0301 Overview

This chapter establishes the Department of Veterans Affairs (VA) financial policies for managerial cost accounting.

Key points covered in this chapter:

• VA will comply with Managerial Cost Accounting standards specified in the Federal Financial Management System Requirements (FFMSR) 8, Systems Requirements for Managerial Cost Accounting and in the Statement of Federal Financial Accounting Standards (SFFAS) 4, Managerial Cost Accounting Standards and Concepts;
• Administrations and Staff Office cost and Administrations workload data will be transmitted to the Managerial Cost Accounting Office (MCAO); and
• The MCA system will be used to accumulate and report the costs of VA’s activities on a regular basis for reporting, analysis, budgeting, modeling and for making business decisions.

0302 Revisions

Section	Revision	Office	Reason for Change	Effective Date
Various	Full review	OFP	To ensure policy guidance is current	April 2024
0303	Revised definitions	OFP	Consistency among financial policies	April 2024
030503	Deleted NCA products that are not costed in MCA and added the correct products that are required to be costed in the MCA	OFP	To update NCA’s workload activities that are tracked in MCA system	April 2024
030506	Moved information from previous Appendix A to policy	OFP	Reorganized information	April 2024
030507	Removed FTE and square footage as methods for allocating costs and replaced with HR Smart hours	OFP	To update the cost allocation method for building depreciation expense	April 2024

0303 Definitions

Direct Cost – Costs directly attributable to a specific product. Veterans Health Administration (VHA) examples include labor by caregivers (i.e., MDs, Nurses, Social Workers, and supplies and services consumed by patients). Veterans Benefit Administration (VBA) examples include staff processing claims, and National Cemetery Administration (NCA) examples include employees maintaining the cemetery grounds. Direct costs include contracted services.

Fixed Cost – Costs that do not vary in direct proportion to the volume of activity. “Fixed” does not mean that the costs do not fluctuate, but rather that they do not fluctuate in direct response to workload changes. Examples include depreciation of equipment and salaries of management positions.

Full Cost – Includes both direct and indirect costs. MCA captures products at the full cost, which is cost recorded at the station, combined with overhead costs, such as, headquarters and the Office of Information and Technology (OI&T).

HR Smart – VA’s Human Resources (HR) information system.

Indirect Costs – Costs that are not directly attributable to a specific product, allocated to direct departments through the indirect cost allocation process. Examples include utilities, maintenance, and overhead costs.

Inter-entity Costs – The cost of goods and services received from other federal entities.

Managerial Cost Accounting (MCA) System –The Decision Support System (DSS) is the Managerial Cost Accounting system for VA. It processes cost and workload data from various agency feeder systems to produce reliable cost per product data.

Non-Workload Costs – Costs that are not passed to intermediate products or patient encounters.

Operational Costs – Costs from the financial management/accounting system that are brought into the MCA system and assigned to workload. Operational costs may be direct or indirect. Generally, costs are operational when there is workload capture. For example, clinical care delivered in a VA facility, processing of a disability claim, or a columbarium interment. In the MCA system, operational costs are sometimes referred to as Non-exempt cost. (Contrast with Non-Workload Cost)

Overhead – Costs that cannot be directly linked to a particular product, service, or facility, but are incurred during the course of normal operations and are allocated to the facility. For example, overhead includes costs allocated from headquarters, OI&T, Veterans Integrated Service Network (VISN), National Programs, and VHA’s Chief Business Office to individual facilities for inclusion in product cost.

Stop Codes (also known as Clinic Stops or DSS Identifiers) – Codes used by VHA staff to correctly identify and capture clinical workload prior to its entry into the MCA system.

Variable Costs – Costs that vary directly and proportionately with fluctuations in workload. Variable direct cost is the variable supply cost plus the variable labor cost.

Workload –The volume of work (units of service) performed or outputs of products and services resulting from the input of supplies, labor, and equipment such as laboratory tests, casketed internments, and loan originations.

0304 Roles and Responsibilities

Under Secretaries, Assistant Secretaries, and Other Key Officials are responsible for ensuring compliance with the policies outlined in this chapter and providing MCA data to the Managerial Cost Accounting Office.

Administrations are responsible for preparing and providing cost and workload data, as applicable, to the Managerial Cost Accounting Office and for reviewing and concurring with cost methodologies.

VHA CFO, Managerial Cost Accounting Office (MCAO) serves as the designated program office for MCA and the business sponsor for DSS. MCAO also works closely with OI&T, to coordinate system operations, upgrades, and maintenance. MCAO provides training, guidance, and assistance in the processing of cost accounting data and the production of related reports for the Administrations and Staff Offices. MCAO is also responsible for the establishment and oversight of the VHA National Stop Code Council.

