arms length transactions by abe2

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									Will these providers along with the Managing Entity be required to prepare the
Schedule of Related Party transaction Adjustments?

Under the requirements of Chapter 65E-14.003, FAC, contractors that are participating
in substance abuse and mental health programs should submit a completed Schedule of
Related Party Transaction Adjustments after the end of each state fiscal year. The
disclosure of related party transactions for financial reporting purposes is required for
managing entities and for direct service providers in the managing entity network.

How and what should be included on this Schedule? Do you have an example?

Chapter 65E-14, FAC, requires the submission of four specified audit schedules whether
or not an OMB A-133 audit is required for the provider. Submission of audit schedules is
the responsibility of the providers chief financial officer, or if none, the executive director.
The schedules shall be based on revenues and expenditures recorded during the state’s
fiscal year. The accuracy of all information reported is the responsibility of management.

Included is a copy of CF-MH 1035, Jul 2003, the Schedule of Related Party Transaction
Adjustments. The form was previously shown in the Guide to Performance Contracting
that was in effect before development of the financial rule. The form details revenue and
expense adjustments by cost center when the amount of related party transactions is
above “cost”, (what a reasonable person would have paid in an arms-length transaction).

What exactly is a related party transaction?

Examples of related party transactions include transactions between:

       A parent company and its subsidiaries;
       subsidiaries of a common parent;
       an enterprise and trusts for the benefit of employees managed by the company;
       an enterprise and its principal owners, management or immediate families, and
       affiliates.

An affiliate is a party that directly or indirectly controls, is controlled by, or is under the
common control of an enterprise. Control is the direct or indirect possession of a power
to influence the management or policies of an enterprise through ownership or contract.

A related party transaction has the potential to be an unequal exchange because it may
not represent an arms-length transaction. Preexisting factors other than free market
conditions may have influenced the price or terms of a transaction.

Disclosure of related party transactions is required for financial reporting purposes.
When a company prepares a set of financial statements for external users, accounting
pronouncements require note disclosure of significant related party transactions. The
nature of the relationship, description of the transactions, dollar amounts for the period
and any material amounts due from or to the related parties should be fully disclosed.

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