Medicare Financial Management 
Chapter 2 - Budget Execution 
 
 
Table of Contents 
(Rev. 128, 07-13-07) 
 
Transmittals for Chapter 2 
 
10 - General 
20 - Cost Report Forms Supply 
30 - Contractors Performing Services for Other Medicare Contractors 
30.1 - Servicing Contractor 
30.2 - Receiving Contractor 
40 - Special Cost Reporting Issues 
50 - Exhibit of the Certification Schedule for the Interim Expenditure Report (IER) 
60 - Completing the Cumulative (IER) 
60.1 - Transmittal and Due Dates 
60.2 - Completing the IER 
60.3 - Hours - Activity Form 
60.4 - Costs and Credits - Activity Form 
60.5 - Net Hours Available - Miscellaneous Schedule 
60.6 - Administrative Funds Drawn - Certification Schedule 
60.7 - Contractor Certification - Certification Schedule 
60.8 - Remarks - Activity Form and Certification Schedule 
60.9 - Forward Funding 
60.10 - Hard Copy Requirements 
70 - Exhibit of Variance Analysis 
80 - Variance Analysis 
80.1 - Transmittal and Due Dates 
90 - Explanation of Reporting Requirements for the Variance Analysis 
90.1 - Reporting Parameters 
90.2 - Instructions for Completing the Variance Analysis Explanation Report 
100 - Fiscal Year Over Expenditures - October-September IER 
110 - Control of Administrative Funds Drawn 
120 - Budget Amount Appears Insufficient 
130 - Completing the Final Administrative Cost Proposal (FACP) 
130.1 - Transmittal and Due Date 
130.2 - Activities 
130.3 - Hours (Hours Fields of the Activity Form) 
130.4 - Costs (Cost Item Fields of the Activity Form) 
130.5 - Forward Funding 
130.6 - Workload (Workload Field 1 of the Activity Form) 
130.7- Exhibit of Credit Schedule Attachment to the Cost Classification Report  130.8 - Completing the Credit Schedule Attachment to the Cost Classification 
Report 
140 - Supporting Documentation for the FACP 
150 - Financial Procedures for Release of Medicare Information to the Public 
160 - Financial Procedures Related to Medicare Projects Funded by HHS Components 
Other Than CMS 
160.1 - Release of Existing Medicare Information 
160.2 - Development of Additional Data 
170 - Special One-Time Costs Associated With Non-Continuation of the Medicare 
Contract 
180 - Budget Execution Check List for Program Management and Medicare Integrity 
Program 
190 - Intermediary/Carrier Retention of Records for Federal Audit 
190.1 - Examination of Records 
190.2 - Performance of Audits 
190.3 - Records Maintained 
190.4 - Availability of Records 
190.5 - Preservation and Destruction of Records 
190.6 - Appeals, Litigation and Exceptions 
190.7 - Subcontracts 
190.8 - Fiscal Reviews 
200 - Cost Accounting Standards - General 
200.1 - Consistency in Estimating, Accumulating, and Reporting Costs 
200.2 - Consistency in Allocating Costs Incurred for the Same Purposes 
200.3 - Accounting for Unallowable Costs 
 
NOTE: Revision 2, the initial release of this chapter, includes a cross reference to the 
source sections in current manuals. The manual is identified by A1, A2, A3, or A4 for 
Intermediary Manual Parts 1 through 4; or by B1, B2, B3 or B4 for Carriers Manual Parts 
1 through 4. This indicator is followed by a dash and the related section number. 
  10 - General - (Rev. 2, 08-30-02) 
A1-1300, B1-4300 
 
This chapter establishes fiscal controls to ensure efficient use of the Health Insurance 
Trust Funds. These controls are necessary to implement program objectives and to carry 
them out within established limitations. Each contractor shall plan its operation within the 
lower of the approved annual budget, the approved periodic budget distributions and the 
certified funds available for Program Management (PM) and Medicare Integrity Program 
(MIP) budgets separately, and without co-mingling. It is responsible for performing a 
continuing analysis of the approved budget in light of experience and projected future 
needs. It shall report any change in fiscal requirements to CMS. (See 120.) 
 
Monthly Interim Expenditure Reports (IERs) prepared for PM and MIP funding, are 
required to assure adequate financing of the program and to enable CMS to control its 
overall expenditures. A Final Administrative Cost Proposal (FACP) is required after the 
expiration of the FY to form the basis for the audit and final determination of allowable 
costs. (See 180 for a list of all budget execution reports due.) 
 
The contractor shall prepare a narrative identification of unallowable costs for all cost 
reports in accordance with Chapter 7, Section 3, Accountability and Chapter 1, 80.B. 
 
20 - Cost Report Forms Supply - (Rev. 2, 08-30-02) 
A1-1301, B1-4301 
 
Copies of all cost reports referred to in the ensuing sections can be obtained from the 
Contractor Administrative-Budget and Cost Reporting (CAFM II) System. 
 
