Directive 408.1 

7/25/94 

 FINANCIAL GUIDELINES FOR COOPERATIVE GRADING PROGRAMS 

I. A. This Directive provides managers of Agricultural 

PURPOSE Marketing Service (AMS) cooperative agricultural product grading 

 programs that collect user fees with guidelines for establishing and 

 maintaining reserve funds. It is meant to respond to USDA Office of 

 Inspector General requirements to reinforce the efforts of 

 State/cooperator managers to operate fiscally viable grading programs. 

 B. The guidelines in this Directive do not apply to cooperative 

 grading programs where AMS establishes user fee rates, collects 

 all user fees, and manages the program's reserve. 

II. Cooperative user-financed grading programs are 

AUTHORITY carried out under the provisions of the Agricultural 

 Marketing Act of 1946 (7 U.S.C. 1621-1627), and cooperative 

 agreements entered into by AMS and the respective States/cooperators. 

III. Based on the requirements of the Agricultural 

POLICY Marketing Act (Sec. 203(h)), it is AMS policy that all 

 user-financed cooperative grading programs recover the costs of 

 providing services and maintain a reasonable reserve to finance 

 accrued liabilities and shutdown expenses. Fee analyses should be 

 prepared and, if necessary, fees adjusted to maintain an adequate 

 reserve and ensure fiscal solvency. 

IV. A. Accrued liabilities are expenses incurred that 

DEFINITIONS must be paid at some future date. Examples are accrued leave, 

 severance pay, unemployment compensation, and 

 workers' compensation. 

 B. Accrued liability and shutdown analysis is a formalized 

 estimate of a program's accrued liabilities and shutdown expenses. 

 It is largely based on each cooperator's individually mandated 

 employee benefits, as well as other legal contracts and 

 commitments of the program. 

 C. Cooperators are defined as organizations that have signed 

 cooperative agreements with AMS and are responsible for determining 

 user fee rates and managing user fees collected to carry out 

 cooperative agricultural product quality grading programs. 

 D. Fee analysis is a comparison of the actual and projected 

 revenues and costs incurred while performing a service. It includes 

 the time or other applicable measurement required to perform the 

 service. This analysis is performed to determine an appropriate 

 fee to recover the cost of providing future service and to 

 maintain an adequate reserve. 

 E. Reserve funds are derived from normal fee collections that are 

 not needed for immediate program expenses, and are held to cover 

 accrued liabilities or to provide necessary operating capital. 

 F. Shutdown expenses are all costs and accrued liabilities which 

 must be paid if a program terminates. 

 G. User fees represent assessments which are charged to 

 recipients of a service. 

V. Cooperators should: 

RESPONSIBILITIES A. Periodically calculate the value of the respective 

 cooperator's grading program accrued liabilities. 

 B. Establish a policy for reserve balances for the cooperative 

 grading programs. 

 C. Perform annual fee analyses. 

 D. Raise or lower fees to recover operating costs as appropriate 

 to maintain an adequate reserve balance. 

VI. A. Frequency of Analysis. The calculation of 

CALCULATION required operating capital, including accrued 

OF ACCRUED liabilities and shutdown costs, should be 

LIABILITIES completed every 3 to 5 years, depending on changes 

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AND in State benefit laws or changed rates of inflation. 

SHUTDOWN 

COSTS B. Contents of Analysis. Each cooperator is responsible for 

 determining the method for this analysis. However, to ensure 

 that adequate reserves are maintained, AMS recommends that each 

 analysis include cost estimates for the following: 

 1. Salaries and benefits paid to permanent full- and 

 part-time personnel from the time the decision is announced 

 to shut down a program until the offices are actually closed. 

 2. Travel costs incurred, if any, while returning employees 

 to their official duty station. 

 3. Telephone charges, building rental charges, printing of 

 official reduction-in-force notices, costs for moving office 

 furnishings and equipment, and other related contractual 

 obligations associated with terminating the program. 

 4. The dollar value of employees' accrued leave. This could 

 include sick and annual leave depending on the respective 

 cooperator's employee benefit package. 

 5. The cost of severance pay. This will be determined by the 

 respective State's laws. 

 6. The cost of future workers' compensation payments to 

 injured employees. 

 7. The cost of unemployment compensation. This will be 

 determined by the respective State's laws. 

 8. The need for operating capital, including seasonal 

 startup costs and other requirements to cover unusual 

 costs or temporary losses of revenue due to varying demand 

 for inspection services. 

