provided to months. or essential not change substantially

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1 Coloradoo Department of Humann Services Indirect Cost FAQ These answers have been provided to various stakeholders (e.g. counties, Joint Budget Committee, Joint Budget Committee Staff ) over the past few months. What are Indirect Costs? Indirect costs are incurred in the performance of activities needed to operate the Department as a whole, and cannot be directly tied to a specific program. These are primarily fixed or essential costs (i.e. leased space of administrative offices in downtown Denver) that do not change substantially with the volume of work or production in the rest of the organization. What are CDHS Indirect Costs primarily used for? a.) Personnel Costs: Staff that provide support to multiple offices within the Department ncluding, but not limited to: Financial Services, Contracts and Procurement, Employment Affairs, Executive Director, Deputy Executive Directors, Legislative Liaison, County Liaisons, Budget Director, and Controller. b.) Operational Costs: Expenses billed to the Department through common policy ncluding, but not limited to: Information Technology-hardware and software, Capital Complex-leas sed space, phones, utilities, and office supplies. 1

2 How are Indirect Costss distributedd across the Department? Long Bill Group ( 1) Executive Director s Office (A) General Administration ( 1) Executive Director's Office (B) Special Purpose ( 1) Executivee Director s Office ( 2) Office of Information Technology (A) Information Technology (2) Office of Informationn Technology ( 3) Office of Operations (A) Administration (3) Office of Operations Line Items included Personal Services Operating Expenses Shift Differential Workers' Compp Legal Services Administrative Law Judge Services Payments to Risk Management and Property Funds Injury Prevention Program Employment and Regulatory Affairs HIPPA Operating Expenses Micro Computer Leases CFMS Client Index Payments to OIT CORE Operations Enterprise Content Management Personal Services Operating Expenses Vehicle Lease Payments Leased Space Capital Complex Leased Space Utilities Adjusted Cost Allocation Plan s 3,163, ,761-9,502,479 1,751, ,792 1,642, ,970 17,281,625 6,097, ,256 6,461, , ,344 1,494,325 17,698 25,122,963 1,667, ,400 30,133,751 31,971,552 3,747,713 1,079,506 2,410,915 1,748,239 9,418,424 50,376,349 Cost Allocation Plan s 104,252,807 2

3 What Indirect Costs are funded by Child Welfare funds?? The table below illustrates expenditures for FY that were funded with Child Welfare Title IV-B were made whole. The Department assumes the FY expenditures will be similar. FY Actual Indirect Expenditures Funded with Title IV-B and Title XXX and Title XX after the county close out process was completed and all counties Funds Office Executive Director's Office Operations Legislative Affairs and Communications Personnel Communications State Board of Human Services Boards & Commissions Community Partnerships Personnel County Services Title IV-B Title XX 26, ,579 3,548 15, ,886 3,267 3,257 5,088 3,802 7,066 3,659 3,407 49,144 45,752 44,814 17,859 45,460 90,550 50,671 39, ,607 52, ,300 49,020 48,071 22,947 49,262 97,616 54,331 43,285 Description Deputy Executive Director, Administrative Assistant Deputy Executive Director, Administrative Assistant, Communications Director, Legislative Liaison and Legislative Analyst Communications Staff Includes Board legal costss Deputy Executive Director, Administrative Assistant County Liaisons Office of Performance & Strategic Outcomes Personnel Audit Budget Quality Assurance 24, ,434 7,044 97,491 10,017 44,154 4,067 18,219 3,447 43, , ,535 54,171 22,286 47,018 Office Director, Administrative Assistant, Performance Management Director Office of Administrative Solutions 372,2177 4,628,334 Personnel Financial Services Controller Settlementt Cash Management Procurement and Contracts Cost Unit 9,114 65,104 6,627 10, ,952 83, ,695 92, ,018 1,347 3,614 22,631 5,000,551 93, ,799 98, ,339 1,423 3,614 24,584 Office Director, Deputy Director, Administrative Assistant Controller and Deputies 3