30 - Contractors Performing Services for Other Medicare Contractors - 
(Rev. 2, 08-30-02) 
A1-1302, B3-4302 
 
When services such as provider audit, EDP processing, bill/claims processing, and 
appeals are performed by a Medicare contractor for another Medicare contractor, the 
receiving contractor shall report costs as subcontract costs. It shall not include the 
productive hours associated with the subcontract costs on the Activity Form. See Chapter 
1, 210. 
 
The Blue Cross and Blue Shield Association (BCBSA) performs most of the Plan PRRB 
appeal activity. However, some Plans still maintain their own Provider Reimbursement 
Review Board (PRRB) representation and may require BCBSA assistance periodically. If 
a Blue Cross Plan requests the assistance of the BCBSA in connection with a specific 
PRRB appeal, BCBSA invoices the Plan for the cost and is paid by the Plan and the 
standard procedures for reporting costs are followed. 
 
30.1 - Servicing Contractor 
(Rev. 128; Issued:  07-13-07; Effective:  10-01-06; Implementation:  08-13-07)   
The servicing contractor shall accrue the costs involved and submit a monthly invoice to 
the receiving contractor. It shall submit invoices promptly to permit the receiving 
contractor to submit its IER on a timely basis. It shall include adjustments to previous 
invoices in subsequent invoices. The servicing contractor must have adequate 
documentation by cost category to support the invoice amount. It shall not include these 
costs in its cost reports. 
 
30.2 - Receiving Contractor - (Rev. 2, 08-30-02) 
A1-1302.2, B1-4302.2 
 
The receiving contractor shall include the invoiced amount as subcontract costs in all 
appropriate functions and activities on the IER, Contractor Auditing and Settlement 
Report (CASR) CMS-1525A, (Intermediaries Only), and FACP submitted to CMS. It 
shall include the servicing contractor's name in the Remarks section of the Activity Form. 
It shall develop estimates for use in cost reports when the servicing contractor does not 
submit an invoice in time for inclusion in the cost report. 
 
40 - Special Cost Reporting Issues - (Rev. 2, 08-30-02) 
A1-1303, B1-4303 
 
Shared system costs and CWF satellite costs for ongoing maintenance, as well as for the 
other costs of the user groups, e.g., travel, are to be allocated according to the following 
instructions. 
 
The general rule for allocating costs when more than one Medicare function/activity is 
affected is to allocate time and cost equitably to the activities benefiting from the related 
work. There are three generally acceptable approaches for allocating such costs. 
 
Charge ongoing costs to Activity 11001, Bills/Claims Processing, if the work primarily 
benefits that activity; 
 
Charge ongoing costs to the activities which benefit from the work, if the benefit can be 
demonstrated and is documented; or  
 
If the cost is small and the related work generally benefits all Medicare functions, it may 
be allocated to all Medicare activities using the same or similar methodology to that 
stated in chapter 1, 90.10, on overhead costs. Note that this is not a statement that such 
costs are an overhead cost, but only that such costs may be allocated in the same or 
similar manner. 
 
50 - Exhibit of the Certification Schedule for the Interim Expenditure 
Report (IER) 
(Rev. 2, 08-30-02) 
A1-1320, B1-4320 
  Click here to view exhibit of the Certification Schedule for the Interim Expenditure 
Report (IER) 
 
60 - Completing the Cumulative (IER) - (Rev. 2, 08-30-02) 
A1-1321, B1-4321 
 
The IER provides cumlative costs for each activity, using the same multiple-use 
Administrative Budget and Cost Report format referenced in Chapter 1, 80. It adds the 
Administrative Funds Drawn section to the Certification Schedule as displayed in 50. 
The contractor shall report costs on an "allowable costs" basis in accordance with 48 CFR 
52.216-7(b) and on a fully accrued basis including year-end and other adjustments. 
 
It shall follow these instructions unless it has a contract that contains specific terms and 
conditions that differ from these instructions. In that case, it shall use these instructions as 
general guidance only. 
 
The IERs will generally be submitted on a monthly basis unless otherwise stated in the 
contractor's specific contract. The contractor shall make adjustments, within a FY, to 
prior interim reports on the subsequent IER. It shall make adjustments to the October-
September IER on the FACP. It shall submit a revised October-September IER prior to 
submitting a FACP if the changes are material and the change is discovered prior to 
preparation of the FACP. (See 130.) It shall note all material adjustments. 
 
60.1 - Transmittal and Due Dates 
(Rev. 128; Issued:  07-13-07; Effective:  10-01-06; Implementation:  08-13-07) 
 
The contractor shall transmit the IER via the Contractor Administrative-Budget and 
Financial Management (CAFM II) System. If the due date falls on a Federal holiday or a 
weekend, the due date is the next working day. See 180 for CAFM II IER due dates. 
 
