of new property. (2) A physical inventory of property shall be taken and the results reconciled with the property records at least once every two years to verify the existence, current utilization, and continued need for the property. (3) A control system shall be in effect to ensure adequate safeguards to prevent loss, damage, or theft to the property. Any loss, damage, or theft of nonexpendable personal property shall be investigated and properly documented. (4) Adequate maintenance procedures shall be implemented to keep the property in good condition. (5) Proper sales procedures shall be implemented to keep the property in good condition. (e) Expendable personal property Title. (2) Use. (3) Disposition. (i) Use the property in other federally sponsored projects or programs; (ii) Retain the property for use on non-federally sponsored activities; or (iii) Sell it. (4) Compensation. (f) Patents and inventions. (g) Copyrights. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 79 FR 11, Jan. 2, 2014; 81 FR 66499, Sept. 28, 2016; 83 FR 14174, Apr. 3, 2018] § 277.14 Procurement standards. (a) General. (1) These standards do not relieve the State agency of any contractual responsibilities under its contracts. The State agency is responsible, in accordance with good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements entered into in support of the program. These include but are not limited to sources evaluations, protests, disputes and claims. FNS shall not substitute its judgment for that of the State agency unless the matter is primarily a Federal concern. Violations of laws shall be referred to the local, State or Federal authority having jurisdiction. (2) State agencies shall use their own procurement procedures provided that procurements paid in whole or in part with FNS program funds meet the standards set forth in this part. (b) Review of proposed contracts. (1) The procurement is expected to exceed $10,000 and is to be awarded without competition or only one bid or offer is received in response to solicitation; (2) The procurement expected to exceed $10,000 specifies a “brand name” product; or (3) FNS has determined that the State agency's procurement procedures or operation fails to comply with one or more significant aspects of this section. (c) Code of conduct. (1) The employee, officer, or agent; (2) Any member of his/her immediate family; (3) His or her partner; or (4) An organization which employs, or is about to employ, any of the above, has a financial or other interest in the firm selected for award. The State agency's officers, employees, or agents shall neither solicit nor accept gratuities, favors, or anything of monetary value from contractors, potential contractors, or parties to subagreements. State agencies may set minimum rules where the financial interest is not substantial or the gift is an unsolicited item of nominal intrinsic value. To the extent permitted by State or local law or regulations, such standards of conduct shall provide for penalties, sanctions, or other disciplinary actions for violations of such standards by the State agency's officers, employees, or agents, or by contractors or their agents. (d) Procurement procedures. (e) Contracting with small and minority firms, women's business enterprises and labor surplus area firms. (i) Including qualified small and minority businesses on solicitation lists. (ii) Assuring that small and minority businesses are solicited whenever they are potential sources. (iii) When economically feasible, dividing total requirements into smaller tasks or quantities so as to permit maximum small and minority business participation. (iv) Where the requirement permits, establishing delivery schedules which will encourage participation by small and minority business. (v) Using the services and assistance of the Small Business Administration, the Office of Minority Business Enterprise of the Department of Commerce and the Community Services Administration, as appropriate. (vi) If any subcontracts are to be let, requiring the prime contractor to take the affirmative steps in paragraphs (e)(1) (i) through (v) of this section. (2) State agencies shall take similar appropriate affirmative action in support of women's business enterprises. (3) State agencies are encouraged to procure goods and services from labor surplus areas, as defined by the Department of Labor. (4) FNS shall impose no additional regulations or requirements in the foregoing areas unless specifically mandated by law or Executive order. (f) Selection procedures. (1) Solicitation of offers, whether by competitive sealed bid or competitive negotiation, shall contain a clear and accurate description of the technical requirements for the material, product, or service desired. Descriptions shall not, in competitive procurements, contain features which unduly restrict competition. Descriptions may include a statement of the qualitative nature of the material, product or service desired and, when necessary, shall set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use. When it is impractical or uneconomical to describe clearly and accurately the technical requirements, a “brand name or equal” description may be used to define the performance or requirements of the material, product or service desired. The specific features of the named brand which must be met by offerors shall be clearly stated. State agencies shall clearly set forth all requirements which offerors must fulfill and all other factors to be used in evaluating bids or proposals. (2) State agencies shall make awards only to responsible contractors that possess the potential ability to perform successfully under the terms and conditions of a proposed procurement. Consideration shall be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources. (g) Procurement methods. (1) Small purchase procedures (2) In competitive sealed bids (i) In order for the State agency to use this method of procurement the following conditions, as a minimum, must prevail: (A) A complete, adequate, and realistic specification or purchase description is available. (B) Two or more responsible suppliers are willing and able to compete effectively for the State agency's business. (C) The procurement lends itself to a firm-fixed-price contract, and selection of the successful bidder can appropriately be made principally on the basis of price. (ii) If formal advertising is used for a procurement under a grant, the following requirements shall apply: (A) A sufficient time prior to the date set for opening of bids, bids shall be solicited from an adequate number of known suppliers. In addition, the invitation shall be publicly advertised. (B) The invitation for bids, including specifications and pertinent attachments, shall clearly define the items or services needed in order for the bidders to