4 Statewide Cost Allocation Plan Vouchering Program and Central Accounting Information Technology County Financial Management System HIPAA Governor's Office of Information Technology - Common Policies 13, , ,366 32,256 4, ,9999 4,107,749 32, , ,942 2,754 12,446 15, ,885 3,719, ,539 1,567 37,051 4,405,748 3,982,605 Statewide IT initiatives - cybersecurity, helpdesk etc. 422,820 5,125,347 5,548,167 How are Indirect Costss allocated? Indirect costs are allocated through a methodology ass articulated in the Public Assistance Cost Allocation Plan (PACAP) that the Departmentt is required to submit to the Federal Department of Cost Allocation Services per federal regualtion. The PACAPP is approved annually by eight different federal oversight agencies. What is the Department doing to reduce its Indirect Costs? Indirect Costs make up approximately 5% of the Department s entire appropriated budget of 1.9 billion budget. For comparison the Department s indirect costs are significantly lower than most large and complex organizations who typically have indirect costs at 10-20% of their operating budgets. The Department is not reducing its indirect costs as these costs are essential personnel and fixed operational costs necessary to operate thee Department. Without funding these costs, the Department would not be able to function efficiently and fulfilll many of its mandates federal reporting, compliance or maintain normal business operations. Have the costs increased or changed? Yes, indirect costs have increased over the years. For example, Payments to the Office of Information Technology have increased from 13.6 million in FY to million in FY for the Department as a whole. 4

5 What specifically has caused a growth in the Department t s need for more General Fund to cover Indirect Costs from the FY to FY ? Was the need identified in previous budget requests? The Department identified the lack of General Fund relative to the transfer of DVR in FYs , and In FY the Department included a Departmental Difference in the fiscal note for SB that transferred the Division of Vocational Rehabilitation from the Department to the Department of Labor and Employment. The Departmental Difference noted a need for 837,948 in General Fund to offset the loss of funding from DVR needed to fund the indirect cost pool. The Department submitted a FY budget request (R-09), on November 1, 2015 to request an additional 1,094,283 General Fund to cover the indirect costs no longer covered by DVR after its transfer to CDLE. This request was not funded. The impact of DVR s move in FY was further exacerbated by an error in the related budget request R-09 that resulted in a reduction of 680,123 federal funds and a reduction of 10.3 FTE related to the transfer of 3.4 FTE for administrative support to the Department of Labor and Employment t. The table below illustrates what was in the request, what should have been in the request and the action taken during figure setting. The result of the figure setting action was an additional reduction of 6.9 FTE and 680,123 federal funds from the DHS Office of Operations. FY Errorr Resulting in a Reduction to the Office of Operations Action Funds General Fund Federal Fund FTE Notes FY Budget Request The request reflected a Indirect Cost Recovery Offset for (184,074 ) (184,074) - (3.4) reduction of General DVR Transfer to CDLE Fund only Revised Request Request should have reflected 21.3% General (184,074) (39,208) (144,866) (3.4) Fund and 78.7% federal funds Figure setting Action The 184,074 General (864,197) (184,074 ) (680,123) (10.3) Fund was used as a match for the federal funds Difference between the Revised Calculation: Revised Request and Action 680,123 (144,866) (535,257) (6.9) Request minus Figure setting Action Why is the Department t specifically proposing a change to Child Welfare funding to pay for Indirect Costs? In FY , the Department identifiedd that it had not been recovering indirect costs from the Child Welfare Services program (Title XX and IV-B) going back to at least The Department also found that it had been under-recovering from several other programs, based on the Department s indirect cost recovery plan approved by the Federal 5