60.2 - Completing the IER - (Rev. 2, 08-30-02) 
A1-1321.2, B3-4321.2 
 
See descriptions in Chapter 1, 90 and as noted below. 
 
60.3 - Hours - Activity Form - (Rev. 2, 08-30-02) 
A1-1321.3, B3-4321.3 
 
The contractor shall furnish cumulative, net working (on-duty) hours directly assigned or 
otherwise allocated to a particular activity in accordance with Chapter 1, 200. For 
computing net working hours for each activity, it shall use working hours within the 
activity. It shall deduct the same company-wide paid leave percentage experienced during 
the month or use paid leave hours, if available. It shall exclude non-compensated 
overtime hours. It shall include or exclude, as appropriate, personnel hours loaned and 
borrowed by each activity. It shall include hours worked by temporary help, furnished by 
outside organizations. The hours to report for temporary help are those incurred by non- employees who are under the contractor's direct supervision. (See Chapter 1, 90.9P.) 
The contractor shall round entries to the nearest hour. 
 
60.4 - Costs and Credits - Activity Form - (Rev. 2, 08-30-02) 
A1-1321.4, B3-4321.4 
 
The contractor shall round all costs and credits to the nearest dollar. 
 
60.5 - Net Hours Available - Miscellaneous Schedule - (Rev. 2, 08-30-02) 
A1-1321.5, B3-4321.5 
 
The contractor shall enter the number of net cumulative productive hours required to 
convert total incurred productive hours to equivalent staff-years for the reporting period. 
See chapter 1, 200. 
 
60.6 - Administrative Funds Drawn - Certification Schedule - (Rev. 2, 
08-30-02) 
A1-1321.6, B1-4321.6 
 
This screen is used only with the IER. The contractor shall report only those draws made 
during the report month. Reporting of administrative funds drawn is NOT on a 
cumulative basis. The contractor shall complete as follows: 
 
Date - Contractor shall enter the date the draw is received through Smartlink, not the date 
requested. 
 
Draw for Current Year: 
 
Intermediary - enter each draw made during the report month for the current FY 
 
Carrier - Enter the draw amount for the corresponding date for the funding FY of the IER 
 
Prior Year - Contractor shall enter any draws made during the report month for prior 
years under the identified year column. 
 
Total - CAFM II will calculate the total draws for the month by year. It must agree to the 
totals reported through Smartlink. 
 
60.7 - Contractor Certification - Certification Schedule - (Rev. 2, 08-30-
02) 
A1-1321.7, B1-4321.7 
 
An authorized official signs and dates the report. 
  60.8 - Remarks - Activity Form and Certification Schedule - (Rev. 2, 08-
30-02) 
A1-1321.8, B1-4321.8 
 
Contractor shall add any appropriate remarks including discussion of items reported in 
Other Adjustments and Forward Funding. 
 
60.9 - Forward Funding - (Rev. 2, 08-30-02) 
A1-1321.9, B1-4321.9 
 
Projected costs must be reported on the September IER if the contractor has been 
approved for forward funding of a project. 
 
60.10 - Hard Copy Requirements - (Rev. 2, 08-30-02) 
A1-1321.10, B1-4321.10 
 
Hard copies of the IER and attachments are not required in the RO or CO. The contractor 
shall retain the signed copy in its files. 
 
NOTE:  See 180 for required attachments and due dates. 
 
70 - Exhibit of Variance Analysis 
(Rev. 128; Issued:  07-13-07; Effective:  10-01-06; Implementation:  08-13-07) 
 
Variance Version 1 
 
Click here to view exhibit of Variance Analysis Version 1. 
 
Variance Version 2 
 
Click here to view exhibit of Variance Analysis Version 2. 
 
Variance Version 3 
 
Click here to view exhibit of Variance Analysis Version 3. 
 
80 - Variance Analysis 
(Rev. 128; Issued:  07-13-07; Effective:  10-01-06; Implementation:  08-13-07) 
 
The variance analysis consists of two parts. The first part is the CAFM II generated report 
that shows all variances for the report period and highlights those variances which fall 
outside established tolerances and require an explanation. Using the data on the generated 
report, the contractor sends the RO a memo that explains any variance above 
predetermined tolerance levels. 
  There are three versions of the variance analysis. Version 1 is created three times during 
the FY. It shows all year-to-date variances for the report period (Annualized IER vs. the 
approved NOBA). Version 2 is created with the submission of the September IER. It 
shows the preliminary end of the year variance (September IER vs. NOBA). Version 3 is 
created after the submission of the FACP. It shows the final variances (September IER 
vs. FACP). 
 
80.1 - Transmittal and Due Dates 
(Rev. 128; Issued:  07-13-07; Effective:  10-01-06; Implementation:  08-13-07) 
 
Variance reports are required with the IER for the variance periods and with the FACP. 
(See 180 for due dates.)  Contractors shall transmit the variance narrative via email to 
CO. 
 