properly respond to the invitation. (C) All bids shall be opened publicly at the time and place stated in the invitation for bids. (D) A firm-fixed-price contract award shall be made by written notice by the State agency to that responsible bidder whose bid, conforming to the invitation for bids, is lowest. Where specified in the bidding documents, factors such as discounts, transportation costs and life cycle costs shall be considered in determining which bid is lowest. Payment discounts may only be used to determine low bid when prior experience of the State agency indicates that such discounts are generally taken. (E) Any or all bids may be rejected by the State agency when there are sound documented business reasons in the best interest of the program. (3) In competitive negotiation, (i) Proposals shall be solicited from an adequate number of qualified sources to permit reasonable competition consistent with the nature and requirements of the procurement. The Request for Proposals shall be publicized and reasonable requests by other sources to compete shall be honored to the maximum extent practicable. (ii) The Request for Proposal shall identify all significant evaluation factors, including price or cost where required and their relative importance. (iii) The State agency shall provide procedures for technical evaluation of the proposals received, determinations of responsible offerors for the purpose of written or oral discussions, and selection for contract award. (iv) Award may be made to the responsible offeror whose proposal will be most advantageous to the State agency, price and other factors considered. Unsuccessful offerors should be notified promptly. (v) State agencies may utilize competitive negotiation procedures for procurement of architectural/engineering professional services whereby competitors' qualifications are evaluated and the most qualified competitor is selected subject to negotiation of fair and reasonable compensation. (4) Noncompetitive negotiation (i) The item is available only from a single source; (ii) Public exigency or emergency when the urgency for the requirement will not permit a delay incident to competitive procurement; (iii) FNS authorizes noncompetitive procurement; or (iv) After solicitation of a number of sources, competition is determined inadequate. (h) Contract pricing. (i) State agency procurement records. (j) Contract provisions. (1) Contracts other than small purchases shall contain provisions or conditions which will allow for administrative, contractual, or legal remedies in instances where contractors violate or breach contract terms, and provide for such sanctions and penalties as may be appropriate. (2) All contracts in excess of $10,000 shall contain suitable provisions for termination by the State agency including the manner by which it will be effected and the basis for settlement. In addition, such contracts shall describe conditions under which the contract may be terminated for default as well as conditions where the contract may be terminated because of circumstances beyond the control of the contractor. (3) All contracts awarded in excess of $10,000 by State agencies and their contractors or subagencies shall contain a provision requiring compliance with Executive Order 11246, entitled “Equal Employment Opportunity,” as amended by Executive Order 11375, and as supplemented in Department of Labor regulations (29 CFR part 60). (4) All contracts and subcontracts for construction or repair shall include a provision for compliance with the Copeland “Anti-Kickback” Act (18 U.S.C. 874) as supplemented in Department of Labor regulations (29 CFR part 3). This Act provides that each contractor or subagency shall be prohibited from inducing, by any means, any person employed in the construction, completion, or repair of public work, to give up any part of the compensation to which he is otherwise entitled. The State agency shall report all suspected or reported violations to FNS. (5) Where applicable, all contracts awarded by State agencies and subagencies in excess of $2,000 for construction contracts in excess of $2,500 for other contracts which involve the employment of mechanics or laborers shall include a provision for compliance with sections 103 and 107 of the Contract Work Hours and Safety Standards Act (40 U.S.C. 327 through 330) as supplemented by Department of Labor regulations (29 CFR part 5). Under section 103 of the Act, each contractor shall be required to compute the wages of every mechanic and laborer on the basis of a standard work day of 8 hours and a standard work week of 40 hours. Work in excess of the standard work day or work week is permissible provided that the work is compensated at a rate of not less than 1 1/2 (6) The contract shall include notice of FNS requirements and regulations pertaining to reporting and print rights under any contract involving research, developmental, experimental, or demonstration work with respect to any discovery or invention which arises or is developed in the course of or under such contract, and of FNS requirements and regulations pertaining to copyrights and rights to data so derived. (7) All negotiated contracts (except those awarded by small purchases procedures) awarded by State agencies shall include a provision to the effect that the State agency, FNS, the Comptroller General of the United States, or any of their duly authorized representatives, shall have access to any books, documents, papers, and records of the contractor which are directly pertinent to that specific contract, for the purpose of making audit, examination, excerpts, and transcriptions. State agencies shall require contracts to maintain all required records for three years after the State agency makes final payments or all other pending matters are closed, whichever is last. (8) Contracts, subcontracts, and subgrants of amounts in excess of $100,000 shall contain a provision which requires compliance with all applicable standards, orders, or requirements issued under section 306 of the Clean Air Act, section 508 of the Clean Water Act, Executive Order 11738, and Environmental Protection Agency (EPA) regulations, which prohibit the use under nonexempt Federal contract, grants, or loans of facilities included on the EPA List of Violating Facilities. The provision shall require reporting of violations to the FNS and to the USEPA Assistant Administrator for Enforcement. (9) Contracts shall recognize mandatory standards and policies relating to energy efficiency which are contained in the State energy conservation plan issued in compliance with the Energy Policy and Conservation Act (Pub. L. 94-165). (k) Contract administration. § 277.15 [Reserved] § 277.16 Suspension, disallowance and program closeout. (a) Suspension. (b) Disallowance. (2) FNS may also disallow costs and