State-Mandated Costs and Claims for Reimbursement

EFFECTIVE: 1/1/81 REVISED: 07/2000
David E. Sundstrom, Auditor-Controller
All County departments/agencies and districts governed by the Board of Supervisors shall determine, document and claim reimbursement for "costs mandated by the State." Claims for reimbursement are to be prepared by the affected entities, reviewed by the Auditor-Controller, and filed with the State Controller. Annual reimbursement claims for costs incurred during the previous fiscal year and estimated claims for costs to be incurred during the current fiscal year must be filed with the State Controller's Office (SCO) and postmarked on or before January 15 following the fiscal year in which the expenditures occurred. Initial reimbursement claims (first-time claims) for reimbursement of costs of a previously unfunded mandated program must be filed within 120 days from the date of issuance of the claiming instructions by the SCO for the program.
1.1 Purpose
To maximize County recovery of the costs of State-mandated functions and to sufficiently document those costs to avoid potential audit disallowances.
1.2 Authority
1.2.1 State Constitution
Article XIII B, Section 6, of the California Constitution (Proposition 4, November 6, 1979). Since 1979, legislative changes to State-mandated programs have been made annually.
1.2.2 Government Code Sections 17500 through 17630
The sections in this chapter of the Government Code provide for the implementation of Section 6 of Article XIIIB of the California Constitution by defining the procedures for reimbursements to local agencies for costs mandated by the State. Sections 17525-17533 establish the role of the Commission on State Mandates to act as a quasi-judicial body in accordance with the requirements of Section 6 of Article XIIIB. Sections 17615 and 17616 describe the establishment of a system of state mandate apportionments to streamline the reimbursement process.
1.2.3 Board Resolution
Board of Supervisors' Resolution No. 82-162 dated February 2, 1982 authorizes the Auditor-Controller to prescribe the accounting policies for all offices, departments, and institutions under the control of the Board of Supervisors.
1.3 Definitions
1.3.1 State-Mandated Costs
Any increased costs which the County is required to incur after July 1, 1980, as a result of any State statute enacted on or after January 1, 1975, or any executive order implementing any State statute enacted on or after January 1, 1975, which mandates a new program or higher level of service of an existing program. Reimbursable mandated costs are subject to limitations. (See Section 3.2.4.)
1.3.2 Commission on State Mandates (COSM or Commission)
A quasi-judicial body that receives, hears, and decides on test claims, adopts Parameters and Guidelines, establishes statewide cost estimates and hears and decides on incorrect reduction claims. The Commission was created in 1985, and has seven members.
1.3.3 Test Claim
The administrative procedure available to County departments/agencies seeking reimbursement for a law or an executive order believed to contain a State mandate. Filing a test claim with the COSM is the first step in the reimbursement process. The Commission holds a hearing to decide by majority vote whether or not a reimbursable mandate exists. A successful test claim filed by a local entity establishes the right to claim for all local agencies similarly situated.
1.3.4 Parameters and Guidelines
Parameters and Guidelines for claiming are developed by the test claimant when the COSM determines that a mandate exists. The Parameters and Guidelines describe allowable program costs and other requirements of claiming, and must be adopted by the COSM.
1.3.5 Statewide Cost Estimate
An estimate of costs associated with a particular mandate, performed via a survey of eligible claimants by COSM staff. After approving the costs, the Commission requests funding, generally through a claims bill, that is subject to legislative review and approval.
1.3.6 Claiming Instructions
Claiming instructions are developed and issued by the State Controller for State-recognized mandates. Claiming instructions set forth deadlines, provide descriptions of allowable costs, and provide forms to local agencies who are then able to file actual and estimated claims with the State Controller.
1.3.7 Indirect Cost Rate Proposal (ICRP)
A specific form of department indirect cost rate calculation that conforms to state and federal regulations, terminology, and preparation methodologies. ICRPs are specifically addressed by OMB Circular A-87, Attachment E. An ICRP rate is stated as a percentage that represents the ratio of total department indirect costs and County Wide Cost Allocation Plan (CWCAP) costs to a base (e.g., salaries.) That percentage can then be applied to the base amount (e.g., salaries) of a function, program, or activity, within the department to determine its total indirect costs.
1.3.8 Field Audit
An on-site review of supporting documentation done by the SCO. Not all claims are field audited. A claim is subject to audit by the Controller no later than two years after the end of the calendar year in which the claim is filed or last amended. If no funds are appropriated for the program for the fiscal year in which the claim is made, the time for the State Controller to initiate an audit commences from the date of the initial payment of the claim.
1.3.9 Deficiency Appropriation
A deficiency appropriation occurs when the State Budget does not appropriate enough funds for reimbursement to a particular mandated program. The State Controller must make a request for a deficiency appropriation to cover the shortfall.
1.3.10 State Mandate Apportionment System
The State Mandate Apportionment System (SMAS) is a method of paying certain mandated programs as apportionments. This method is utilized whenever a program has been approved for inclusion in SMAS by the COSM.