6 Department of Cost Allocation. The Department corrected the Child Welfare Services error in FY and FY by recovering indirect costs from the Child Welfare Services program after year-end close out. Counties were not negatively affected by these recoveries in these years, and incurred no additional expenses due to the Department s recovery of indirect costs. The Department s budget request for Indirect Costs identifies the budget actions needed to correct the under-recovery from the other programs. The Department s decision to holdout the Indirect Costs from the Child Welfare Services appropriation at the beginning of the fiscal year ( similar to other hold outs) is necessary for the Department to comply with its federally approved cost allocation plan. When would the Department begin recovering Child Welfare Indirect Costs under the proposed change? The Department would begin recovering Indirect Costs from the Child Welfare appropriation, prior to distribution to counties, in FY In FY the Department plans to continue to recover these funds after the county close out process is completed consistent with FY and FY Can we change the cost allocation plan to not include Child Welfare? If not, why? No, the Public Cost Allocation Plan (PACAP) cannot be amended to exclude Child Welfare. Per the Department s federally approved PACAP, the Department certifies it is following 2 CFR Part Uniform Administration Requirements, Cost Principles, and Audit Requirements for Federal Awards. This federal guidance states that the Department has a cost plan and allocates overhead cost pools to all benefiting state and federal programs.. Thus, the Department cannot remove a single program, of single federal appropriation, as the other state and federal programs would then be disproportionately charged costs that should belong to Child Welfare. Are there other holdouts in the Child Welfare Services appropriation? If so, for what program/purpose? Each year, letternote e to the Child Welfare Services appropriation in Long Bill Group 5, Division of Child Welfare, directs the Department to hold out specified amounts of funding prior to allocating the remainder of the appropriation to thee counties. The letternote e holdouts are for parental fee reimbursements, tribal child welfare services, foster care insurance and contractual services. The Child Welfare Allocations Committee (CWAC) establishes the amount of the hold out for Title IV-E waiver services. All hold outs are from the General Fund portion of the Child Welfaree Services appropriation. Once hold outs have been deducted from the total amount of available Child Welfare Services funds appropriated in Long Bill Group 5 the remaining available funds are provided to the CWACC to allocate to counties based on their established allocation formula. 6

7 These hold outs are required for the following programs for the purposess as described: a. Parental Fee Reimbursem ments (3,208,511) Child support collected from parents by counties to cover the cost of out-of-home placement of children who are placed in foster care. b. Tribal Child Welfare Services (950, 000) Funds are used to reimburse two federally recognized tribes in Colorado for Department-approved child welfare services that promote the safety and well-being of Native American children and youth. c. Statewide Insurance Policy for County-Administered Foster Homes (346,500) An insurance policy the State is required to provide for catastrophic coveragee for county foster homes. d. Contractual Services Related to the Allocation off Funds among Counties (100,000) Relates to the allocation of funds among counties. As an example, these funds have been used to contract for a vendor to assist the Child Welfare Allocations Committee in meeting the statutory requirement s under SB , a bill concerning revising the Child Welfare funding mechanism. Have the holdouts from the Child Welfare Services appropriation been fully spent in past years? The spending of each hold out varies from year to year. Below is a table detailing the expenditures from each hold out from FY through FY Child Welfare Hold Outs vs. Actual Expensess FY through FY Hold Outs Actual Hold Out Expenditures Amount of Unused Hold Out Funds Returned to Child Welfare Block for Redistribution During Close out FY Legislative - Parental Fees - Tribal Child Welfare Services - Foster Care Insurance - Contractual Services FY Legislative - Parental Fees - Tribal Child Welfare Services - Foster Care Insurance - Contractual Services IV-E Waiver Demonstration 3,208, , , ,000 4,605,011 3,208, , , ,000 6,686,861 11,291,872 1,770,312 55, , ,185 2,121,8411 1,379, , , ,056,0355 3,925,271 1,438, ,969 87,187 62,815 2,483,170 1,829, , , ,000 4,630,826 7,366,601 7