institute recovery of Federal funds when a State agency fails to adhere to the cost principles of this part and 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 and part 415. (c) Offsets to the Letter of Credit. (i) Costs determined by FNS to be disallowed under the provisions of this part; (ii) Unallowable costs resulting from audit or investigation findings; (iii) Amounts owed which have been billed to the State agency and which the State agency has failed to pay without cause acceptable to FNS; or (iv) Amounts owed to FNS for title IV reimbursements and recipient claims collections which were reported on the FNS-209 and which the State agency has failed to pay. (2) The amounts recovered through the offset procedure should be in one lump sum. If recovery of funds through the offset procedure is not possible in one lump sum, FNS shall make appropriate adjustments to recover the funds in not more than three fiscal years. (d) Program transfer or termination. (i) Upon request, FNS shall make or arrange for prompt payment to the State agency for allowable costs not covered by previous payments. (ii) The State agency shall immediately refund to FNS any unobligated balance of cash withdrawn by the State agency for the administration of the program in the affected State or Indian reservation. (iii) The State agency shall submit to FNS within 90 days after the date of termination of the program, all required financial, performance, and other reports. FNS may grant extensions when requested by the State agency. (iv) FNS shall adjust the amount authorized by the Letter of Credit in order to effect payment of any amounts due the State agency, and if appropriate, shall bill the State agency for any amounts due to FNS. The amounts of such billings shall be promptly remitted to FNS. (v) In the event a final audit has not been performed prior to the closeout of the program, FNS shall retain the right to disallow costs or recover funds resulting from the final audit findings. (2) Provisions of § 277.13 apply for any property acquired with program funds or received from the Federal Government in connection with the program and which was in use in the affected project area or areas. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 342, 59 FR 2733, Jan. 19, 1994; 79 FR 12, Jan. 2, 2014; 81 FR 66499, Sept. 28, 2016] § 277.17 Audit requirements. (a) General. (1) Financial operations are conducted properly; (2) The financial statements are presented fairly; (3) The organization has complied with laws and regulations affecting the expenditure of Federal funds; (4) Internal procedures have been established to meet the objectives of federally assisted programs; and (5) Financial reports to the Federal Government contain accurate and reliable information. Except where required by law, no additional requirements for audit will be imposed by FNS unless approved by the Office of Management and Budget (OMB). The provisions of this section do not limit the authority of FNS to make audits of State agencies, their subdivisions, and subcontracts. However, if independent audits arranged for by State agencies meet the requirements prescribed herein, FNS shall rely on them, and any additional audit work already done. (b) Audit standards. (2) Audits shall be made in accordance with the General Accounting Office “Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, the Guidelines for Financial and Compliance Audits of Federally Assisted Program,” and any compliance supplements approved by OMB, and generally accepted auditing standards established by the American Institute of Certified Public Accountants. (c) Purpose of audit. (1) There is effective control over and proper accounting for revenues expenditures, assets, and liabilities. (2) The financial statements are presented fairly in accordance with generally accepted accounting principles. (3) The Federal financial reports (including Financial Status Reports, Cash Reports, and claims for advances and reimbursements) contain accurate and reliable financial data; and are presented in accordance with the terms of applicable agreements, and in accordance with 2 CFR part 200, subpart F and Appendix XI, Compliance Supplement and USDA implementing regulations 2 CFR part 400 and part 415. (4) Federal funds are being expended in accordance with the terms of applicable agreements and those provisions of Federal law or regulations that could have a material effect on the financial statements or on the awards tested. (d) Audit coverage. (1) The universe of Federal funds received, and (2) All cost categories that materially affect the award. The test is to determine whether the charges: (i) Are necessary and reasonable for the proper administration of the program; (ii) Conform to any limitations or exclusions in the award; (iii) Were given consistent accounting treatments and applied uniformly to both federally assisted and other activities of the State agency; (iv) Were net of applicable credits; (v) Did not include costs property chargeable to other federally assisted programs; (vi) Were properly recorded (i.e., correct amount, date) and supported by source documentation; (vii) Were approved in advance, if subject to prior approval in accordance with Financial Management Circular 74-4; (viii) Were incurred in accordance with competitive purchasing procedures, if covered by 2 CFR part 200, subpart D, and USDA implementing regulations 2 CFR parts 400 and 415; and (ix) Were allocated equitably to benefiting activities, including non-Federal activities. (3) Audits usually will be made annually, but not less frequently than every two years. (4) If the auditors become aware of irregularities in the State agency, subagency or subcontractor, the auditor shall promptly notify the cognizant agency and State agency management officials above the level of involvement. Irregularities include such matters as conflict of interest, falsification of records or reports, and misappropriation of funds and other assets. (e) Audit report. (1) Financial statements, including footnotes, of the State agency, subagency, or subcontractor organization. (2) The auditor's comments on the financial statements which should: (i) Identify the statements examined and the period covered. (ii) Identify the various programs under which the organization received Federal funds, and the amounts received for each program. (iii) State that the audit was done in accordance with paragraph (d) of this section. (iv) Express an opinion as to whether the financial statements are fairly presented in accordance with generally accepted accounting principles. If an unqualified opinion cannot be expressed, state the nature of the qualification. (3) The auditor's comments on compliance and internal control which should: (i) Include comments on weaknesses in and noncompliance with the systems of