N.J. Admin. Code § 6A:23A-18.6

Current through Register Vol. 56, No. 17, September 3, 2024

Section 6A:23A-18.6 - Non-allowable costs

(a) Costs that are not allowable in the calculation of the certified actual cost per student shall include the following:

1. Administrative costs in excess of, and/or instructional cost less than, the percentages indicated in N.J.A.C. 6A:23A-18.3(a)3;

2. Costs for maintaining an administrative office in a private home or other residence;

3. Advertising costs in excess of 0.5 percent of the APSSD's actual allowable costs, not including advertising;

4. Costs associated with lobbying, including salaries and fringe benefits;

5. Costs other than those governed by (a)50 below associated with lobbying in an attempt to influence:

i. The outcome(s) of any Federal, State, or local referendum, initiative or similar activity; or

ii. The introduction, enactment, or modification of Federal or State legislation or a State rulemaking.

6. The salary of a professional staff member, consultant, or subcontractor, including a member of a management company, who is not certified but is functioning in, or contracted to perform the duties of, a position requiring certification in accordance with N.J.A.C. 6A:9B or bachelor's or master's degree under this subchapter;

7. The salary and fringe benefits of a staff member, or any payment(s) to a purchased service provider, for time not expended and/or services not performed except in accordance with (a)56 and 57 below;

8. A salary in excess of the associated maximum allowable salary determined pursuant to N.J.A.C. 6A:23A-18.3(o), (p), and (q) for a staff member or consultant whose position requires certification, license, or a bachelor's or master's degree, including a director, assistant director, executive director, and business manager.

i. An APSSD shall prorate salaries for such part-time or split-time positions, including salaries in entities described in N.J.A.C. 6A:23A-18.3(e) and (f);

ii. The part-time and split-time maximum allowable salary shall be calculated as follows:

(1) Multiply the staff member's total salary by the percentage of time attributed to the APSSD position;

(2) Multiply the maximum allowable full-time salary for the position by the percentage of time attributed to the APSSD position; and

(3) Subtract the amount calculated in (a)8ii(2) above from the amount calculated in (a)8ii(1) above. If the result is greater than zero, this is the non-allowable part-time or split-time salary.

9. A salary of an employee not covered by (a)6 above in excess of the lowest maximum allowable salary in the same county according to the list of maximum allowable salaries determined in N.J.A.C. 6A:23A-18.3(o), (p), and (q) whose position does not require certification, license, or bachelor's degree, including an individual with the director, assistant director, executive director, or business manager job title whose job function(s) are not consistent with those functions described in N.J.A.C. 6A:23A-18.2.

i. An APSSD shall prorate salaries for such part-time or split-time positions, including salaries in entities described in N.J.A.C. 6A:23A-18.3(e) and (f).

ii. The part-time and split-time maximum allowable salary is calculated as follows:

(1) Multiply the staff member's total salary by the percentage of time attributed to the APSSD position;

(2) Multiply the lowest maximum allowable salary in the same county by the percentage of time attributed to the APSSD position; and

(3) Subtract the amount calculated in (a)9ii(2) above from the amount calculated in (a)9ii(1) above. If the result is greater than zero, this is the non-allowable part-time or split-time salary.

10. Costs of fringe benefits when based on and/or associated with a non-allowable salary;

11. Legal, accounting, or consultant fees resulting from a frivolous challenge to a State audit or financial review or the prosecution of a claim against the State. The Commissioner shall determine whether the challenge is frivolous by considering factors including, but not limited to, the following:

i. Overall merit of the claim; or

ii. Whether the challenge serves the public interest;

12. Consultant fees for services that fail to meet the following standards:

i. The work of the consultant shall be detailed in an executed written contract signed by both parties that includes:

(1) A detailed description of the nature of the services to be provided;

(2) Duration of the contract;

(3) Detailed fee information;

(4) Fee payment schedule(s);