8 Child Welfare Hold Outs vs. Actual Expensess FY through FY Hold Outs Actual Hold Out Expenditures Amount of Unused Hold Out Funds Returned to Child Welfare Block for Redistribution During Close out FY Legislative - Parental Fees - Tribal Child Welfare Services - Foster Care Insurance - Contractual Services IV-E Waiver Demonstration DD Transition Funding 3,208, , , ,000 8,000,000 2,829,586 15,434,597 1,301, , , ,1011 3,387,974 2,810,1511 8,096,2166 1,906, , ,779-28,101 4,612,026 19,435 7,338,381 FY Legislative - Parental Fees - Tribal Child Welfare Services - Foster Care Insurance - Contractual Services IV-E Waiver Demonstration 3,208, , , ,000 6,000,000 10,605,011 1,172, , , ,523 5,063,634 6,556,509 2,035, , ,379 23, ,366 4,048,502 What happens to these holdout funds when they are not fully spent? The funds held out for these programs are made available for the intended use and then any funds remaining at close out are put back into the Child Welfare Services appropriation and made available for use during the surpluss distributionn process to provide additional funds to counties with expenses in excess of their allocations. What is the specific statutory citation that allows the Department to remove the funds to account for the Child Welfare Indirect Costs without approval of the Legislature or Child Welfare Allocations Committee (CWAC)? Federal regulations require the child welfare program to contribute to the Department s indirect cost pool. Further, state statute requires the Department comply with federal regulations as a condition of accepting federal funds.. Specifically, the Department must comply with 2 CFR Part Uniform Administrati ion Requirements, Cost Principles, and Audit Requirements for Federal Awards. 8

9 Additionally, (2) (a) and (3) requires the Department to comply with 2 CFR Part 200 as a condition of accepting federal funds Cooperation with federal government - grants-in-aid (2) (a) The state department of human services may accept on behalf of the state of Colorado the provisions and benefits of acts of congress designed to provide funds or other property for particular public assistance and welfare activities within the state, including but not limited to assistance payments; food stamps; social services; child welfare services; rehabilitation; and programs for the aging; which funds or other property are designated for such purposes within the function of the state department, and may accept on behalf of the state any offers which have been or may from time to time bee made of funds or other property by any persons, agencies, or entities for particular public assistance and welfare activities within the state, which funds or other property are designated for such purposes within the function of the state department; but, unless otherwise expressly provided by law, such acceptance shall not be manifested unless and until the state department has recommended such acceptance to and received the written approval of the governor and the attorney general. Such approval shall authorize the acceptance of the funds or property in accordance with the restrictions and conditions and for the purpose for which funds or property are intended. (3) The state department shall cooperate withh the federal department of health, education, and welfare and other federal agencies in any reasonable manner, in conformity with the laws of this state, which may be necessary to qualify for federal aid, including the preparation of state plans, the making of reports in such form and containing such information as any federal agency may from time to time require, and the compliance with such provisions as the federal government may from time to time find necessary to assure the correctness and verification of the reports. Did the creation of the Office of Early Childhood contribute to thesee costs? No, the creation of the Office of Early Childhood didd not contribute to these costs. The Office was created and funded by combining fundingg and staff from existing programs that were moved either from other State Departments s or Offices within the Department. The Office contributes funding to the Department s Indirect Costt Pool, but did not increase the Department s overall Indirect Costs. Are there potential risks for Children and Family Servicee Review (CFSR) sanctions for noncompliance? If so, what are the potential sanction costs? 9

10 Information from the federal Children's Bureau related to potential Children and Family Service Review (CFSR) sanctions resulting from noncompliance with the federal standards is not anticipated to be knownn until after the review in September It is important to note, Colorado will be given an opportunity to correct performance if a performance improvement plan is implemented. Thee results of any performance improvement plan efforts may or may not come withh a fiscal sanction. Therefore the Department cannot quantify potential sanctions resulting from the failure of a review and subsequent implementat tion of a performance plan. How would changes in allocations of Colorado's Child Welfare Block Grant affect servicess in individual counties? The Child Welfare Services appropriation is a combination of state, federal and county dollars. The federal cost allocation plan requires CDHS to collect indirect costs from the Child Welfare Services appropriation. The State has been collectingg this overhead from the child welfare allocation at the end of the FYs and FY after the close out process. The State is planning to collect these indirect costs prior to the allocation of the appropriation to the counties. Based on historical county expenditures following the year-end county settlement process, holding out the Title XX and Title IV-B funds from the Child Welfare Services appropriation for indirect costs should not negatively affect the counties. The Department recovered indirect costs from the Child Welfare allocation (under Title XX and Title IV-B) in each of the last two fiscal years, FY and FY , and all counties were made whole. 10