internal control, separately identifying material weaknesses. (ii) Identify the nature and impact of any noted instances of noncompliance with the terms of agreements and those provisions of Federal law or regulation that could have a material effect on the financial statements and reports. (iii) Contain an expression of positive assurance with respect to compliance with requirements for tested items, and negative assurance for untested items. (4) Comments on the accuracy and completeness of financial reports and claims for advances or reimbursements to Federal agencies. (5) Comments on corrective action taken or planned by the State agency. (f) Record retention. (g) Cognizant agency responsibilities. (1) Obtain or make quality assessment reviews of the work of non-Federal audit organizations, and provide the results to other interested audit agencies. If a non-Federal audit organization is responsible for audits of State agencies that have different cognizant audit agencies, a single quality assessment review will be arranged. (2) Assure that all audit reports of State agencies that affect federally assisted programs are received, reviewed, and distributed to appropriate Federal audit officials. These officials will be responsible for distributing audit reports to their program officials. (3) Whenever significant inadequacies in an audit are disclosed, the State agency will be advised and the auditor will be called upon to take corrective action. If corrective action is not taken, the cognizant agency shall notify the State agency and Federal awarding agencies of the facts and its recommendation. Major inadequacies or repetitive substandard performance of independent auditors shall be referred to appropriate professional bodies. (4) Assure that satisfactory audit coverage is provided in a timely manner and in accordance with the provisions of this section. (5) Provide technical advice and act as a liaison between Federal agencies, independent auditors and State agencies. (6) Maintain a followup system on audit findings and investigative matters to assure that audit findings are resolved. (7) Inform other affected audit agencies of irregularities uncovered. The audit agencies, in turn, shall inform all appropriate officials in their agencies. State or local government law enforcement and prosecuting authorities shall also be informed of irregularities within their jurisdiction. (8) Recipients shall require subrecipients that are local governments of Indian tribal governments to adopt the requirements in paragraphs (d) through (f) of this section. The recipient shall ensure that the subrecipient audit reports are received as required, and shall submit the reports to the cognizant agency. The cognizant agency will have the responsibility for those reports described in paragraph (g) of this section. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 81 FR 66499, Sept. 28, 2016; 83 FR 14174, Apr. 3, 2018] § 277.18 State Systems Advance Planning Document (APD) process. (a) Scope and application. i.e. (b) Definitions. Acquisition Advance Planning Document for project planning or Planning APD Advance Planning Document Update Commercial Off-the-Shelf Enhancement Implementation Advance Planning Document or Implementation APD Information System Project Request for Proposal (RFP) (c) Requirements for FNS prior approval of IS projects General prior approval requirements. (i) When it plans a project to enhance or replace its IS that it anticipates will have total project costs in Federal and State funds of $6 million or more. (ii) Any IS competitive acquisition that costs $6 million or more in Federal and State funds. (iii) When the State agency plans to acquire IS equipment or services non-competitively from a nongovernmental source, and the total State and Federal cost is more than $1 million. (iv) For the acquisition of IS equipment or services to be utilized in an Electronic Benefit Transfer (EBT) system regardless of the cost of the acquisition in accordance with § 274.12 (EBT issuance system approval standards). (2) Specific prior approval requirements. (A) Conducting planning activities, entering into contractual agreements or making any other commitment for acquiring the necessary planning services; (B) Conducting design, development, testing or implementation activities, entering into contractual agreements or making any other commitment for the acquisition of IS equipment or services. (ii) For IS equipment and services acquisitions requiring prior approval as specified in paragraph (c)(1) of this section, prior approval of the following documents associated with such acquisitions is also required: (A) Requests for Proposals (RFPs). (B) Contracts. (C) Contract amendments. (iii) Procurement requirements. (B) The standards prescribed by § 277.14, as well as the requirement for prior approval in this paragraph (c), apply to IS services and equipment acquired primarily to support SNAP regardless of the acquiring entity. (C) The competitive procurement policy prescribed by § 277.14 shall be applicable except for IS services provided by the agency itself, or by other State or local agencies. (iv) The State agency must obtain prior written approval from FNS, as specified in paragraphs (c)(2)(i) and (c)(2)(ii) of this section, to claim and receive reimbursement for the associated costs of the IS acquisition. (3) Document submission requirements. (A) Planning APD as described in paragraph (d)(1) of this section. (B) Implementation APD as described in paragraph (d)(2) of this section. (C) Annual APDU as described in paragraph (d)(3) of this section. The Annual APDU shall be submitted to FNS 60 days prior to the expiration of the FFP approval, unless the submission date is specifically altered by FNS. In years where an As Needed APDU is required, as described in paragraph (c)(3)(i)(D) of this section, FNS may waive or modify the requirement to submit the annual APDU. (D) As Needed APDU as described in paragraph (d)(4) of this section. As Needed APDU are required to obtain a commitment of FFP whenever significant project changes occur. Significant project changes are defined as changes in cost, schedule, scope or strategy which exceed FNS-defined thresholds or triggers. Without such approval, the State agency is at risk for funding of project activities which are not in compliance with the terms and conditions of the approved APD and subsequently approved APDU until such time as approval is specifically granted by FNS. (E) Acquisition documents as described in § 277.14(g). (F) Emergency Acquisition Requests as described in paragraph (i) of this section. (ii) The State agency must obtain prior FNS approval of the documents specified in paragraph (c)(3)(i) of this section in order to claim and receive reimbursement for the associated costs of the IS acquisition. (4) Approval