One of the most critical aspects of WIC §4652.5 compliance is the 85/15 program spending requirement. For many vendors, the difference between compliance and a corrective action plan comes down to how they classify a handful of expenses.
What is the 85/15 Rule?
The "85/15 Rule" refers to the requirement that California Regional Center vendors spend at least 85% of their Regional Center funds on direct program services. Conversely, no more than 15% of those funds may be spent on administrative costs, management, and overhead.
This rule is designed to ensure that the majority of state funding directly benefits the consumers receiving services. However, the definitions of "program" and "administrative" are not always clear-cut.
Direct Program Services (The 85%)
Direct program services generally include costs that are directly related to the delivery of services to Regional Center consumers. These include:
- Direct Service Wages: Salaries and benefits for staff who provide direct care, support, or training to consumers.
- Program Supervision: Wages for supervisors who are directly involved in overseeing service delivery (often a gray area).
- Program Supplies: Materials used directly in the delivery of services.
- Facility Costs (Program): Rent, utilities, and maintenance for spaces used primarily for consumer programs.
- Transportation: Costs for transporting consumers to and from programs or activities.
Administrative Costs (The 15%)
Administrative costs are those related to the general management and operation of the organization. These include:
- Executive Leadership: Salaries for CEOs, Executive Directors, and non-program management.
- Back Office Functions: Accounting, HR, payroll, legal, and general IT support.
- General Overhead: Rent and utilities for administrative offices.
- Marketing & Fundraising: Costs related to promoting the organization or raising funds.
Common Classification Challenges
The most common disputes we see during reviews and audits involve "blended" roles. For example, a Program Manager who spends 70% of their time supervising direct service staff and 30% on general administrative tasks like HR or budgeting.
To classify these correctly, vendors must maintain contemporaneous time records. Without documentation showing the split of duties, many CPAs will default to classifying the entire salary as administrative to be conservative, which can push a vendor below the 85% requirement.
"Proper classification starts with your chart of accounts. If you aren't tracking program vs. admin costs at the transaction level, you're making your audit much more difficult—and potentially more expensive."
Strategies for Staying Compliant
- Review your Chart of Accounts: Ensure you have separate departments or classes for program vs. admin.
- Implement Time Tracking: Have managers and "blended" staff track their hours by function.
- Consult your CPA early: Don't wait until the audit to ask about a specific expense classification.
- Monitor monthly: Track your 85/15 ratio throughout the year, not just at year-end.
Need help assessing your organization's 85/15 compliance? Our team specializes in Regional Center accounting and can provide a pre-audit assessment to identify potential issues before your official reporting deadline.