90 - Explanation of Reporting Requirements for the Variance Analysis - 
(Rev. 2, 08-30-02) 
A1-1332, B1-4332 
 
90.1  Reporting Parameters 
(Rev. 23, 10-24-03) 
 
A1-1332.1, B1-4332.1 
 
The CMS will determine which activity codes at either the activity (detail) or function 
(summary) level will need explanations if a tolerance variance level is exceeded.  CAFM 
II has standard reports to identify which activity (detail level) or function (summary level) 
codes are part of the variance analysis, the required periods and the specified tolerances 
for these periods.  Based on the codes and tolerances indicated in these reports, the 
CAFM II generated variance report will indicate which activity codes need explanations.   
Codes, reporting periods and tolerances can vary from one fiscal year to another.  
 
90.2 - Instructions for Completing the Variance Analysis Explanation 
Report 
(Rev. 2, 08-30-02) 
 
A1-1332.2, B1-4332.2 
 
The contractor's explanation must include the reason for the variance and what action is 
being taken to correct the variance by the next IER, e.g., redirection of efforts, abatement 
of activities (CMS approval required), a supplemental budget request, reduction or 
increase in staff, or temporary workload backlog. Statements such as "We have exceeded 
the variance tolerance because adequate funds were not provided by CMS in the budget 
approval" are neither responsive nor acceptable. All variances between the September 
IER and the FACP must be explained as defined in 140. 
  A.   The contractor shall identify the month and FY of the report. 
 
B.   For each activity cost or workload that exceeds the tolerance percentage as indicated 
in CAFM II, the contractor shall complete the following in its narrative explanation to the 
RO: 
 
It shall enter the code number and name for the function or activity. 
 
It shall enter the variance percentage as displayed in CAFM II, and  
 
It shall enter the explanation of the variance. 
 
C.   The contractor shall submit narrative explanations to the RO via electronic media. 
Specific instructions on the type of word processing package to use can be obtained from 
the contractor's RO. 
 
100 - Fiscal Year Over Expenditures - October-September IER - (Rev. 
2, 08-30-02) 
A1-1333, B1-4333 
 
The contractor's contract with CMS requires staying within approved budget amounts and 
levels of certified funds. It shall analyze its financial position in order to advise CMS, in a 
timely manner, of any anticipated significant deviations. In the event the administrative 
costs reported in the October-September IER exceed the total approved budget, it shall 
furnish documentation justifying the over expenditure to its RO with a copy to CO. The 
request for funding will not necessarily be approved. 
 
The CMS reviews justifications for adequacy and, where appropriate and if funding is 
available, issues a revised NOBA that enables the contractor to draw additional funds. 
The RO may advise the contractor that consideration of a budget revision is postponed 
until the FACP is received and analyzed, e.g., where the amount of the over-expenditure 
is relatively minor or where the contractor has not justified the over-expenditure. This 
does not adversely affect the claim for the funds. 
 
110  Control of Administrative Funds Drawn 
(Rev. 23, 10-24-03) 
 
A1-1340, B1-4340 
 
The funding level approved by Congress limits the approval of funds.  The contractor 
shall draw funds to the lower of the cumulative quarterly distribution certified on the 
NOBA or the Total Costs (amount expended) as reported on the IER or FACP.  It shall 
draw administrative funds during the period in line with expenditures.  Funds drawn 
during the subsequent month must be adjusted for administrative funds drawn in excess 
of actual costs reported. 
  120 - Budget Amount Appears Insufficient - (Rev. 2, 08-30-02) 
A1-1351, B1-4351 
 
A.   Submission of SBR 
 
The contractor shall submit an SBR whenever it appears that the budgeted amount is 
insufficient to adequately perform the required functions and the need for additional 
funds can be adequately documented. As a general rule, it shall submit the SBR no later 
than 90 days prior to the exhaustion of funds so as to allow CMS sufficient time to 
respond prior to the need to submit an abatement notice. (See B below.) The SBR should 
never be submitted less than 60 days prior to the exhaustion of funds unless it can be 
demonstrated that it could not have been given in advance. Resolution of the SBR may 
include: 
 
An increase in the budget; 
Institution of additional efficiencies; 
A reduction of functions to be performed; or  
Other ways and means agreeable to both parties. 
 
The contractor shall discuss these alternatives in the SBR and, if after negotiating in good 
faith, there is no satisfactory resolution, CMS will send a written rationale denying all or 
part of the SBR. 
 
B.   Abatement Notice 
 
The contractor shall submit a written abatement notice to the RO no less than 60 days 
prior to the date on which it appears that the budgeted amount is insufficient to 
adequately perform the required functions in accordance with the Cost of Administration 
Article in the Contract/Agreement. 
 
130 - Completing the Final Administrative Cost Proposal (FACP) - 
(Rev. 2, 08-30-02) 
A1-1361, B1-4361 
 
The contractor shall prepare the FACP allocated by PM and MIP funds. It shall include 
all Medicare costs incurred during the FY or other period as mutually agreed upon. It 
shall not include adjustments related to prior years' costs on the current FACP. It shall 
include them as an amendment to the FACP for the year affected. 
 