by the State agency. (5) Prompt action on requests for prior approval. (d) APD content requirements Planning APD (PAPD). (2) Implementation APD (IAPD). (3) Annual APDU content requirements. (4) As Needed APDU content requirements. (e) Service agreements. (1) Identify the IS services that will be provided; (2) Include a schedule of rates for each identified IS service, and a certification that these rates apply equally to all users; (3) Include a description of the method(s) of accounting for the services rendered under the agreement and computing services charges; (4) Include assurances that services provided will be timely and satisfactory; (5) Include assurances that information in the IS as well as access, use and disposal of IS data will be safeguarded in accordance with provisions of § 272.1(c) (disclosure) and § 277.13 (property); (6) Require the provider to obtain prior approval from FNS pursuant to paragraph (c)(1) of this section for IS equipment and IS services that are acquired from commercial sources primarily to support federally aided public assistance programs and require the provider to comply with § 277.14 (procurement standards) for procurements related to the service agreement. IS equipment and services are considered to be primarily acquired to support federally aided public assistance programs when the Programs may reasonably be expected to either be billed for more than 50 percent of the total charges made to all users of the IS equipment and services during the time period covered by the service agreement, or directly charged for the total cost of the purchase or lease of IS equipment or services; (7) Include the beginning and ending dates of the period of time covered by the service agreement; and (8) Include a schedule of expected total charges to the Program for the period of the service agreement. (9) State Agency Maintenance of Service Agreements. (f) Conditions for receiving Federal financial participation (FFP) (i) Assist the State agency in meeting the requirements of the Food and Nutrition Act of 2008, as amended; (ii) Meet the Automation of Data Processing/Computerization of Information Systems Model Plan program standards specified in § 272.10(b)(1) through (b)(3) of this chapter, except the requirements in § 272.10(b)(2)(vi), (b)(2)(vii), and (b)(3)(ix) of this chapter to eventually transmit data directly to FNS; (iii) Be likely to provide more efficient and effective administration of the program; and (iv) Be compatible with such other systems utilized in the administration of other State agency programs including the program of Temporary Assistance for Needy Families (TANF). (2) State agencies seeking FFP for the planning, design, development or installation of IS shall develop State wide systems which are integrated with TANF. In cases where a State agency can demonstrate that a local, dedicated, or single function (issuance or certification only) system will provide for more efficient and effective administration of the program, FNS may grant an exception to the State wide integrated requirement. These exceptions will be based on an assessment of the proposed system's ability to meet the State agency's need for automation. Systems funded as exceptions to this rule, however, should be capable to the extent necessary, of an automated data exchange with the State agency system used to administer TANF. In no circumstances will funding be available for systems which duplicate other State agency systems, whether presently operational or planned for future development. (g) Basis for continued Federal financial participation (2) Pre-implementation. (i) Testing. (A) The types of testing to be performed; (B) The organization of the test team and associated responsibilities; (C) Test database generation; (D) Test case development; (E) Test schedule; (F) Documentation of test results; (G) Acceptance testing, to include functional requirements testing, error condition handling and destructive testing, security testing, recovery testing, controls testing, stress and throughput performance testing, and regression testing; and (H) The decision criteria, including specific test results which must be met before the State may exit the testing phase, the roles or titles of the individuals responsible for verifying that these criteria have been met, and the sign-off process which will document that the criteria have been met. (I) FNS may require any or all of these tests to be repeated in instances where significant modifications are made to the system after these tests are initially completed or if problems that surfaced during initial testing warrant a retest. FNS reserves the right to participate and conduct independent testing, as necessary, during UAT and at appropriate times during system design, development, implementation and operations. (ii) Pilot. (iii) Post-implementation Review. (h) Disallowance of Federal financial participation (i) Emergency acquisition requirements. (1) The State agency must submit a written request to FNS prior to the acquisition of any IS equipment or services. The written request shall include: (i) A brief description of the IS equipment and/or services to be acquired and an estimate of their costs; (ii) A brief description of the circumstances which result in the State agency's need to proceed with the acquisition prior to fulfilling approval requirements at paragraph (c) of this section; and (iii) A description of the adverse impact which would result if the State agency does not immediately acquire the IS equipment and/or services. (2) Upon receipt of a written request for emergency acquisition FNS shall provide a written response to the State agency within 14 days. The FNS response shall: (i) Inform the State agency that the request has been disapproved and the reason for disapproval; or, (ii) FNS recognizes that an emergency situation exists and grants conditional approval pending receipt of the State agency's formal submission of the IAPD information specified at paragraph (d)(2) of this section within 90 days from the date of the State agency's initial written request. (iii) If FNS approves the request submitted under paragraph (i)(1) of this section, FFP will be available from the date the State agency acquires the IS equipment and services. (iv) If the complete IAPD submission required by paragraph (d)(2) of this section is not received by FNS within 90 days from the date of the initial written request, costs may be subject to disallowance. (j) General cost requirements Cost determination. (2) Cost identification for purposes of FFP claims. (i) Development costs. (ii) Operational costs. (iii) Service agreement costs. (3) Capital expenditures. (4) Claiming costs. (5) Budget authority. (k) Access to the system and records. (l) Ownership rights Software. (ii) FNS reserves a royalty-free, nonexclusive, and