1.3.11 Countywide Cost Allocation Plan (CWCAP)
A complex cost study that allocates the costs of County support departments (such as Public Facilities and Resources Department/Facilities Operations, Auditor-Controller, Data Systems, and the County Executive Office) to operating program departments, for claiming and reimbursement purposes. The CWCAP is compiled under the guidelines established by the Federal Government for claiming Federal reimbursements under Office of Management and Budget (OMB) Circular A-87, "Cost Principles for State and Local Governments." This publication can be accessed on the OMB website at the following address:
1.3.12 California State Association of Counties (CSAC)
An organization which assists member counties in obtaining reimbursement for their mandated costs. The County of Orange is a CSAC member.
2.1 Responsibilities of Departments/Agencies and Districts Governed by the Board of Supervisors
County departments, agencies, and districts governed by the Board of Supervisors are responsible for the following State-mandated cost-related functions:
  • Identify reimbursable mandated costs.
  • Implement procedures for documenting mandated costs.
  • Prepare claims for reimbursement from the State. Gather and maintain proper documentation to support claim for possible audit or further review by the SCO.
  • Submit accurate and timely claims to the Auditor-Controller Financial Reporting/Mandated Costs Unit for reviewing and filing with the State.
  • Analyze legislation and executive orders that affect them, and determine if a reimbursable mandate exists.
  • Consult with the Auditor-Controller Financial Reporting/Mandated Costs Unit and the California State Association of Counties (CSAC) to analyze prospective test claims, and to determine if a test claim should be filed. If a test claim is necessary, prepare it for submittal to the COSM.
2.2 Auditor-Controller Financial Reporting/Mandated Costs Unit's Responsibilities
It is the responsibility of the Auditor-Controller Financial Reporting/Mandated Costs Unit to provide departments/agencies and districts assistance with:
  • Determining whether reimbursement may be obtained for costs under a particular State mandate.
  • Establishing documentation requirements and procedures.
  • Reviewing all claims being submitted to the State for reimbursement of mandated costs (see Section 3.4), and filing these claims with the State.
  • Coordinating State audits of County claims by assisting auditors, attending audit entrance and exit conferences, and compiling audit report replies.
  • Coordinating responses to the Commission's requests for developing Statewide Cost Estimate Surveys.
  • Coordinating and notifying departments/agencies and districts of workshops and meetings regarding State mandated cost claiming.
3.1 Determining Mandates
3.1.1 Identifying a Mandate
Departments/agencies and districts governed by the Board of Supervisors review legislation and executive orders that affect them to determine if the statute at issue contains a reimbursable mandate. To determine if a mandate is reimbursable, it must meet the following criteria: Minimum Requirements for a Reimbursable Mandate
  1. Statute was enacted after 1975.
  2. Statute contains a new program or higher level of service in an existing program which must be performed by a local agency.
  3. The program is a governmental service to the public, or a situation unique to government.
Meeting the above criteria indicates that a mandate may exist. Further research and review is required. The Auditor-Controller Financial Reporting/Mandated Costs Unit and the CSAC should be notified at this time. Disclaimers of a Reimbursable Mandate
Even though a mandate may exist, it may be disclaimed due to constitutional or statutory disclaimers. The following criteria should be used:
  1. Did a local agency request the legislation?
  2. Does the law in question create or eliminate a crime or infraction, or change a penalty?
  3. Does the law or regulation affirm a court action?
  4. Does the law or regulation implement a federal mandate?
  5. Does the law or regulation implement a voter approved mandate?
  6. Does the law or regulation lead to offsetting cost savings?
  7. Does the law or regulation provide that a fee may be charged that will offset the cost?
Answering "yes" to the above questions means that there may be limitations in pursuing the mandate. With the exception of A and B, which are constitutionally provided for, however, a "yes" answer to the remaining questions should not automatically lead to the conclusion that the mandate is disqualified.
3.1.2 Identifying Increased Costs
After determining that a mandate exists, potential increased costs need to be identified to determine whether to pursue a test claim. The Government Code provides that a mandate must increase costs by more than $200 in a fiscal year to be pursued. Increased costs are identified as:
  1. Costs originating with the implementation of the mandate.
  2. Costs of increased levels of efforts.
3.1.3 Filing a Test Claim
Test claims are submitted to and heard by the COSM in Sacramento. Any local agency can file a test claim on behalf of all local agencies in the State. The lead claimant is the first agency to file the test claim documents with the Commission. The Commission votes to deny or find a mandate, and a written decision is prepared which must be affirmed by the Commission. If the decision is unfavorable to the test claimant, a lawsuit may be filed in Superior Court. If the decision is favorable, the Parameters and Guidelines process is initiated. The ruling applies to all County governments, not just to the test claimant.
3.1.4 Parameters and Guidelines
Parameters and Guidelines are prepared by the test claimant and submitted to the Commission staff within 60 days of the written decision. Parameters and Guidelines are the basis upon which claims will be paid. After the Parameters and Guidelines have been adopted, the Commission must adopt an estimate of statewide costs resulting from the mandate. Statewide Cost Estimates exceeding $1,000,000 are reported to the Legislature and the amount is included in a local government claims bill. The overall process of filing the initial test claim to approving the mandate takes approximately 12 months.
