Non-Texas Department of Family and Protective Services (DFPS)
foster family homes, general residential operations, residential treatment
centers, foster group homes, and child placing agencies that contract
with DFPS to provide 24-hour residential child-care services must
submit financial and statistical information according to the requirements
specified in this subsection. Providers of 24-hour residential child
care services must report this information on cost-reporting forms
approved by the Texas Health and Human Services Commission (HHSC),
or electronically in HHSC-prescribed format where these systems are
operational. The cost report must cover all of the provider's activities
while delivering contracted services during the fiscal year specified
by the cost report unless HHSC, at its sole discretion, requires
a provider to submit a cost report covering selected activities or
covering another time period. The word "rate," when used in this subchapter,
shall refer to the prospective daily unit rate paid either directly
or indirectly to a provider with whom DFPS has a contract or an agreement.
This subchapter does not apply to DFPS cost reimbursed contracts.
(1) Who must file a cost report. Every 24-hour residential
child-care provider that directly or indirectly receives payment from
DFPS for services to children whom DFPS has placed with the provider
must submit a cost report. The provider must submit a separate cost
report for each separately licensed facility that the provider operates.
If two or more facilities share a license, but function as separate
and distinct facilities, each of them must submit a cost report that
covers its own revenues, expenses, and statistics. A child-placing
agency that holds multiple licenses that operate as one legal entity
must submit one cost report for the entire legal entity.
(2) Cost report due date. Unless HHSC specifies otherwise,
providers must submit cost reports to HHSC Rate Analysis no later
then 90 days following the end of the provider entity's fiscal year
or 90 days from the transmittal date of the cost-reporting forms,
whichever due date is later.
(3) Extension of due date. When circumstances that
a provider cannot reasonably be expected to control prevent the provider
from submitting a cost report by the due date as specified in paragraph
(2) of this section, HHSC may extend the due date. The provider must
request the extension in writing before the due date, and HHSC must
respond to the request within 15 workdays after receiving it.
(4) Cost-report supplements. To obtain additional financial
and statistical information that does not appear in a provider's regular
cost report, HHSC has the authority to require the provider to submit
a cost-report supplement. The provider must submit the supplement
by the due date specified by HHSC.
(5) Vendor hold. If a provider fails to file a cost
report or cost-report supplement by the due date or according to the
other requirements specified in this subchapter, HHSC has the authority
to institute a vendor hold and withhold payments from the provider
until the provider submits an acceptable cost report. A provider's
failure to submit a cost report after HHSC has placed the provider
on vendor hold may result in nonrenewal or cancellation of the provider's
contract with DFPS. When a provider is on vendor hold, HHSC does not
extend the due date for receipt of the provider's cost report.
(6) Accounting requirements. Except for governmental
institutions operated on the cash method of accounting, providers
must ensure that the financial and statistical information submitted
in their cost reports is based on the accrual method of accounting.
Each provider's treatment of financial and statistical data must reflect
the application of generally accepted accounting principles (GAAP)
approved by the American Institute of Certified Public Accountants
(AICPA). For purposes of cost reporting, however, the requirements
of this subchapter take precedence over the AICPA's GAAP and any other
authority's accounting requirements, including Internal Revenue Service
(7) Methods of allocation. HHSC adjusts allocated costs
if the department considers the allocation method to be unreasonable.
(A) Direct costing must be used whenever possible,
which means that allowable costs incurred for the benefit of, or directly
attributable to, a specific business component must be directly charged
to that particular business component. If direct costing is not possible,
a provider must use reasonable methods of allocation and must be consistent
in the use of allocation methods across program areas and business
entities to ensure that allowable costs are equitably allocated across
business activities or business entities receiving the benefits of
those allocated costs. Costs reported for the provider must be representative
of the actual circumstances of the provider's operations, whether
directly charged or allocated. An indirect allocation method approved
by some other department, program, or governmental entity is not automatically
approved by HHSC. HHSC reviews each allocation method on a case-by-case
basis in order to ensure that the reported costs fairly and accurately
represent the operations of the provider. Any change in allocation
methods from one year to the next must be fully disclosed by the provider
on its cost report and must be accompanied by a written explanation
of the reasons for such change.
(B) When practical and the amounts are material, costs
must be allocated on a functional basis. Some examples are listed
(i) Costs of a central payroll operation could be allocated
to all business components based on the number of checks issued.
(ii) Costs of a central purchasing function could be
allocated based on the dollar amount of purchases made or requisitions
(iii) Costs of utilities or rent could be allocated
based upon square footage.