0305 Policies

030501 General Policies

1. VA will comply with the Chief Financial Officers (CFO) Act of 1990, which among other things requires the agency CFO to provide for the development and reporting of cost information and for the periodic measurement of performance.
2. VA will comply with the Federal Financial Management Improvement Act (FFMIA) of 1996, which requires CFO Act agencies’ systems to comply substantially with federal accounting standards and federal financial management systems requirements.
3. VA will comply with the 2010 Government Performance and Results Modernization Act, which requires the establishment of performance indicators for each program as well as, the measurement or assessment of relevant program outputs, service levels, and outcomes as a basis for comparing actual results with established goals.
4. VA will comply with the five standards for federal government cost accounting contained in SFFAS 4, Managerial Cost Accounting Standards and Concepts, which address requirements for cost accounting, responsibility segments, full cost, inter-entity costs, and costing methodology.
5. VA will maintain a financial management cost accounting system in accordance with the requirements contained in Federal Financial Management System Requirements (FFMSR) 8, System Requirements for Managerial Cost Accounting.

030502 Managerial Cost Accounting System

1. VA’s cost accounting system will be used to:
   • Support the implementation of cost accounting procedures;
   • Identify costed products and services;
   • Import workload data (for products and services provided);
   • Calculate the full cost of products and services, including national and Veterans Integrated Service Network (VISN) overhead;
   • Include inter-agency costs as part of full costs and select and consistently use an acceptable costing methodology;
   • Categorize costs as operational, non-workload, direct, indirect, fixed, variable, and overhead;
   • Allocate costs to products and services;
   • Develop relevant, detailed cost information; and
   • Identify alternatives to reduce cost and enhance efficiency.
2. VA will reconcile cost information in VA’s managerial cost accounting system with the data provided by source systems (e.g., expenses will be reconciled to VA’s accounting system).
3. VA will update its indirect and overhead cost allocation methodologies in the cost accounting system at the beginning of each fiscal year or when there is a feeder system change. Modifications to the cost allocation method must be approved by the applicable Administration or Staff Office CFO.

030503 VA Cost Accounting Requirements

1. VA will accumulate and report cost accounting information on a consistent and regular basis and will meet cost reporting requirements of external bodies such as Congress, GAO, and the Office of Management and Budget.
2. VA will use a costing methodology that meets its internal goals and allows for cost information to be compared from one period to another on a consistent basis.   
3. Administrations and Staff Offices will establish a plan to align financial management practices with federal financial accounting standard practices and utilize cost accounting information for performance measurement, budgeting, cost control and reduction, enhancing efficiency, establishing pricing of services and making informed business decisions.
4. At the beginning of each fiscal year, Administrations and Staff Offices will review and concur on the methodology for allocating equipment, indirect, and overhead costs promulgated by the MCAO.
5. MCA financial data should be processed 10 working days after the end of the month and clinical data 20 working days after the end of the month dependent on the availability of source financial and workload data.
6. Administrations will identify variable costs associated with distinct workload activities (i.e., outputs, products, or services) they provide. For example:
   • VBA – Eligibility determinations, claims processing, or responding to customer inquiries;
   • VHA – Laboratory tests, medical ward hours of care, counseling sessions, or magnetic resonance imaging procedures; and
   • NCA – Casketed burials, disinterment’s, gravesite maintenance, and columbaria maintenance.
7. Non-Workload costs are costs that do not have associated intermediate products or encounters.  There is no standardized, timely workload capture for these items. The following are examples of VA non-workload costs that will be excluded from the cost of products and not allocated at the business line-level:
   • Costs for patient care provided by community providers for VHA;
   • Costs for Vet Centers;
   • Environmental liabilities, such as hazardous waste clean-up costs;
   • Heritage asset costs;
   • Actuarial costs for Federal Employees’ Compensation Act (FECA);
   • Costs for Judgment Fund contingency; and
   • Actuarial costs for compensation and burial benefits.
8. All utility costs will be fully allocated based on an appropriate allocation methodology (e.g., mapped HR-PAS hours). However, in cases where utility costs are identifiable at the division level (e.g., a Community-Based Outpatient Clinic (CBOC), those identifiable costs will be allocated to those products or services produced at that division.
9. Staff Office costs are brought into the MCA system as overhead. Examples include Headquarters, OIT, VISN, National Programs. These overhead costs are then allocated to facilities for inclusion in product cost.
10. Administrations will review cost information monthly to ensure:
    • Labor costs (salaries, benefits, wages, and service contracts) are accurate;
    • Labor costs are properly mapped to functional work areas;
    • Property, plant, and equipment (PP&E) cost and expenditures are fully charged in accordance with financial policy;
    • Supplies, services, training, and travel expenditures are assigned directly to the product or service area for which they are utilized; and
    • All other supply and service costs are allocated based on a recognized full cost accounting allocation methodology as indirect costs.
11. MCAO will perform cost accounting functions and responsibilities for VBA and NCA. However, due to the size and scope of VHA operations, VHA has distributed their cost accounting functions and responsibilities throughout the organization.
12. VBA and NCA must provide an annual certification of MCA requirements to MCAO. As VHA has distributed their cost accounting functions and responsibilities, Medical Center Directors, Medical Center CFOs, VISN CFOs and VISN directors must provide an annual certification of MCA requirements to MCAO.
13. VHA VISN/Medical Center Directors will provide dedicated MCA facility team staffing and other resources required to support the MCA operations.