irrevocable license to reproduce, publish or otherwise use and to authorize others to use for Federal Government purposes, such software, modifications and documentation. (iii) Proprietary operating/vendor software packages which meet the definition of COTS at paragraph (b) of this section shall not be subject to the ownership provisions in paragraphs (l)(1)(i) and (l)(1)(ii) of this section. FFP is not available for development costs for proprietary application software developed specifically for SNAP. (2) Information Systems equipment. (m) Information system security requirements and review process Information system security requirements. (2) Information security program. (i) Determination and implementation of appropriate security requirements as prescribed in paragraph (m)(1) of this section. (ii) Establishment of a security plan and, as appropriate, policies and procedures to address the following areas of IS security: (A) Physical security of IS resources; (B) Equipment security to protect equipment from theft and unauthorized use; (C) Software and data security; (D) Telecommunications security; (E) Personnel security; (F) Contingency plans to meet critical processing needs in the event of short- or long-term interruption of service; (G) Emergency preparedness; and (H) Designation of an Agency IS Security Manager. (iii) Periodic risk analyses. (3) IS security reviews. (4) Applicability. [79 FR 12, Jan. 2, 2014, as amended at 81 FR 66499, Sept. 28, 2016] Appendix A to Part 277—Principles for Determining Costs Applicable to Administration of SNAP by State Agencies This appendix sets forth the procedures implementing uniform requirements for the negotiations and approval of cost allocation plans with State agencies, in accordance with the provisions of Federal Management Circular (FMC) 74-4 and OASC-10, “Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts with the Federal Government,” U.S. Department of Health, Education, and Welfare. This material is adapted substantially from the circular; changes have been made only when necessary in order to conform with legislative constraints. (A) Purpose and scope. (1) Objectives. (2) Policy guides. (a) State agencies are responsible for the efficient and effective administration of SNAP through the application of sound management practice. (b) The State agency assumes the responsibility for seeing that SNAP funds have been expended and accounted for consistent with underlying agreements and program objectives. (c) Each State agency, in recognition of its own unique combination of staff facilities and experience, will have the primary responsibility for employing whatever form of organization and management techniques as may be necessary to assure proper and efficient administration. (3) Application. (B) Definitions. Approval or authorization by FNS means documentation evidencing consent prior to incurring specific costs. Cognizant Federal Agency means the Federal agency recognized by OMB as having the predominate interest in terms of program dollars. Cost allocation plan means the documentation identifying, accumulating, and distributing allowable costs of program administration together with the allocation methods used. Cost, as used herein, means cost as determined on a cash, accrual, or other basis acceptable to FNS as a discharge of the State agency's accountability for FNS funds. Cost center means a pool, summary account, objective or area established for the accumulation of costs. Such areas include objective organizational units, functions, objects or items of expense, as well as ultimate cost objective(s) including specific costs, products, projects, contracts, programs and other operations. Federal agency means FNS and also any department, agency, commission, or instrumentality in the executive branch of the Federal Government which makes grants to or contracts with State or local governments. Payments for administrative costs means reimbursement or advances for costs to State agencies pursuant to any agreement whereby FNS provides funds to carry out programs, services, or activities in connection with administration of SNAP. The principles and policies stated in this appendix as applicable to program payments in general also apply to any State agency obligations under a cost reimbursement type of agreement performed by a subagency, including contracts and subcontracts. SNAP administration means those activities and operations of the State agency which are necessary to carry out the purposes of the Food and Nutrition Act of 2008, including any portion of the Program financed by the State agency. Local unit means any political subdivision of government below the State level. Other agencies of the State means departments or agencies of the State or local unit which provide goods, facilities, and services to a State agency. Subagencies means the organization or person to which a State agency makes any payment for acquisition of goods, materials or services for use in administering SNAP and which is accountable to the State agency for the use of the funds provided. Service, as used herein, means goods and facilities, as well as services. Supporting services means auxiliary functions necessary to sustain the direct effort of administering the Program. These services may be centralized in the State agency or in some other agency, and include procurement, payroll, personnel functions, maintenance and operation of space, data processing, accounting, budgeting, auditing, mail and messenger service, and the like. (C) Basic guidelines. (1) Factors affecting allowability of costs. To be allowable under the Program, costs must meet the following general criteria: (a) Be necessary and reasonable for proper and efficient administration of the Program, be allocable thereto under these principles, and, except as specifically provided herein, not be a general expense required to carry out the overall responsibilities of State or local governments. (b) Be authorized or not prohibited under State or local laws or regulations. (c) Conform to any limitations or exclusions set forth in these principles, Federal Laws, or other governing limitations as to types or amounts of cost items. (d) Be consistent with policies, regulations, and procedures that apply uniformly to both federally assisted and other activities of the unit of government of which the State agency is a part. (e) Be accorded consistent treatment through application of generally accepted accounting principles appropriate to the circumstances. (f) Not be allocable to or included as a cost to any other federally financed program in either the current or a prior period. (g) Be the net of all applicable credits. (2) Allocable costs. (a) A cost allocable to a particular cost objective to the extent of benefits received by such objective. (b) Any