| (a) The Texas Department of Human Services (DHS) conducts desk reviews and field audits of provider cost reports in order to ensure that all financial and statistical information reported in the cost reports conforms to all applicable rules and instructions. (1) For cost reports pertaining to providers' fiscal years ending in calendar year 1994, 1995 or 1996, completion must be according to instructions and rules. DHS may require supporting documentation other than that contained in the cost report to substantiate reported information. (A) For nursing facilities, failure to complete cost reports according to instructions and rules may result in vendor hod as specified in §355.310 of this title (relating to Vendor Hold). (B) For all other programs, failure to complete cost reports according to instructions and rules constitutes an administrative contract violation. In the case of an administrative
contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in §355.111 of this title (relating to Administrative Contract Violations). (2) For cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years, completion must be according to instructions and rules in accordance with §355.105(b)(4) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). DHS may require supporting documentation other than that contained in the cost report to substantiate reported information. (A) For nursing facilities, failure to complete cost reports according to instructions and rules in accordance with §355.105(b)(4) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures) may result in vendor hold as specified in §355.403 of this title (relating to Vendor
Hold). (B) For all other programs, failure to complete cost reports according to instructions and rules in accordance with §355.105(b)(4) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures) constitutes an administrative contract violation. In the case of an administrative contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in §355.111 of this title (relating to Administrative Contract Violations). (b) The basic objective of audits and desk reviews is to verify that each provider's cost report: (1) displays financial and other statistical information in the format required by DHS; (2) reports expenses in conformity with DHS's lists of allowable and unallowable costs; (3) follows generally accepted accounting principles, except as otherwise specified in DHS's
lists of allowable and unallowable costs, and other pertinent rules or as otherwise permitted in the case of governmental entities operating on a cash or modified accrual basis; and (4) is completed in accordance with each program's cost report instructions and rules. (c) DHS verifies the information specified in subsection (b) of this section by: (1) comparing each provider's reported costs to: (A) past patterns of expenditures for similar services; (B) the results of previous field audits; (C) normal operating cost relationships; and (D) industry average costs, when available; (2) reviewing each provider's reported costs for: (A) reported unallowable costs; (B) omitted allowable costs, if discovered during the course of the audit or desk review; and (C)
understated or overstated allowable costs, if discovered during the course of the audit or desk review; (3) checking for completion of required information; (4) checking the format for proper cost classification; (5) checking for mathematical accuracy; and (6) adjusting the cost report, or notifying the provider that research and/or corrections are required. (d) In accordance with methodology rules, cost report instructions or policy clarifications, DHS may reassign allowable costs to the appropriate line items of a cost report. (e) DHS seeks to maximize the number of field audited cost reports available for use in its cost projections. In addition to cost reports selected for field audit based upon risk analysis, other specific criteria and random sampling, DHS may conduct field audits of cost reports that show unusual fluctuations or trends in costs or other statistics.
DHS may also conduct field audits when desk reviews are insufficient to verify the accuracy of reported costs. (f) For cost reports pertaining to providers' fiscal years ending in calendar year 1994, 1995 or 1996, each provider entity or its designated agent(s) must allow access to any and all records necessary to verify information submitted to DHS on cost reports. This requirement includes records pertaining to related party transactions or other business activities engaged in by the provider. (1) For nursing facilities, failure to allow access to any and all records necessary to verify information submitted to DHS on cost reports may result in vendor hold as specified in §355.310 of this title (relating to Vendor Hold). (2) For all other programs, failure to allow access to any and all records necessary to verify information submitted to DHS on cost reports constitutes an administrative contract violation. In the
case of an administrative contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in §355.111 of this title (relating to Administrative Contract Violations). (g) For cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years, each provider entity or its designated agent(s) must allow access to any and all records necessary to verify information submitted to DHS on cost reports. This requirement includes records pertaining to related party transactions or other business activities engaged in by the provider. (1) For nursing facilities, failure to failure to allow access to any and all records necessary to verify information submitted to DHS on cost reports may result in vendor hold as specified in §355.403 of this title (relating to Vendor Hold). (2) For all other programs, failure to allow access to any and all records
necessary to verify information submitted to DHS on cost reports constitutes an administrative contract violation. In the case of an administrative contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in §355.111 of this title (relating to Administrative Contract Violations). (h) A contracted provider may request an informal review, and subsequently an appeal, of a desk review or field audit disallowance in accordance with §355.110 of this title (relating to Informal Reviews and Formal Appeals).
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| Source Note: The provisions of this §355.106 adopted to be effective September 1, 1996, 21 TexReg 7866; duplicated effective September 1, 1997, as published in the Texas Register October 17, 1997, 22 TexReg 10311.
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