030504 Labor Cost Considerations

1. VHA facility labor costs are mapped at the individual employee level to an organization and the cost of a product. Labor costs from overhead activities (e.g., Headquarters, OIT, VISN, and National Programs) are not mapped at the employee level but are instead allocated to individual facilities and departments for inclusion in product cost.
2. VBA and NCA labor costs are not mapped at the employee level instead both facility-level and overhead labor costs are allocated to individual facilities and departments for inclusion in product cost.
3. Medical Center Administrative staff and Managerial Cost Accounting Field Staff will perform labor mapping for VHA. Labor costs to be mapped include but are not limited to:
   • Gross salaries and/or wages earned in performance of the function(s) for which the person was hired (including all of the various premium pay items and benefits costs, such as health insurance and retirement); and
   • Wages paid through contractual agreements for persons employed by the entity to perform functions, which are essential to or contribute to the delivery of a product or service, are charged as labor costs. (For example, VA Medical Center personnel engaged in direct patient contact, such as residents or other medical personnel who provide patient services through contracts, sharing agreements or any other arrangement).
4. Medical Center Administrative staff and Managerial Cost Accounting Field Staff will ensure employee hours and salary are correctly mapped into the functional cost centers, known as Account Level Budgeter (ALB) cost centers in DSS.
5. Medical Center Administrative staff will periodically review labor mapping for accuracy and completeness and adjust and certify labor mapping, as necessary.  Managerial Cost Accounting Field Staff are available for support, advisement and review of labor mapping.
6. Managerial Cost Accounting labor mapping for all full and part-time employees will be conducted at the granular level for each individual VHA staff member. To facilitate the conduct of productivity and other important analyses, individual clinical provider labor mapping will be reviewed frequently to ensure that it is accurate.
7. The accuracy of labor costing in VA’s accounting system is contingent on HR’s correct selection of job code, budget object code (BOC and cost center  by Human Resources in HR-SMART. Each facility (budget or accounting staff) will review the salary cost data each pay period and promptly address cost center, and BOC corrections with HR as needed.
8. Contracts for support services, such as construction, heating and air conditioning equipment, maintenance, or waste management are not classified as labor. These costs are included in appropriate service or entity costs, such as “building,” “engineering service,” or “environmental service” costs.

030505 Property, Plant, and Equipment Cost Considerations

1. All equipment will be fully charged and depreciated in accordance with Volume V, Chapter 9, General Property, Plant, and Equipment.
   1. All costs associated with a piece of equipment will be allocated/assigned to the product or service which utilizes the equipment in the delivery of the product or service. The product or service which utilizes the equipment may change over the life of the equipment.
   2. If a piece of equipment is used in the delivery of more than one product or service, the costs will be fairly and accurately allocated/assigned to each product or service which utilizes the equipment.
2. All buildings (structures which are permanently affixed to the land) owned by VA will be priced at acquisition or construction value and depreciated in accordance with current financial policies and guidelines.
   1. Building capitalization and depreciation costs will be shown as its own category of cost and allocated to all departments, services, and Administrations.
   2. All buildings’ depreciated expense will be allocated based on HR-PAS hours to the department or services occupying the buildings.