cost allocable to a particular program or cost objective under these principles may not be shifted to other Federal programs to overcome fund deficiencies, avoid restrictions imposed by law or grant agreement, or for other reasons. (c) Where an allocation of joint cost will ultimately result in charges to the Program, an allocation plan will be required as prescribed in section I of these principles. (3) Applicable credits. (a) Applicable credits refer to those receipts or reduction of expenditure-type transactions which offset or reduce expense items allocable to programs as direct or indirect costs. Examples of such transactions are: Purchase discounts; rebates or allowances; recoveries or indemnities on losses; sale of publications, equipment, and scrap; income from personal or incidental services; and adjustments of overpayments or erroneous charges. (b) Applicable credits may also arise when Federal funds are received or are available from sources other than FNS to finance operations or capital items donated or financed by the Federal Government to fulfill matching requirements under another program. These types of credits should likewise be used to reduce related expenditures in determining the rates or amounts applicable to a given program. (D) Composition of cost. (1) Total cost. (2) Classification costs. (E) Direct costs. (1) General. (2) Application. (a) Compensation of employees for the time and effort devoted specifically to the administration of the Program. (b) Cost of materials acquired, consumed, or expended specifically for the purpose of the Program. (c) Equipment and other approved capital expenditures. (d) Other items of expense incurred specifically for efficiently and effectively administering the Program. (e) Service furnished specifically for the Program by other agencies, provided such charges are consistent with criteria outlined in section G of these principles. (F) Indirect costs. (1) General. (2) State agency indirect costs. (a) Predetermined fixed rates for indirect costs. (b) Negotiated lump sum for overhead. (3) Limitation on indirect costs. (a) Some Federal programs may be subject to laws that limit the amount of indirect cost that may be allowed. Agencies that sponsor programs of this type will establish procedures which will assure that the amount actually allowed for indirect costs under each such program does not exceed the maximum allowable under the statutory limitation or the amount otherwise allowable under these principles, whichever is the smaller. (b) When the amount allowable under a statutory limitation is less than the amount otherwise allocable as indirect costs under these principles, the amount not recoverable as indirect costs under a program may not be shifted to another federally sponsored program or contract. (G) Cost incurred by other agencies of the State. (1) General. (2) Alternative methods of determining indirect cost. (a) Standard indirect rate. (b) Predetermined fixed rate. (H) Cost incurred by State agency for others. The principles provided in section G will also be used in determining the cost of services provided by the State agency to another agency. (I) Cost allocation plan. (1) A cost allocation will be required to support the distribution of any indirect costs. All costs allocable to SNAP under cost allocation plans will be supported by formal accounting records which will substantiate the propriety of eventual charges. (2) There are two types of cost allocation plans: (a) Statewide or central service cost allocation plan identifies and distributes the cost of services provided by support organizations to those departments or units participating in Federal programs. (b) Indirect cost proposals distribute the administrative or joint costs incurred by the State agency and the cost of service allocable to it under the Statewide or central service cost allocation plan in a ratio to all work performed by the State agency. The process involves applying a percentage relationship of indirect cost to direct cost. (3) Requirements. (4) Instructions for preparation of cost allocation plans. (5) Submitting plans for approval. (a) Responsibility for approving cost allocation plans for individual State agencies has been assigned by the Office of Management and Budget to the cognizant Federal agency. (b) State cost allocation plans must be submitted to the cognizant Federal agency within six months after the last day of the State's fiscal year. Upon request by the State agency, an extension of time for submittal of the cost allocation plan may be granted by the cognizant Federal agency. It is essential that cost allocation plans be submitted in a timely manner. Failure to submit the plans when required will cause the State agency to become delinquent. In the event a State becomes delinquent, FNS will not provide for the recovery of central service and indirect costs, and such costs already made and claimed against SNAP funds will be subject to disallowance. (6) Negotiation and approval of cost allocation plans for States. (7) Negotiation and approval of cost allocation plans for local governments. (8) A current list of cognizant Federal agencies is maintained by the Office of Management and Budget. (9) Resolution of problems. (10) Approval by FNS. FNS reserves the right to disapprove costs not meeting the general criteria outlined in section C of these principles. FNS shall promptly notify the State agency in writing of the disapproval, the reason for the disapproval and the effective date. Costs incurred by State agencies after disapproval may not be charged to FNS unless if FNS subsequently approves the cost. Standards for Selected Items of Cost A. Allowable cost. (1) Accounting. (2) Advertising. (a) Recruitment of personnel required for the Program; (b) Solicitation of bids for the procurement of goods and services required; (c) Disposal of scrap or surplus materials acquired in the performance of the agreement; and (d) Other purposes specifically provided for by FNS regulations or approved by FNS in the administration of SNAP. (3) Advisory councils. (4) Audit service. (5) Bonding. (6) Budgeting. (7) Building lease management. (8) Central stores. (9) Communications. (10) Compensation for personal services. (a) General. (b) Payroll and distribution of time. (11) Depreciation and use allowance. (a) State agencies may be compensated for the use of buildings, capital improvements, and equipment through use allowances or depreciation. Use allowances are the means of providing compensation in lieu of depreciation or other equivalent costs. However, a combination of the two methods may not be used in connection with a single class of fixed assets. (b) The computation of depreciation or use allowances will be based on acquisition cost. Where actual cost records have not been maintained, a reasonable estimate