 9. Any other accrued costs that may result from State laws, 

 regulations, or policies. 

VII. A. Cooperators are responsible for: 

COOPERATOR 

POLICY ON 1. Reviewing appropriate State laws and the 

RESERVE results of the accrued liabilities and shutdown 

BALANCES analysis. 

 2. Establishing a policy for the appropriate level of reserve 

 to be maintained for their respective cooperative grading 

 program. This policy should be documented in written form and 

 a copy sent to the appropriate AMS grading program manager. 

 B. This policy should be reviewed and, if necessary, modified, 

 whenever a new accrued liability and shutdown analysis is completed. 

VIII. A. Frequency of Analysis. A fee analysis should 

PREPARATION be prepared once every 1 to 3 years, depending on 

OF FEE the size and financial status of the program. A 

ANALYSIS copy should be sent to the appropriate AMS grading program 

 manager. In accordance with AMS policy for retention of agency 

 fee analyses, the cooperators' analyses and supporting data 

 should be kept on file for 3 years. 

 B. Contents of Analysis. Each cooperator is responsible for 

 determining the method for the fee analysis. However, AMS 

 recommends that each analysis include the following: 

 1. Current and projected workload indicators such as revenue 

 producing hours, pounds graded, or other applicable indicators. 

 2. Cost data which details most recent actual and anticipated 

 future costs for providing the service. 

 3. A sensitivity analysis that details the impact on revenue 

 and costs resulting from varying workload data. A suggested 

 format for the sensitivity analysis is shown in Attachment 1. 

 4. At least a 2-year projection of the financial position 

 of the program, using several alternative fees. 

IX. For further information, please contact the 

INQUIRIES Director, Financial Management Division. 

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 Lon S. Hatamiya 

 Administrator 

 Attachment 

 Attachment 1 

 AMS Directive 408.1 

 07/25/94 

 Sensitivity Analysis for the Program 

 Fiscal Year 

 Workload Indicators(1) 

 100 Percent of 95 Percent of 105 Percent of 

 Current Current Current

 Estimate Estimate Estimate 

Service Performed:(2) 

 Base Hours 10,000 9,500 10,500 

 Premium Hours 3,000 3,850 3,150 

 Holiday Hours 100 95 105 

Revenue:(3) 

 Base Hours @: 

 $5.00 $50,000 $47,500 $52,500 

 $4.00 40,000 38,000 42,000 

 $3.00 30,000 28,500 31,500 

 Premium Hours @: 

 $10.00 $30,000 $28,500 $31,500 

 $ 9.00 27,000 25,650 28,350 

 $ 8.00 24,000 22,800 25,200 

 Holiday Hours @: 

 $15.00 $1,500 $1,425 $1,575 

 $14.00 1,400 1,330 1,470 

 $13.00 1,300 1,235 1,365 

Expenses: 

 Program(4) $40,000 $38,000 $42,000 

 Overhead(5) 13,500 12,825 14,175 

 Total Expenses $53,500 $50,825 $56,175 

Profit/(Loss): 

 Base/Premium/Holiday Hours: 

 $5.00/$10.00/$15.00 $28,000 $26,600 $29,400 

 $4.00/$9.00/$14.00 14,900 14,155 15,645 

 $3.00/$8.00/$13.00 1,800 1,710 1,890 

Reserve balance at beginning 

 of new fee:(6) $10,000 $10,000 $10,000 

Reserve 1 year after implementation of 

 new fee at varying rates: 

 Base/Premium/Holiday Hours: 

 $5.00/$10.00/$15.00 $38,000 $36,600 $39,400 

 $4.00/$9.00/$14.00 24,900 24,155 26,645 

 $3.00/$8.00/$13.00 11,800 11,710 11,890 

------------- NOTES ------------- 

1. Three levels are required: The current workload level, a lower 

workload (e.g., 95 percent), and a greater workload (e.g., 105 percent). 

2. List each service component for which fees are charged 

(i.e., regular hours, holiday, Saturday, Sunday, bales, lots, 

resident grading, etc.). 

3. Three different revenue rates should be presented for 

each service component. 

4. Cooperator's direct program costs. 

5. Cooperator's indirect costs. 

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6. Determine the reserve at the effective date of the fee 

increase and show the effect on the reserve by the three proposed 

workload levels in the revenue section. 

 

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