11 What is the impact, by county and fund source, of the Department ss proposed change to the Child Welfare funding to pay for Department indirect costs? The table below shows the impact to counties of recovering indirect cost share for FY , based on the current allocation formula and the actual indirect costs held out for FY Please note that if the Child Welfare Allocations Committee (CWAC) changes the funding formula, the impact to each county could also change. Impact of Indirect Cost Hold Out on County Child Welfare Allocations Estimated FY Proposed Countyy Proposed Indirect Current FY Net Match Reduction as a Recovery Hold Out Revised FY Child Welfare Block Result of the Indirect by County (Federal Allocation after County Allocation with Incentives Hold Out Funds) Indirect Hold Out Adams 36,377,708 (149,248) (596,992) 35,631,468 Alamosa 2,630,351 (10,910) (43,641) 2,575,800 Arapahoe 32,751,255 (134,694) (538,773) 32,077,788 Archuleta 854,510 (3,619) (14,476) 836,415 Baca 356,393 (1,512) (6,046) 348,835 Bent 601,388 (2,561) (10,244) 588,583 Boulder 15,820,651 (64,545) (258,179) 15,497,927 Broomfield 2,510,424 (10,160) (40,642) 2,459,622 Chaffee 960,906 (3,905) (15,620) 941,381 Cheyenne 237,590 (1,012) (4,049) 232,529 Clear Creek 842,280 (3,451) (13,803) 825,026 Conejos 769,595 (3,268) (13,070) 753,257 Costilla 425,544 (1,747) (6,990) 416,807 Crowley 445,575 (1,850) (7,400) 436,325 Custer 237,213 (1,012) (4,049) 232,152 Delta 2,285,073 (9,253) (37,011) 2,238,809 Denver 51,936,793 (219,155) (876,614) 50,841,024 Dolores 236,612 (1,012) (4,049) 231,551 11

12 Impact of Indirect Cost Hold Out on County Child Welfare Allocations Estimated FY Proposed Countyy Proposed Indirect Current FY Net Match Reduction as a Recovery Hold Out Revised FY Child Welfare Block Result of the Indirect by County (Federal Allocation after County Allocation with Incentives Hold Out Funds) Indirect Hold Out Douglas 8,584,724 (34,532) (138,130) 8,412,062 Eagle 2,019,861 (8,116) (32,464) 1,979,281 El Paso 45,134,670 (184,287) (737,145) 44,213,238 Elbert 1,369,705 (5,717) (22,868) 1,341,120 Fremont 4,297,787 (17,899) (71,594) 4,208,294 Garfield 3,349,200 (13,787) (55,150) 3,280,263 Gilpin 584,015 (2,364) (9,456) 572,195 Grand 648,362 (2,615) (10,459) 635,288 Gunnison 787,596 (3,298) (13,191) 771,107 Hinsdale 32,983 (137) (547) 32,299 Huerfano 761,270 (3,139) (12,554) 745,577 Jackson 235,501 (1,012) (4,049) 230,440 Jefferson 28,998,827 (120,493) (481,974) 28,396,360 Kiowa 236,043 (1,012) (4,049) 230,982 Kit Carson 385,329 (1,644) (6,574) 377,111 La Plata 2,413,207 (9,822) (39,288) 2,364,097 Lake 617,467 (2,601) (10,402) 604,464 Larimer 16,383,962 (66,863) (267,451) 16,049,648 Las Animas 1,419,411 (5,768) (23,071) 1,390,572 Lincoln 944,536 (4,042) (16,170) 924,324 Logan 2,451,347 (10,213) (40,854) 2,400,280 Mesa 15,178,980 (62,112) (248,450) 14,868,418 Mineral 30,000 (129) (517) 29,354 Moffat 1,196,183 (5,013) (20,051) 1,171,119 12