The report is the final allocation of all costs, both direct and indirect, including 
adjustments to previously reported costs. It represents the final claim and serves as the 
basis for audit and final settlement of allowable costs. 
 
130.1 - Transmittal and Due Date 
(Rev. 128; Issued:  07-13-07; Effective:  10-01-06; Implementation:  08-13-07) 
  The contractor shall submit the complete FACP consisting of the Activity Forms with all 
attachments and supporting schedules (see 130.7 and 140) 3 months after the end of 
the FY (i.e., December 31). If CMS has approved projects for forward funding, then 
supplemental FACPs should be submitted. If the due date falls on a Federal holiday or a 
weekend, the due date is the next working day. The contractor shall transmit the Activity 
Form data for the FACP electronically on the CAFM II System. It shall forward a signed 
hardcopy to CO via regular mail.  Contractors shall not use overnight delivery. 
 
See 180 for transmission deadlines. 
 
NOTE:  After submission of the September cost report but prior to submission of the 
FACP, the contractor shall continue to draw funds for costs incurred not to exceed the 
total budget. Once the FACP is submitted, additional draws shall not be made until the 
contractor is liable for payment (forward funded items). Supplemental FACPs shall be 
submitted no later than 30 days after the close of each subsequent quarter, until all 
projects are completed, but not later than 30 days after the close of the subsequent FY 
when these funds expire. 
 
130.2 - Activities - (Rev. 2, 08-30-02) 
A1-1361.2, B1-4361.2 
 
Descriptions of these items are in Chapter 1, 100. 
 
130.3 - Hours (Hours Fields of the Activity Form) - (Rev. 2, 08-30-02) 
A1-1361.3, B1-4361.3 
 
The contractor shall enter hours as developed using instructions in 60.3. It shall round 
entries to the nearest hour. 
 
130.4 - Costs (Cost Item Fields of the Activity Form) - (Rev. 2, 08-30-02) 
A1-1361.4, B1-4361.4 
 
The contractor shall enter costs and credits as in 60.4. It shall round entries to the 
nearest dollar. 
 
130.5 - Forward Funding - (Rev. 2, 08-30-02) 
A1-1361.5, B1-4361.5 
 
Projected costs must be reported on the FACP if the contractor has been approved for 
forward funding of a project. 
 
130.6 - Workload (Workload Field 1 of the Activity Form) - (Rev. 2, 08-
30-02) 
A1-1361.6, B1-4361.6 
  The contractor shall enter the workloads for the period. (See chapter 1, 90.9O.) 
 
Remarks - The contractor shall use for any additional comments and to reference 
attachments. 
 
Net Hours Available - On the Miscellaneous Screen the contractor shall enter the number 
of net productive hours required to convert total productive hours to equivalent staff-
years for the reporting period. (See chapter 1, 200.) 
 
130.7-Exhibit of Credit Schedule Attachment to the Cost Classification 
Report 
(Rev. 2, 08-30-02) 
A1-1361.7, B1-4361.7 
 
Click here to view exhibit of Credit Schedule Attachment to the Cost Classification 
Report. 
 
130.8 - Completing the Credit Schedule Attachment to the Cost 
Classification Report 
(Rev. 2, 08-30-02) 
A1-1361.8, B1-4361.8 
 
See chapter 1, 140 for descriptions of credits. 
 
The credit schedule supports the Cost Classification Report (CMS-2580) attachment to 
the FACP. 
 
Transferee Name - The contractor shall list the insurers to whom claims are being 
transferred for complementary insurance (including both internal and external transfers), 
Medicaid, and Other. 
 
Transfer Type - The method of transfer (electronic or hard copy). 
 
Frequency - The contractor shall indicate whether the transfer is an occasional request or 
by agreement for ongoing transfer. 
 
Number of Claims Transferred - The number of claims transferred to complementary 
insurers (including both internal and external transfers), Medicaid, and Other. 
 
Credit Received (Including Transfer Costs) - The total credit received, including transfer 
costs, for claims transferred to complementary insurers (including both internal and 
external transfers), Medicaid, and Other. The total credit received for complementary, 
Medicaid, and other must agree with the totals on the Preliminary Data Entry Screen. 
 
Unit Cost - The credit received divided by the number of claims transferred. 
  Credit Code - Indicate the type of transfer: 
 
  C = Complementary Insurance; 
  N = Medicaid; 
  M = Medigap; or  
  O = Other (as defined by CMS). 
 
140 - Supporting Documentation for the FACP - (Rev. 2, 08-30-02) 
A1-1362, B1-4362 
 
If there are any variances between the September IER and the FACP, e.g., charges or 
credits or other adjustments that may have been received after the close of the FY, the 
contractor shall prepare a detailed narrative explanation. If total costs claimed are more 
than the NOBA for the FY, it shall include a justification for the additional requested 
funds. (See 120 and chapter 1, 250.1.) 
 
