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(1) Interest on borrowed funds is treated differently depending on the source of funds <br />reimbursing the cost. <br />(a) Costs incurred for interest on borrowed capital or temporary use of endowment funds, <br />however represented, are unallowable as reimbursable costs against a federal grant. <br />(b) Interest on borrowed funds is allowable against state funding if the interest expense <br />meets the applicable requirements of this section. <br />(2) Interest on borrowed funds used to purchase equipment or real property is allowable <br />against state funding with the prior written approval of the Department. <br />(3) Interest on borrowed funds used to create, replenish, or maintain working capital is <br />allowable against state funding, if the following conditions are met: <br />(a) Working capital is depleted due to unusual cash flow, such as abnormally high costs or <br />delays in reimbursement; or working capital has been insufficient for an extended <br />period of time, because the contractor or subcontractor has insufficient eligible income <br />in excess of expenses to accumulate adequate working capital. <br />(b) The borrowed funds are not used to supplant funds which otherwise would be available <br />to finance working capital. Borrowed funds shall be considered to supplant contractor <br />working capital if a decision to deplete working capital is evident, whether the working <br />capital is depleted before or after the arrangements to borrow funds are made. <br />(c) The working capital in aggregate does not exceed ninety days cash flow. <br />(d) The interest expense is approved in advance and in writing by the Department. <br />(4) Approval shall be deemed given if the interest cost is specifically identified in the contract <br />budget or other clause or attachment to the contract. Approval of interest cost not <br />specifically identified in the contract shall be made by letter or other document which sets <br />forth the nature and amount of the approved cost and the contract under which it is <br />allowed. <br />UNALLOWABLE COSTS <br />The following costs are unallowable, whether incurred directly by the contractor or any cost <br />related subcontractor: <br />(1) Bad debts: Any losses arising from uncollectible accounts and other claims and related <br />costs are unallowable. In double entry accounting systems, write-offs of client fees <br />deemed uncollectible shall be treated as adjustments to revenue. <br />(2) Chief executive: The salaries and expenses of the chief executive of a political subdivision <br />are unallowable. <br />(3) Contingencies: Contributions to a contingency reserve or any similar provision for <br />unforeseen events. <br />Washington State <br />Health Care Authority Page 76 of90 HCA Contract No. K3924