13 Impact of Indirect Cost Hold Out on County Child Welfare Allocations Estimated FY Proposed Countyy Proposed Indirect Current FY Net Match Reduction as a Recovery Hold Out Revised FY Child Welfare Block Result of the Indirect by County (Federal Allocation after County Allocation with Incentives Hold Out Funds) Indirect Hold Out Montezuma 1,835,891 (7,673) (30,693) 1,797,525 Montrose 3,315,938 (13,675) (54,700) 3,247,563 Morgan 3,238,240 (13,756) (55,025) 3,169,459 Otero 1,838,006 (7,461) (29,846) 1,800,699 Ouray 237,718 (1,012) (4,049) 232,657 Park 728,172 (2,953) (11,811) 713,408 Phillips 288,006 (1,189) (4,758) 282,059 Pitkin 474,161 (1,854) (7,415) 464,892 Prowers 1,125,035 (4,719) (18,878) 1,101,438 Pueblo 13,859,497 (56,955) (227,821) 13,574,721 Rio Blanco 617,432 (2,627) (10,507) 604,298 Rio Grande 1,206,867 (4,919) (19,678) 1,182,270 Routt 793,644 (3,164) (12,656) 777,824 Saguache 656,075 (2,800) (11,200) 642,075 San Juan 30,235 (129) (517) 29,589 San Miguel 331,520 (1,318) (5,273) 324,929 Sedgwick 238,160 (1,012) (4,049) 233,099 Summit 873,635 (3,501) (14,002) 856,132 Teller 1,822,539 (7,745) (30,981) 1,783,813 Washington 509,158 (2,177) (8,708) 498,273 Weld 18,960,269 (77,643) (310,573) 18,572,053 Yuma 741,284 (3,019) (12,076) 726,189 s 342,062,309 (1,410,830) (5,643,322) 335,008,157 13

14 Impact of Indirect Cost Hold Out on County Child Welfare Allocations Estimated FY Proposed Countyy Proposed Indirect Current FY Net Match Reduction as a Recovery Hold Out Revised FY Child Welfare Block Result of the Indirect by County (Federal Allocation after County Allocation with Incentives Hold Out Funds) Indirect Hold Out Source: Department analysis of Human Services analysis of indirect costt hold out impact on county Child Welfare Services allocations for Title XX and IV-B. Note: The amounts included in this analysiss are based on actual indirect costs recovered in FY and the current Child Welfare allocation formula. Should the amount of indirect costs or the allocation formula change, the resulting allocations would change also. This analysis is slightly different from earlier analysis presented too the CWAC. Will counties be able to absorb the reduction of Child Welfare funding based on the Department s request? Based upon historical county expenditures followingg the year-end county settlement process, holding out the Title XX and Title IV-B funds from the Child Welfare Services appropriation for indirect costs should not negatively affect the counties. As shown in the graph below, counties have underspent their Child Welfare allocations in each of the past 4 years. The Department recovered indirect costs from the Child Welfare allocation (underr Title XX and Title IV-Bowed additional dollars as a result. However, total Child Welfare expenditures have increased in each of the past in each of the last two years (FY and FY ) and no county has two years. Thus, Child Welfare expenditures could rise to the level that would result in the Department not being able to cover over spent counties in total. It is important to note that the counties who participate in the Collaborative Management Program (CMP) receive CMP payments that are funds paid back to counties from the Child Welfare Services Appropriation that have underspent their Child Welfare allocation. As a result, while the green line for FY shows total expenses in excess of the allocation, that line includes 3.7 million in CMP payments that went back to counties. 14

15 345,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 History of Child Welfare Allocation vs. Expenditures Fiscal Years through SFY13 SFY14 SFY15 SFY16 Initial Allocation Expenditures Expenditures including CMP Savings 15