(5) The approximate number of days to complete the work; and

(6) The anticipated product or outcome of the work;

ii. Performed by a consultant who does not possess the appropriate school certification when such certification exists;

13. Total contributions, donations, awards, and scholarships in excess of $ 750.00;

14. Depreciation unacceptable under N.J.A.C. 6A:23A-18.5(a)3 and 4 and depreciation:

i. On donated goods and assets;

ii. Not based on estimated straight-line method;

iii. On automobiles in excess of the dollar or percentage limitation contained under Internal Revenue Code (IRC) Section 280F, including any passenger vehicle not used in transporting students or supplies without regard to weight class exceptions defined in Section 280F(d)(5)(A);

iv. On a stepped-up basis resulting from the sale to a related party as defined in IRC Section 318 for Constructive Ownership of Stock. For a nonprofit organization, Section 318 will apply to the members of the board of directors or related parties as defined in IRC Section 267(b) or 267(c) unless the gain from such a sale was used to offset tuition for a prior year; or

v. On a stepped-up basis from transfer from one spouse to another upon death as defined in IRC Section 1014;

15. The cost of:

i. Depreciation associated with the purchase and ownership of any passenger vehicle not used for transporting students or supplies purchased on or after July 1, 2017, if:

(1) The depreciable basis upon which depreciation is calculated exceeds $ 30,000;

(2) The depreciation expensed exceeds allowable depreciation calculated on the straight-line basis over a period of not less than five years; or

(3) The depreciation expensed is attributable to a passenger vehicle that has been assigned to, or used on a regular basis, by an APSSD staff member who is not the APSSD executive director, director, and/or owner.

ii. Vehicle lease payments made pursuant to the lease agreement entered into, on, or after July 1, 2017, when:

(1) The annual lease payment(s) exceeds the annual depreciation allowable on an owned passenger vehicle with a maximum depreciable basis of $ 30,000; or

(2) The lease payments are for a leased passenger vehicle that has been assigned to, or used on a regular basis by, an APSSD staff member who is not the APSSD executive director, director, and/or owner.

16. Investment expenses associated with the purchase/sale of stock, securities, other investment instruments, or other investments not associated with the education of students with disabilities;

17. Total costs in excess of $ 500.00 incurred for entertainment expenses;

18. The cost of food/beverages in excess of $ 1,500 for activities such as, but not limited to, staff meetings, parent/teacher meetings, workshops, and professional development seminars for parents or teachers;

19. Costs from a fine or penalty resulting from a violation of, or failure by, the APSSD to comply with a Federal, State, and/or local law or rule;

20. Meal costs in excess of the limits set forth in N.J.A.C. 6A:23A-18.23.

21. The cost of keyman insurance except where a term insurance policy is required by a lender as collateral for a loan;

22. The cost of an employee's life insurance coverage, both term and whole life policies, in excess of 3.5 times the employee's gross salary;

23. Costs for fringe benefits as follows:

i. When the benefits are determined in an arbitrary or capricious manner, including, but not limited to, class of employee, whether by title or position rather than according to an existing written uniform policy based on an equitable standard of distribution, such as years of service or education. The criteria cannot be exclusionary regardless if based on an equitable standard of distribution, such as years of service or education;

ii. When the fringe benefit has not been adopted by the APSSD's board of directors at a board meeting prior to the benefit's implementation, documented in the meeting minutes, and the employees were not made aware of the policy; or

iii. When the benefit is not listed in N.J.A.C. 6A:23A-18.5(f) or not approved by the Commissioner, or his or her designee;

24. The cost of fundraising, including, but not limited to, costs for a financial campaign, an endowment drive, or solicitation of a gift and bequest to raise capital or obtain a contribution;

25. Goodwill;

26. Interest costs on loans when:

i. Interest is in excess of the general prevailing rate at the time the loan was taken;

ii. The loan is a less-than-arm's length/related party transaction that has not been previously approved by the Department and has not been repaid in accordance with the Department's approval letter; or

iii. The loan is not exclusively used to meet educational program needs;