of the original acquisition cost may be used in the computation. The computation will exclude the cost of any portion of the cost of buildings and equipment donated or borne directly or indirectly by the Federal Government through charges to Federal programs or otherwise, irrespective of where title was originally vested or where it presently resides. In addition, the computation will also exclude the cost of acquisition of land. Depreciation or a use allowance on idle or excess facilities is not allowable, except when specifically authorized by FNS. (c) Where the depreciation method is followed, adequate property records must be maintained, and any generally accepted method of computing depreciation may be used. However, the method of computing depreciation must be consistently applied for any specific asset or class of assets for all affected federally sponsored programs and must result in equitable charges considering the extent of the use of the assets for the benefit of such programs. (d) In lieu of depreciation, a use allowance for buildings and improvements may be computed at an annual rate not exceeding two percent of acquisition cost. The use allowance for equipment (excluding items properly capitalized as building cost) will be computed at an annual rate not exceeding six and two-thirds percent of acquisition cost of usable equipment. (e) No depreciation or use charge may be allowed on any assets that would be considered as fully depreciated, provided, however, that reasonable use charges may be negotiated for any such assets if warranted after taking into consideration the cost of the facility or item involved, the estimated useful life remaining at time of negotiation, the effect of any increased maintenance charges or decreased efficiency due to age, and any other factors pertinent to the utilization of the facility or item for the purpose contemplated. (12) Disbursing service. (13) Employee fringe benefits. (a) Employee benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, sick leave, court leave, military leave, and the like, if they are provided pursuant to an approved leave system, and the cost thereof is equitably allocated to all related activities, including federally assisted programs. (b) Employee benefits in the form of employers' contributions or expense for social security, employees' life and health insurance plans, unemployment insurance coverage, workers' compensation insurance, pension plans, severance pay, and the like, provided such benefits are granted under approved plans and are distributed equitably to programs and to other activities. (14) Employee morale, health And welfare costs. (15) Exhibits. (16) Legal expenses. (17) Maintenance and repair. (18) Materials and supplies. (19) Memberships, subscriptions and professional activities. (a) The cost of membership (i) The benefit from the membership is related to the program, (ii) The expenditure is for agency membership, (iii) The cost of the membership is reasonably related to the value of the services or benefits received, and (iv) The expenditure is not for membership in an organization which devotes a substantial part of its activities to influencing legislation. (b) Reference material. (c) Meetings and conferences. (20) Motor pools. (21) Payroll preparation. (22) Personnel administration. (23) Printing and reproduction. (24) Procurement service. (25) Prosecution activities. (26) Taxes. (27) Training and education. (28) Transportation. (29) Travel. B. Costs allowable with approval of FNS. (1) Automated Data Processing. (2) Building space and related facilities. (a) The total cost of space, whether in a privately or publicly owned building, may not exceed the rental cost of comparable space and facilities in a privately owned building in the same locality. (b) The cost of space may not be charged to FNS for periods of nonoccupancy, without authorization of FNS. (i) Rental cost. (ii) Maintenance and operation. (iii) Rearrangements and alterations. (iv) Depreciation and use allowances on publicly owned buildings. (v) Occupancy of space under rental-purchase or a lease with option-to-purchase agreement. (3) Capital expenditures. (a) Necessary and reasonable for proper and efficient administration of the program, and allocable thereto under the principles provided herein; and (b) That procurement of such item or items has been or will be made in accordance with the standards set out in § 277.14. In no case shall such a cost become a program charge against FNS prior to approval in writing by FNS of the procurement and the cost. When assets acquired with SNAP funds are (i) sold, (ii) no longer available for use in a federally sponsored program, or (iii) used for purposes not authorized by FNS, FNS's equity in the asset will be refunded in the same proportion as Federal participation in its cost. In case any assets are traded on new items, only the net cost of the newly acquired assets is allowable. (4) Insurance. (a) Cost of insurance to secure the State agency against financial losses involved in the acceptance, storage, and issuance of food coupons and ATP cards is allowable with FNS approval. (b) Costs of other insurance in connection with the general conduct of activities are allowable subject to the following limitations: (i) Types and extent and cost of coverage will be in accordance with general State or local government policy and sound business practice. (ii) Costs of insurance or contributions to any reserve covering the risk of loss of, or damage to, Federal Government property are unallowable except to the extent that FNS approves such cost. (5) Management studies. (6) Preagreement costs. (7) Professional services. (8) Proposal costs. (9) Cost incurred by agencies other than the State. (a) Standard indirect rate equal to ten percent of direct labor cost in providing the service (excluding overtime, shift or holiday premiums, and fringe benefits) may be allowed in lieu of actual allowable cost. (b) A predetermined fixed rate for indirect cost of the unit or activity providing service may be negotiated. C. Unallowable costs. (1) Costs of determining SNAP eligibility incidental to the determination of TANF eligibility are not chargeable to FNS. (2) Bad debts. (3) Contingencies. (4) Contributions and donations. (5) Entertainment. (6) Fines and penalties. (7) Governor's expenses. (8) Indemnification. (9) Interest and other financial costs. (10) Legislative expenses. (11) Losses. (12) Underrecovery of cost under agreements. (13) The acquisition of land or buildings is an unallowable cost. [Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 207, 47 FR 52338, Nov. 19, 1982; Amdt. 298, 52 FR 36400, Sept. 29, 1987; Amdt. 316, 54 FR 24531, June 7, 1989; Amdt. 319, 55 FR 4361, Feb. 7, 1990; Amdt. 342, 59 FR 2733, Jan. 19, 1994; Amdt. 385, 65 FR 33441, May 24, 2000]