The RO reviews the narrative justification for adequacy and may issue a revised NOBA, 
where appropriate, allowing the drawing of additional funds. (See Chapter 1.) 
 
If costs claimed on the FACP are less than the administrative funds drawn, the contractor 
shall make an adjustment to current cash draws for administrative costs to reduce funds 
drawn for the applicable fiscal period. 
 
It shall include the attachments in 180 as supporting documentation for the FACP. 
 
150 - Financial Procedures for Release of Medicare Information to the 
Public - (Rev. 2, 08-30-02) 
A1-1380, B1-4380 
 
Costs incurred for releasing Medicare information to the public should be reported on the 
IER and the FACP. 
 
160 - Financial Procedures Related to Medicare Projects Funded by 
HHS Components Other Than CMS - (Rev. 2, 08-30-02) 
A1-1381, B1-4381 
 
Requests may be received to furnish information and/or perform Medicare services by 
HHS components other than CMS, or from other third parties under contract with other 
HHS components. The contractor shall handle charges for such services in accordance 
with the following instructions. 
 
160.1 - Release of Existing Medicare Information - (Rev. 2, 08-30-02) 
A1-1381.1, B1-4381.1 
  If an outside organization has a contract/grant with a HHS component other than CMS to 
carry out independent studies or projects and requests existing data and/or specific 
records for purposes of aiding the study, the contractor shall not charge the outside 
organization. 
 
160.2 - Development of Additional Data - (Rev. 2, 08-30-02) 
A1-1381.2, B1-4381.2 
 
A.   Outside Organizations 
 
If an outside organization requests data which must be developed or requests other 
services, the contractor shall invoice such services to the organization and not include 
those costs on the IER or FACP. 
 
B.   HHS Components Other Than CMS 
When receiving requests from HHS components, other than CMS, to perform services on 
various studies, the contractor shall invoice directly to the requesting HHS component 
and not include these costs on the IER or FACP. 
 
170 - Special One-Time Costs Associated With Non-Continuation of the 
Medicare Contract - (Rev. 2, 08-30-02) 
A1-1382, B1-4382 
 
Special one-time costs associated with a contractor leaving the program are not handled 
through the normal budget and cost reporting process. Instead, these costs, which may 
include severance pay for employees or penalty payments for terminating contracts, are 
handled through a separate voucher process subsequent to submission and approval of a 
budget request. The voucher should state the period of time covered and itemize the 
expenses. CMS reviews the voucher and determines whether payment should be made. 
Approved vouchered costs are paid separately by check or EFT and not through the 
NOBA process. 
 
180  Budget Execution Check List for Program Management and 
Medicare Integrity Program 
(Rev. 128; Issued:  07-13-07; Effective:  10-01-06; Implementation:  08-13-07) 
 
Form NAME  Due Date 
 
Interim Expenditure Report  Activity Forms  20 days after end of reporting 
(with following attachments) month 
     Miscellaneous Schedule 
     Special Project Schedule (if applicable) 
     Certification Schedule 
 
Variance Analysis  27 days after end of variance 
  month, 4 period annually   
Final Administrative Cost Proposal  Activity  3 months after end of FY, 
Forms with following attachments:  Quarterly thereafter as needed 
     Miscellaneous Schedule 
     Special Project Schedule (if applicable) 
     Certification Schedule 
     Credit Schedule 
     Cost Classification Report 
     Narrative Explanation of FACP/IER 
 Differences 
 
If the due date falls on a Federal holiday or a weekend, the due date is the next working 
day. 
 
190 - Intermediary/Carrier Retention of Records for Federal Audit   
(Rev. 2, 08-30-02) 
 
190.1 - Examination of Records - (Rev. 2, 08-30-02) 
A1-1500, B1-4500 
 
The Secretary and the Comptroller General of the United States shall have access to and 
the right to examine those books, records, documents and other supporting data which 
will permit adequate evaluation of the cost or pricing data submitted by the intermediary, 
along with the computations and projections used therein. The purpose of the 
examination shall be to verify that cost or pricing data submitted in conjunction with the 
negotiation of the agreement, including changes thereto, and the preparation of any fiscal 
report or settlement, are accurate, complete and current. The right to examination of 
records shall continue as long as records are maintained. 
 
It should be noted that the Secretary and Comptroller General's right of access to these 
records does not interfere with the intermediary's or carrier's file maintenance program. 
However, where records which have been retired to a record center are needed, they 
should be retrieved. 
 
190.2 - Performance of Audits - (Rev. 2, 08-30-02) 
A1-1502, B1-4502 
 
As soon as practicable after the receipt of the intermediary's final cost proposal following 
the close of the intermediary's accounting year, the Department of Health and Human 
Services Audit Agency will make an audit of the books of accounts and records 
pertaining to the health insurance program. Intermediaries will be notified in advance of a 
scheduled audit. Negotiations on a final determination of the allowable cost of 
administering the agreement shall be undertaken as rapidly as possible after receipt of the 
final cost proposal and completion of the audit. 
 