27. Interest costs on long-term loans or mortgages if:

i. The loan is used for other than financing of fixed assets;

ii. The loan is not secured by the fixed asset being financed; or

iii. The interest costs are on the portion of the loan term that exceeds the recovery period for depreciation of the fixed asset securing the loan;

28. A loss incurred on the sale or exchange of fixed assets between related parties;

29. The write-off of uncollected accounts receivable (bad debts):

i. Before three years has elapsed and before a reasonable effort has been made to collect such accounts receivable; or

ii. That arise out of the APSSD's provision of:

(1) Extraordinary services;

(2) Services to students placed by an out-of-State agency; or

(3) Services to private placement students;

30. An ordinary living expense for a student that is normally assumed by the parent of a student attending a public day school;

31. Retirement plan costs that are:

i. Not in conformance with the Employee Retirement Income Security Act of 1974, P.L. 93-406 and its successor legislation, and that exceed costs allowed by the Internal Revenue Service;

ii. For a non-qualified retirement plan(s);

iii. For a defined contribution plan in excess of the maximum percentage and maximum dollar amount, (see IRC Section 415(c)) as the lesser of 100 percent of the employee's compensation or $ 53,000 as adjusted annually in IRC;

iv. For a defined benefit plan in excess of an amount, by employee, that would allow the defined plan to provide a benefit in excess of the percentage of the employee's number of years of service divided by 55 times the highest three-year average salary and at an age prior to age 55;

v. For contributions to a retirement plan that are not applied consistently in accordance with (a)23 above even if in compliance with Employee Retirement Income Security Act of 1974 (ERISA). Such excess contributions will be deemed a non-allowable cost;

vi. Not paid to a qualified plan within nine months of the end of the APSSD's fiscal tax year;

vii. Not paid in accordance with the fringe benefits criteria in (a)23 above; and

viii. If applicable, not in conformance with a church plan as defined in ERISA;

32. Costs of a contingent pay increase or merit pay award when the amount(s) was not in accordance with N.J.A.C. 6A:23A-18.5(a)14 or 15 or the contingent pay increase or merit pay award(s) is inconsistent with the plan(s) submitted to and approved by the Commissioner, or his or her designee, prior to implementation;

33. Costs for the payment of a bonus;

34. Costs for a loss on an investment;

35. Costs associated with a research activity, including, but not limited to, staff salaries, supplies, or printing and reproduction of a material;

36. Payment of Federal, State and local income taxes on income other than tuition;

37. Costs associated with travel to and from the officer's or employee's home and the school or agency;

38. Costs for all personal expenses, such as a personal travel expense or repair on a personal vehicle;

39. Costs associated with personal use of an APSSD-owned or -leased vehicle, including, but not limited to, to/from work commutation as determined pursuant to N.J.A.C. 6A:23A-18.5(a)18;

40. Costs associated with an APSSD-owned or -leased vehicle or a vehicle contained in a related party transaction involving the purchase of transportation services where a detailed daily mileage log documenting vehicle usage was not maintained;

41. A business-incurred charge for a privately owned vehicle in excess of the mileage rate allowed by the IRS for automobile travel;

42. Transportation costs for a student to and from school, except where the student's IEP requires after-school activities;

43. Rental costs for buildings and equipment when the lessor is not a separately identifiable legal entity;

44. Costs related to transactions between related parties in which one party to the transaction is able to control or substantially influence the actions of the other. Such transactions are defined by the relationship of the parties and include, but are not limited to, transactions between divisions of an institution; institutions or organizations under common control through common officers, directors, members, or owners; and an institution and a director, trustee, officer, or key employee of the institution or his or her immediate family either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest. Such costs shall include, but are not limited to:

i. Rental costs for buildings and equipment in excess of the actual allocated costs of ownership (for example, straight line depreciation in accordance with N.J.A.C. 6A:23A-18.5(a)3, mortgage interest, real estate taxes, property insurance, and maintenance costs) incurred by the related property owner including a 2.5 percent return calculated on the actual costs of ownership incurred by the related party. The APSSD shall submit a cost of ownership form in a Commissioner-supplied format. The property or business owner shall sign and notarize the cost of ownership form and include a copy of the lease agreement, and a list of anticipated costs to be incurred by the property owner;

ii. Rental costs under a sub-lease arrangement with a related party for buildings and equipment in excess of the actual allocated costs related to the lease (such as rent, lease commission expense, and maintenance costs) incurred by the sub-lessor. Profit, return on investment, or windfall of any kind shall not be included in the sub-rental cost. The sub-lease agreement shall include a list of anticipated costs to be incurred by the sub-lessor and shall be signed by the sub-lessor and notarized;

iii. Cost of purchasing/lease purchasing buildings, equipment or other goods from related parties in excess of the original cost to the related party, less depreciation calculated using the straight line method;

iv. Cost of personal services paid to a related party when the services are provided by an employee of, or consultant to the APSSD acting as an employee or agent of the related party. Cost of personal services includes all remuneration, paid or accrued, for services rendered during the school year, including, but not limited to, wages, salaries, management fees, and fringe benefits; and

v. Cost of the purchase of goods or services from a related party in excess of the actual allocated costs of providing the purchased goods and/or services, including, but not limited to, salaries, fringe benefits, insurance, operation, maintenance, straight-line depreciation incurred by the related party owner. Costs may include a 2.5 percent return calculated on the actual costs of ownership incurred by the related party. The APSSD shall file a cost of ownership form in a Commissioner-prescribed format. The cost of ownership form shall be signed by the property or business owner and shall include a copy of the purchase agreement, and a list of anticipated costs to be incurred by the related party;

45. Cost of a less-than-arm's length/related party transaction when the related party and/or the APSSD, as applicable, does not:

i. Provide to the Commissioner documentation on Commissioner-prepared forms to support the actual costs of ownership, or does not allow the Commissioner access to such information for review and audit during normal business hours. Documentation shall include, but not be limited to:

(1) The related parties' tax returns;

(2) The related parties' invoices received, payroll and payroll tax records, bills and canceled checks, or electronic transfer records concerning the transaction; and

(3) Any other document(s) requested by the Department; or

ii. Disclose the related party relationship on Commissioner-prepared forms pursuant to this subchapter and N.J.A.C. 6A:23A-19;

46. Rental costs under sale and leaseback arrangements in excess of the amount that would be allowable if the APSSD continued to own the property;

47. Indirect and direct costs that are:

i. For unrelated activities or enterprises as defined in N.J.A.C. 6A:23A-18.3(g); or

ii. Unrelated to the function, operations, and/or program of an APSSD as defined in N.J.A.C. 6A:23A-18.3(d);

48. Costs for the year-end audited financial statements when prepared by an individual who does not meet the requirements in N.J.A.C. 6A:23A-18.10(a);

49. Costs for membership in civic, business, technical, and professional organizations when the cost is:

i. Not reasonably related to the value of the services or benefits received;

ii. For membership in an organization that devotes any activity(ies) to influencing legislation or State regulation(s) not directly related to the educational instruction program of students with disabilities and the activity(ies) is not subsidized by sources other than membership fees from APSSDs;

iii. Not an established annual rate charged to all members, but one that is periodically adjusted during the year; or

iv. Not supported by an annual affidavit signed by the organization's board of directors indicating all legal and lobbying costs not directly associated with the educational instruction programs for students with disabilities were funded by sources other than dues from APSSDs;

50. A staff member's salary that is not properly supported by the employee's time record in a format prescribed or approved by the Commissioner in accordance with N.J.A.C. 6A:23A-18.5(a)10;

51. A salary or payment made to a member(s) of the board of directors/trustees for services performed in his or her capacity as a member of the board of director/trustees;

52. Cost of a pension plan contribution made on behalf of, and/or medical benefits for, current or retired members of the board of directors/trustees;