3.2 Types of Claims
There are four types of claims for costs mandated by the State:
3.2.1 Reimbursement Claim
Initial reimbursement claims are first-time claims seeking reimbursement of costs for one or more prior fiscal years of a program which was previously unfunded. Claims are due 120 days from the date when claiming instructions are issued by the SCO for the program. Annual reimbursement claims are for mandates that have been previously funded and are for costs incurred in the prior fiscal year. These claims must be filed by January 15 following the fiscal year in which costs were incurred for the program.
3.2.2 Estimated Claim
Estimated Claims are filed with the SCO during the fiscal year in which the mandated costs are to be incurred. Estimated claims may be filed in conjunction with an initial reimbursement claim, annual reimbursement claim, or singularly at other times.
3.2.3 Entitlement Claim
An Entitlement Claim is filed with the SCO for the sole purpose of establishing or adjusting a base year entitlement for a mandated program that has been included in the State Mandate Apportionment System (SMAS). When the claims are approved and a base year entitlement amount is determined, the claimant will receive an apportionment reflective of the program's current year costs.
3.2.4 Incorrect Reduction Claim
An Incorrect Reduction Claim is a claim filed with the COSM when a local agency believes a reimbursement claim has been incorrectly reduced by the State Controller. The Commission has legal authority to reverse or sustain all or part of the State Controller's reductions.
3.3 Filing a Reimbursement Claim
3.3.1 Claiming Instructions
Claiming Instructions are prepared by the State Controller and describe specific requirements for filing a claim. For the most part, the Controller's claiming instructions are identical to the Parameters and Guidelines that have been approved by the Commission. The claiming instructions indicate the amount of money appropriated for each mandate and provide an individual set of filing guidelines and forms required for filing the claim.
3.3.2 Claimable Costs
Claimable costs consist of both direct and indirect costs. These include the following:
  1. Direct labor and benefits
  2. Services and supplies directly attributable to the mandate
  3. Department/agency indirect costs
  4. Countywide indirect costs (CWCAP)
3.3.3 Documentation
For the claim to be considered properly filed, the claim must include supporting documentation as specified in the instructions to substantiate the costs claimed. In addition, the claimant must explain the labor activities performed by each employee for whom costs were claimed. It is very important to have good time-keeping records. Detailed timesheets are the preferred supporting documentation for claiming labor costs. Refer to the mandate instructions for specific source documentation requirements. Also refer to OMB Circular A-87, Attachment B, Section 11.
3.3.4 Record Retention
For auditing purposes, the State requires that documentation to support actual costs claimed must be retained for a period of two years after the end of the calendar year in which the reimbursement claim is filed or last amended. In addition, documentation should be retained until the claim has been fully reimbursed by the State, and all audit adjustments have been resolved.
3.4 Claims Review Assistance by the Auditor-Controller Financial Reporting/Mandated Costs Unit
All claims filed by departments/agencies shall be reviewed by the Auditor-Controller Financial Reporting/Mandated Costs Unit before mailing to the State. The Unit will assist by:
  • Providing departments/agencies and districts with claiming instructions and/or Parameters and Guidelines.
  • Providing assistance on the preparation of claims.
  • Reviewing completed claims for accuracy and documentation.
  • Signing the certification on all claims.
  • Mailing claims to the State.
  • Monitoring the status of claims filed with the State.
  • Allocating the CWCAP portion of the funds received from the State, and preparing the journal voucher for distribution of funds to the departments/agencies and districts.
3.5 Deadlines
In order to obtain 100% reimbursement of costs, annual claims must be mailed by January 15 following the fiscal year in which the expenditures occurred. First-time claims must be filed within 120 days from date of issuance of the claiming instructions. Claims filed within one year of the deadline will be reduced by a late penalty of 10%, not to exceed $1,000. Claims filed more than one year after the deadline will not be accepted.
3.6 Claim Reduction
Reimbursement claims submitted to the SCO undergo a desk audit review. Departments/agencies may be called during this period to answer clarifying questions or to provide additional information for the claim. The State Controller may reduce the claim if they think that it is incorrect. After payment has been made, a claim may be field-audited by the State Controller's Field Audits Division. Should the State Auditor feel that an excessive amount has been claimed, or that funds claimed for activities are not covered under the mandate, the SCO will reduce the claim. The SCO sends a letter to the claimant advising of the reduction and requesting that the claimant remit a warrant to the State for the amount due. Failure to do so results in the SCO offsetting the amount from the next payment due to the claimant for state-mandated cost programs. If the County does not concur with a claim reduction taken by the SCO, the County has the option to file an Incorrect Reduction Claim (see Section 3.2.4) with the COSM and argue for restoration of the reduction. If the Commission's action is unsatisfactory, the department/agency can file suit in Superior Court.
3.7 Claim Payment
Effective July 1996, the State Controller is required to pay any eligible claim within 60 days of the filing deadline or 15 days after the appropriation is provided, whichever is later. Interest is due if the Controller's payment is more than 365 days after the adoption of the Statewide Cost Estimate for an initial claim made, or beginning on the 61st day following a claiming deadline, whichever is later.
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