030506 VHA Standardization of Stop Codes

1. VHA collects clinical workload data that supports the provision of patient care, resource allocation, performance measurement, quality management, and third-party collections. Stop Codes (also known as Clinic Stops or DSS Identifiers) are used to identify workload for all outpatient encounters, inpatient appointments in outpatient clinics and inpatient professional services.
2. Stop Codes assist VA medical facilities in defining patient workload and serve as a stable identification method that can be used to compare costs between facilities. They are the single and critical designation by which VHA defines outpatient clinical work units for costing purposes.
3. Stop Codes indicate the primary clinical work group that is responsible for providing the specific set of clinic products; they also serve as guides for selecting outpatient department structures. Many VHA national database users actively use Stop Codes for workload searches to indicate the general type of work, as well as the type of production unit creating this work.
4. The National Stop Code Council will:
   • Update the national list, at least annually, by reviewing the list for inconsistent Stop Codes, Stop Codes with limited utilization, restriction types that need to change, and definitions that require enhancements;
   • Ensure that Stop Codes supporting VA program mandates remain on the national list;
   • Work collaboratively with relevant clinical program offices to develop Stop Codes/definitions and to support VHA program initiatives;
   • Serve as a resource to answer Stop Code questions from the field; and
   • Ensure that all Stop Code changes are posted on the Stop Code web page.
5. At a minimum and in conjunction with their clinical programs, VHA MCA Site Teams will conduct an annual review of all active clinic profiles to verify that Stop Code associations for their Medical Facility are correct. Decisions on clinic coding must be based on the principles of correct workload identification.
6. It is essential that VHA staff correctly use Stop Codes to identify and capture clinical workload prior to its entry into the cost accounting process.

030507  Managerial Cost Accounting Office

1. MCAO will operate and maintain VA’s managerial cost accounting system and provide training, guidance, and assistance to the Administrations and Staff Offices to include:
   • Processing cost accounting data and producing informational reports;
   • Establishing and providing oversight of the VHA National Stop Code Council;
   • Appointing membership to the VHA National Stop Code Council, ensuring a mix of VHA staff from the field as well as VA’s Central Office;
   • Chairing the National Stop Code Council;
   • Preparing all recurring and ad hoc reports required for senior leadership to satisfy internal and external queries for MCA data and information;
   • Populating and maintaining the MCA Reports web site as a means of disseminating MCA data ;
   • Assisting the VISNs and VA medical facilities with ongoing training;
   • Annually providing detailed instructions for VA medical facility certification of DSS records;
   • Reconciling data from Managerial Cost Accounting system to VA’s accounting systems to ensure accuracy;
   • Developing an annual audit plan; and
   • Conducting audits, to ensure that sites are compliant with published national MCAO guidance.
2. MCAO will perform monthly data integrity audits to identify unusual cost or workload trends, and individual product outliers, (e.g., identification of high and or low outliers on inpatient or outpatient encounters).

0306 Authorities and References

• 38 U.S.C. § 8153(b), Sharing of Health Care Resources
• Chief Financial Officers (CFO) Act of 1990
• Federal Financial Management Improvement Act (FFMIA) of 1996
• Federal Financial Management System Requirements (FFMSR) 8, Systems Requirements for Managerial Cost Accounting
• Government Performance and Results Act (GPRA) of 1993
• GPRA Modernization Act of 2010 Public Law 111-352
• Guidebook for MCA Clinical Production Units and Product Departments
• Statement of Federal Financial Accounting Standards (SFFAS)  4, Managerial Cost Accounting Standards and Concepts
• Volume V, Chapter 9 – General Property, Plant, and Equipment
• Volume XIII, Chapter 1 – Cost Centers
• Volume XIII, Chapter 4 – Charges and Full Cost Recovery

0307 Rescissions

Volume XIII, Chapter 3 – Managerial Cost Accounting, dated February 2019.

0308  Policy Approval

This policy was approved by the VA Chief Financial Officers’ Council on April 18, 2024.

Appendix A: Previous Policy Revisions

Section	Revision	Office	Reason for Change	Effective Date
030503	Added VHA VISN and Medical Center requirements for MCA data	OFP (047G)	Inclusion of requirements from VHA Directive 1750 allowing for the rescission of the Directive	December 2019
030506	Added requirements for the MCA Office in the oversight of VHA MCA data	OFP (047G)	VHA Directive 1750 rescission	December 2019
Various	Reformatted to new policy format and completed 5-year review	OFP (047G)	Reorganized chapter layout	February 2019
Overall	Replaced reference of Decision Support System with Managerial Cost Accounting System	OFP (047G)	Name change	February 2019
0307 Rescissions	Rescinded Vol XIII, Chapter 5, because OMB no longer requires certification that VA is using a cost accounting system	OFP (047G)	Rescission of OMB A-127	February 2019
Appendix A	Previous Appendix C was renumbered to A; information from other Appendices integrated into the policy section.	OFP (047G)	Improve readability	February 2019
Appendix C	Added appendix for Veterans Health Administration (VHA) Standardization of Stop Codes	VHA	VHA Directive 1731 was reissued	April 2018