53. Cost of medical benefits for retired employees who have not reached the age of 55 and who were employed a combination of less than 25 years in a New Jersey public school, a New Jersey public agency, or a New Jersey APSSD and have less than 10 years of service in an APSSD;

54. Costs of salaries and fringe benefits of unrecognized position titles not properly approved pursuant to N.J.A.C. 6A:9B-5.5;

55. Cost of employee severance pay:

i. In excess of four weeks' salary; and

ii. If, in addition, the cost of a buyout of the employee's contract;

56. Cost of a buyout of an employee contract:

i. In excess of 90 days' salary; and

ii. If, in addition, the cost of the employee's severance pay;

57. Cost of a salary or consultant fee paid to a full-time employee or consultant for performing more than one administrative function in the APSSD;

58. Cost to purchase or rent an administrative office or business office at a location other than at the APSSD location that was not approved pursuant to N.J.A.C. 6A:23A-18.5(d);

59. Cost of compensation increases paid after the start of the fiscal year not in accordance with N.J.A.C. 6A:23A-18.5(k);

60. Start-up costs in excess of costs allowed pursuant to N.J.A.C. 6A:23A-18.4(d);

61. Costs of salaries and fringe benefits for employees providing services that are not in compliance with N.J.A.C. 6A:23A-18.5(e)2;

62. The cost of a fine levied pursuant to N.J.S.A. 18A:6-7.5 for any staff member who does not have:

i. A criminal history clearance prior to starting employment or;

ii. An application for employment on an emergent basis in accordance with 18A:6-7.1c;

63. Legal costs for an APSSD and/or for an APSSD representative(s), including an owner, employee, or agent who has plead guilty and/or is found to be guilty or liable in a case involving the misuse of funds, fraud (criminal or civil), or endangerment or abuse of a child(ren);

64. The salary in excess of the associated maximum salary identified in N.J.A.C. 6A:23A-18.3(q) and determined in accordance with N.J.A.C. 6A:23A-18.5(o) and (p);

65. Costs found to be patently unreasonable by the Commissioner, or his or her designee, or an independent auditor/accountant;

66. Cost(s) of payments made to an individual employee(s) for earned unused sick benefit that is in excess of 2.2 percent of the individual employee's contracted salary amount during the fiscal year in which the payment is made;

67. Proportional costs of salary and fringe benefits for any administrative staff member, as defined in N.J.A.C. 6A:23A-18.3(o), with the exception of principal and unrecognized position titles in the administrative category, that are in excess of a total of 3.0 FTE administrative positions per APSSD, per fiscal year. If the combined administrative positions exceed 3.0 FTE, the disallowed amount will be apportioned equally across all of the positions;

68. Costs associated with travel, defined in N.J.A.C. 6A:23A-18.2 1, that:

i. Exceed .0025 of the total actual allowable costs, less travel costs, in a fiscal year for an APSSD, or $ 20,000, whichever is less; and/or

ii. Violate the provisions of N.J.A.C. 6A:23A-18.21 (g);

69. Costs associated with waiver of health insurance coverage that violate the provisions of N.J.A.C. 6A:23A-18.5(f)1;

70. Costs associated with depreciation of leasehold improvements that violate N.J.A.C. 6A:23A-18.5(a)4;

71. Costs of the salary, benefits, or other compensation provided to an APSSD employee or contractor/consultant who is receiving retirement benefits as a result of his or her retirement from the APSSD after two calendar years have expired since the individual began retirement;

72. Costs associated with undocumented outflows from petty cash, pursuant to N.J.A.C. 6A:23A-18.5(a)16; and

73. Costs associated with the failure to comply with the requirements of N.J.A.C. 6A:23A-18.5(d).

N.J. Admin. Code § 6A:23A-18.6

Amended by 49 N.J.R. 1855(a), effective 7/3/2017

Amended by 51 N.J.R. 727(a), effective 5/20/2019