190.3 - Records Maintained - (Rev. 2, 08-30-02)  A1-1504, B1-4504 
 
The intermediary or carrier shall maintain books, records, documents and other evidence 
pertaining to the costs and expenses of the agreement, as well as accounting procedures 
and practices (hereinafter collectively called "records"). These records shall be 
maintained to the extent and in such detail as will properly reflect all net costs, direct and 
indirect, of labor, materials, equipment, supplies and services, and other costs and 
expenses of whatever nature claimed to have been incurred, and for which reimbursement 
is claimed under the provisions of the agreement. 
 
190.4 - Availability of Records - (Rev. 2, 08-30-02) 
A1-1506, B1-4506 
 
The intermediary's or carrier's facilities, or such part thereof as may be engaged in the 
performance of the agreement, and its records shall be subject at all reasonable times to 
inspection and audit by the Secretary. 
 
190.5 - Preservation and Destruction of Records - (Rev. 2, 08-30-02) 
A1-1508, B1-4508 
 
The intermediary or carrier shall maintain and destroy its records in accordance with 
manual procedures governing records destruction. 
 
190.6 - Appeals, Litigation and Exceptions - (Rev. 2, 08-30-02) 
A1-1514, B1-4514 
 
Records which are related to  
 
Appeals under a disputes clause of the agreement, 
 
Litigation or the settlement of claims arising out of the performance of the agreement, or  
 
Cost and expenses of the agreement to which exception has been taken by audit shall be 
retained by the intermediary until such appeals, litigation, claims or exceptions have been 
settled, and for a period of three years from the date of such settlement. 
 
190.7 - Subcontracts - (Rev. 2, 08-30-02) 
A1-1516, B1-4516 
 
The intermediary or carrier shall include in each of his subcontracts a provision to the 
effect that the Secretary and the Comptroller General of the United States shall, until the 
expiration of three years after termination of the agreement, have access to and the right 
to examine any books, documents, papers and records of such subcontractors, involving 
transactions related to the subcontract. The term "subcontract" as used in this paragraph, 
excludes: 
  Purchase orders not exceeding $2,500 and  
 
Subcontracts or purchase orders for public utility services at rates established for uniform 
applicability to the general public. 
 
The foregoing does not apply to subcontracts to perform provider audits. 
 
190.8 - Fiscal Reviews - (Rev. 2, 08-30-02) 
A1-1518, B1-4518 
 
Required budgetary, expenditures, and other fiscal reports, submitted monthly, quarterly, 
and annually by intermediaries and carriers, will be reviewed currently by CMS to 
determine, primarily, whether the types and amounts of expenditures as reported are in 
accordance with the provisions of the agreement and properly reflect the intermediary's or 
carriers' accountability for advances of Federal funds under the program. The CMS will 
contact the intermediary or carrier to resolve any financial questions relative to 
expenditure of funds for administrative expenses and care costs. 
 
Problems of a fiscal nature will be reviewed with intermediaries and carriers to determine 
that fiscal policies and procedures relating to the agreement are geared toward prudent, 
effective and economical operations and reflect adequate consideration of the interests of 
both the intermediary or carrier and the Federal Government. These reviews will be a 
cooperative process from which the intermediary or carrier and Federal Government will 
mutually benefit. Reviews may be initiated by either party to the agreement. Where fiscal 
problems arise relative to expenditure of Federal funds under the agreement and an 
intermediary or carrier requests assistance from CMS, fiscal specialists will be made 
available promptly. 
 
Periodic cost studies of intermediary and carrier operations will be made in order to carry 
out the congressional mandate relative to making comparative analyses of individual 
intermediary and carrier performance. 
 
200 - Cost Accounting Standards - General - (Rev. 2, 08-30-02) 
A1-1520, B1-4520 
 
The Medicare contracts, include a provision for the application of through cost 
accounting standards to the contractors' accounting systems. The three standards included 
in the contract are intended to achieve a degree of uniformity and consistency in the 
contractors' cost accounting practices to be used in connection with their Medicare 
operations. Following is a discussion concerning the interpretation of the applicable 
standards: 
 
200.1 - Consistency in Estimating, Accumulating, and Reporting Costs - 
(Rev. 2, 08-30-02) 
A1-1521, B1-4521 
  The objective of this standard is to maintain a consistency in the cost accounting practices 
employed by a contractor in its methods used for estimating costs and in its practices 
used in accumulating and reporting cost during the course of the contract of fiscal period. 
Consistency in cost accounting practices provides reasonable assurance that comparable 
transactions are treated alike. This assurance is critical to our program since it provides a 
reliable basis for valid comparisons between estimated, incurred, and reported costs. 
 
