Related organization

1. Costs applicable to services, facilities, and supplies furnished to a provider agency by a related organization shall not exceed the lower of the cost to the related organization or the reasonable costs of services, facilities, or supplies purchased elsewhere. Provider agencies shall identify such related organizations and costs in the statement of costs. An appropriate statement of cost and allocations must be submitted with the statement of costs. For statement of costs purposes, management fees are considered administrative costs. 2. A chain organization consists of a group of two or more service provider agencies which are owned, leased, or through any other device, controlled by one business entity. 3. Home offices of chain organizations vary greatly in size, number of locations, staff, mode of operations, and services furnished to their member facilities. Although the home office of a chain is normally not a provider agency in itself, it may furnish to the individual provider agency, central administration or other services such as centralized accounting, purchasing, personnel, or management services. Only the home office's actual cost of providing such services is includable in the provider agency's allowable costs under the program. Any services provided by the home office which are included in cost as payments to an outside provider agency will be considered a duplication of costs and not be allowed. 4. If the home office makes a loan to or borrows money from one of the components of a chain organization, the interest paid is not an allowable cost and interest income is not used to offset interest expense. 5. Payments, to related organizations, by the provider agency are limited to the actual and reasonable cost of the service received or the product purchased. 6. Provider agency shall document financial transactions between the provider agency and the related organization. The terms of such transactions must be similar as those obtained by a prudent buyer negotiating at arm's length with a willing and knowledgeable seller.