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3. Negotiated cost allocation plans based on a proposal later found to have included costs that: <br />(a) are unallowable (i) as specified by law or regulation, (ii) as identified in Attachment B of this <br />Circular, or (iii) by the terms and conditions of Federal awards, or (b) are unallowable because <br />they are clearly not allocable to Federal awards, shall be adjusted, or a refund shall be made at <br />the option of the Federal cognizant agency. These adjustments or refunds are designed to correct <br />the plans and do not constitute a reopening of the negotiation. <br />G. Other Policies. <br />1. Billed central service activities. Each billed central service activity must separately account <br />for all revenues (including imputed revenues) generated by the service, expenses incurred to <br />furnish the service, and profit/loss. <br />2. Working capital reserves. Internal service funds are dependent upon a reasonable level of <br />working capital reserve to operate from one billing cycle to the next. Charges by an internal <br />service activity to provide for the establishment and maintenance of a reasonable level of <br />working capital reserve, in addition to the full recovery of costs, are allowable. A working <br />capital reserve as part of retained earnings of up to 60 days cash expenses for normal operating <br />purposes is considered reasonable. A working capital reserve exceeding 60 days may be <br />approved by the cognizant Federal agency in exceptional cases. <br />3. Carry-forward adjustments of allocated central service costs. Allocated central service costs <br />are usually negotiated and approved for a future fiscal year on a "fixed with carry-forward" <br />basis. Under this procedure, the fixed amounts for the future year covered by agreement are not <br />subject to adjustment for that year. However, when the actual costs of the year involved become <br />known, the differences between the fixed amounts previously approved and the actual costs will <br />be carried forward and used as an adjustment to the fixed amounts established for a later year. <br />This "carry-forward" procedure applies to all central services whose costs were fixed in the <br />approved plan. However, a carry-forward adjustment is not permitted, for a central service <br />activity that was not included in the approved plan, or for unallowable costs that must be <br />reimbursed immediately. <br />4. Adjustments of billed central services. Billing rates used to charge Federal awards shall be <br />based on the estimated costs of providing the services, including an estimate of the allocable <br />central service costs. A comparison of the revenue generated by each billed service (including <br />total revenues whether or not billed or collected) to the actual allowable costs of the service will <br />be made at least annually, and an adjustment will be made for the difference between the revenue <br />and the allowable costs. These adjustments will be made through one of the following <br />adjustment methods: (a) a cash refund to the Federal Government for the Federal share of the <br />adjustment, (b) credits to the amounts charged to the individual programs, (c) adjustments to <br />future billing rates, or (d) adjustments to allocated central service costs. Adjustments to allocated <br />central services will not be permitted where the total amount of the adjustment for a particular <br />service (Federal share and non-Federal) share exceeds $500,000. <br />5. Records retention. All central service cost allocation plans and related documentation used as <br />a basis for claiming costs under Federal awards must be retained for audit in accordance with the <br />46 <br /> <br />