This consistency requirement addresses the accounting structure of the contractor's 
proposed budget - that is the cost accounting practices used in preparing the budget - not 
to the amounts estimated or the estimating techniques used. The standard also requires 
that a contractor's cost accounting practices used in accumulating and reporting actual 
costs for the Medicare contract shall be consistent with its practices used for estimating 
costs for the related budget for the same fiscal year. The contractor must comply with this 
requirement through the term of the contract. 
 
This standard extends to all levels of the contractor's cost accounting system. Therefore, 
it is necessary that the contractors periodically review their methodologies for preparing 
their budgets in order to obtain the consistency required with the accounting records. 
The standard essentially requires that significant items of costs be accorded the same 
accounting treatment in the estimate and the cost records. 
 
There is no presumption that either of the requirements described above is violated when 
a contractor groups homogeneous costs in his estimate, but accumulates and reports such 
costs in greater detail during contract performance. If it is not practicable to estimate by 
individual cost element or function, the contractor may use groupings of homogeneous 
costs in his estimate provided: 
 
Such grouping does not impair ability to compare any significant cost in an estimate with 
the actual cost accumulated and reported, and  
 
Estimating practices and accounting practices are consistent with respect to: 
 
  The classification of costs as direct or indirect, 
 
  The indirect cost pool assignments to which each element or function of cost is 
charged or proposed to be charged, and  
 
  The methods of allocating indirect costs to the contract. 
 
200.2- Consistency in Allocating Costs Incurred for the Same Purposes - 
(Rev. 2, 08-30-02) 
A1-1522, B1-4522 
 
The purpose of this standard is to require that each type of cost is allocated only once and 
on only one basis to our contract or other cost objective. Thus, no cost may be allocated 
to a final cost objective as an indirect cost if other costs incurred for the same purpose  and in like circumstances have been included as a direct cost of that same or any other 
cost objective. Conversely, no cost may be allocated to an objective as a direct cost if 
other costs incurred for the same purpose have been included in any indirect cost pool to 
be allocated to the same or any other cost objective. The requirement of the standard, 
though stated in terms of costs incurred, is equally applicable to estimates of costs as used 
in the contractors' budget preparation. 
 
For the sake of practicality, minor items of direct costs may be treated as indirect costs, 
provided that the treatment is consistently applied to all final cost objectives and provided 
that the results are substantially the same as would have been produced if each such cost 
had been treated as a direct cost. This materiality provision is an integral part of this 
standard. 
 
200.3 - Accounting for Unallowable Costs - (Rev. 2, 08-30-02) 
A1-1523, B1-4523 
 
The purpose of this standard is to establish guidelines for the early identification of 
unallowable costs and the treatment to be accorded such costs. It is based on the premise 
that costs should be allocated to their appropriate cost objectives according to beneficial 
or casual relationships and without regard to their allowability. The standard is concerned 
with the broad accounting principles that govern cost allocation, not with making 
otherwise allowable costs unallowable. 
 
Generally, identification is required under varying circumstances for the following 
classes of unallowable costs:  
 
Those which are expressly unallowable or mutually agreed to be unallowable, 
 
Those which become designated as unallowable by reason of the Secretary's 
determination, 
 
Those which are directly associated with either (l) or (2), 
 
Those which arise out of a work project not contractually authorized, and  
 
Those costs for which reimbursement has been previously withheld by BHI. 
 
In addition, costs incurred for the same purpose under like circumstances as unallowable 
costs must be identified. 
 
Expressly unallowable costs consist primarily of those specified as unallowable in the 
principles of reimbursement. These costs, as well as costs mutually agreed to be 
unallowable or mutually agreed to be directly associated with unallowables, must be 
identified in the contractors' accounting records and excluded from any submitted budget 
and cost reports. 
  When the Secretary's determination designates certain costs unallowable because they are 
directly associated with other unallowables, those costs, too, must be identified if used in 
budgets and cost reports. 
 
Costs designated as unallowable by the Secretary's determination, as well as costs 
incurred for the same purpose under like circumstances as those mutually agreed to be 
unallowable, must be identified if included in a budget or cost report. 
 
The costs of work not contractually authorized must be accounted for in a manner that 
permits ready separation from the costs of authorized work projects.  70exhibit1 
 
  70exhibit2 
 
  70exhibit3 
 
 
 
  
 
 
 
 
 
 
  Transmittals Issued for this Chapter 
 
Rev #  Issue Date  Subject  Impl Date  CR# 
R128FM  07/13/2007  Revisions to Instructions on Chapter 1- 08/13/2007  5682 
Budget Preparation-Intermediaries and 
Carriers and Chapter 2-Budget 
Execution of the Medicare Financial 
Management (Pub. 100-06) 
R23FM  10/24/2003  Completing the Budget Distribution  11/07/2003  2876 
(BD) 
R02FM  08/30/2002  Initial Publication of Chapter  N/A  N/A 
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