Where the 85/15 rule actually comes from
The 85/15 rule is not a vague "regional center policy." It's statutory: WIC §4629.7 requires that, for regional center contracts or agreements where the rate is determined through negotiation between the regional center and the provider, "not more than 15 percent of regional center funds be spent on administrative costs."
That scope matters, and it's the first thing vendors get wrong. The 15% cap is written for negotiated-rate arrangements. If your service is paid at a negotiated rate, the cap applies squarely to you. (Confirm how your specific rate is set — this is worth a conversation given the recent move to published rate models under Rate Reform.) Either way, your §4652.5 review or audit will look at how your regional center funds are split between program and administration, so the classification discipline below is what protects you.
What the statute counts as "administrative"
Here's the part most vendors never see: §4629.7 spells out administrative costs. The list "includes, but is not limited to":
- Managerial salaries and benefits — for personnel whose primary purpose is administrative management of the entity (e.g., directors, chief executive officers).
- Administrative-function staff — payroll management, personnel/HR, accounting, budgeting, and facility management.
- Facility and occupancy costs directly associated with administrative functions.
- Maintenance and repair; data processing and computer support; contract and procurement activities (except those performed by a direct-service employee).
- Training, travel, and licenses directly associated with administrative functions.
- Taxes, interest, property insurance, personal liability insurance (the last directly associated with administrative functions), depreciation, and general expenses (communications, supplies) directly associated with administrative functions.
The statute is also explicit that direct service expenditures are the costs immediately associated with the services delivered to consumers, and that funds counted as direct service may not include any administrative costs.
The gray zone: "directly associated with administrative functions"
Notice how many items above end with that phrase. That qualifier is the whole game. Training, travel, facilities, licenses, insurance — each can land in either bucket depending on whose function it serves. The same dollar is administrative if it supports the back office and direct if it supports service delivery. That's where misclassification happens, and it's almost always what an auditor flags.
Classification examples we see go wrong
| Cost | Often miscoded as | Correct treatment |
|---|---|---|
| A supervisor who also provides direct support to consumers | Administrative (because "supervisor") | Program to the extent they deliver direct service; only the administrative-management portion is admin |
| Rent for space used to deliver services to consumers | Administrative (all rent lumped together) | Program — only occupancy costs directly associated with administrative functions are admin |
| Mileage for transporting consumers or direct-service staff to clients | G&A / administrative | Program — only travel directly associated with administrative functions is admin |
| Role-specific training for direct-service staff | Administrative (all "training") | Program — only training directly associated with administrative functions is admin |
| Payroll processing, HR, accounting, the ED's management time | Program (because "we all serve the mission") | Administrative — these are named administrative functions in the statute |
The pattern: don't classify by the category name ("training," "rent," "salary"). Classify by the function the cost serves. If it directly delivers service to a consumer, it's program; if it runs the organization, it's administrative.
How it gets tested — and what happens if you're over 15%
Your independent review or audit under WIC §4652.5 includes a look at this program-versus-administrative split (often presented as an 85/15 schedule with the audit). If your administrative costs exceed the cap, your CPA must disclose it — typically in the management letter — and your regional center can require a corrective action plan. Repeated or unresolved issues can escalate: the regional center must require resolution of issues that affect regional center services and can act up to termination of vendorization, and a missed or problematic report now also intersects with your Quality Incentive Program eligibility. In other words, a clean 85/15 schedule protects more than your books — it protects your referrals and your rate.
How to stay clean: build it into your chart of accounts
The vendors who never sweat the 85/15 schedule are the ones who track it all year, not at audit time:
- Tag every expense account as program or administrative when you set it up — don't reconstruct it in month nine.
- Split mixed roles by function. If your ED spends part of their time delivering direct service, allocate that portion to program with documentation supporting the split.
- Split shared facilities and overhead on a reasonable, documented basis (square footage, headcount, time).
- Keep the support. The allocation method matters less than being able to show how you arrived at it.
- Review the ratio quarterly, so a creeping administrative percentage is a conversation in Q2 — not a finding in your audit.
Get the classification right and the 85/15 rule stops being a risk and becomes a number you can defend. A clean prior-year report can also earn you a two-year exemption from the engagement requirement.
Frequently asked questions
Not sure your program-versus-administrative classification would hold up in a review or audit? Call us at (415) 916-7010 and we'll pressure-test it with you.
This article is general information about California Regional Center vendor requirements and is not legal or accounting advice for your specific situation. For guidance on your organization, contact a qualified CPA.