(iv) Payroll costs for an employee working across business
components could be allocated based upon that employees' timesheets
and/or a documented time study.
(v) Transportation equipment costs could be allocated
based upon mileage logs.
(C) General management and administrative costs that
cannot be allocated on a functional basis should be allocated reasonably
and consistently across all business components receiving the benefits
of those allowable general management and administrative costs. If
all the business components have equivalent units of equivalent service,
such general management and administrative costs could be allocated
based upon each business component's units of service. One recommended
method for allocating such costs would be based upon the ratio of
each business component's variable costs related to the total variable
costs of all the provider's business components. Because only cost
data are analyzed in the calculation of reimbursement rates, allocation
methods based upon revenue streams are inappropriate and generally
(D) Cost allocation methods must be clearly and completely
documented in the provider's workpapers, with details as to how specific
allocations are made.
(8) Certification. A completed cost report must contain
a signed, notarized, original certification page.
(9) Review of cost reports. HHSC conducts a desk review
or field audit of each cost report to ensure that the financial and
statistical information presented in the report conforms to all applicable
requirements, including the requirements of this subchapter. The
desk review verifies that the cost report:
(A) displays financial and statistical information
in the format required by HHSC;
(B) reports expenses in conformity with the allowable
and unallowable cost requirements detailed in paragraph (17) of this
(C) follows GAAP except as specified in paragraphs
(6) and (20) of this section; and
(D) is completed in accordance with the program's cost
(10) Requests for additional information. If a cost
report fails to conform to applicable requirements as specified in
paragraph (9) of this section, HHSC returns the report to the provider
for correction. HHSC also has the authority to require providers
to supply additional information to substantiate the information provided
in the cost report.
(11) On-site audits. HHSC performs a sufficient number
of on-site audits each year to ensure the fiscal integrity of the
24-hour child-care services program. HHSC determines the frequency
and nature of on-site audits, and the number of audits performed each
year may vary. To maximize the number of audited cost reports available
for use in projecting costs, HHSC arranges as many on-site audits
(12) Notification of exclusions and adjustments. HHSC
gives providers written notification of exclusions and adjustments
of reported expenses made during desk reviews and on-site audits of
(13) Reviews of exclusions and adjustments. When a
provider disputes a HHSC exclusion or adjustment of a reported expense,
the provider may request an informal review of HHSC'S disallowance.
Informal reviews are governed by requirements specified in §355.110
of this title (relating to Informal Reviews and Formal Appeals).
(14) Access to records. Each provider and each provider's
designated agents must give HHSC access to any and all records necessary
to verify information submitted to HHSC on cost reports, including
records that pertain to related-party transactions or other business
activities engaged in by the provider. If a provider does not allow
HHSC to inspect pertinent records within 30 days after HHSC sends
the provider written notice, HHSC places the provider on vendor hold
and withholds payments until the provider gives HHSC access to the
records. HHSC or its designee has the authority to cancel the provider's
contract if the provider continues to deny access.
(15) Maintaining records. Providers must ensure that
all records pertinent to services rendered under their contracts with
DFPS are accurate and sufficiently detailed to support the financial
and statistical information contained in their cost reports. Providers
must retain these records for at least three years and 90 days after
the end of the contract period.
(16) Failure to maintain adequate records. If HHSC
discovers that a provider has failed to maintain adequate records
as specified in paragraph (15) of this section, HHSC notifies the
provider of the deficiencies in the provider's recordkeeping and gives
the provider 90 days to correct them. HHSC or its designee has the
authority to cancel the provider's contract if the provider fails
to correct the deficiencies within 90 days after the date of HHSC's
(17) All cost reports must be completed in accordance
with the federal regulations and guidelines listed in order of precedence
in subparagraphs (A) and (B) of this paragraph, as applicable:
(A) The Code of Federal Regulations (CFR):
(i) 45 CFR, Part 74; and
(ii) 48 CFR, Part 31.
(B) The Office of Management and Budget Circulars:
(i) A-87 (for state and local governmental entities);
(ii) A-122 (for nonprofit and for-profit corporate
(iii) A-110 (for all residential child care contractors).
(18) For cost reporting purposes, costs incurred under
less-than-arms-length (related-party) transactions are allowable only
up to the cost to the related party as per OMB Circulars A-87 and
A-122 and §355.102(i) of this title (relating to Related Party
(19) Limits on related-party administration salary
costs. To ensure that the results of HHSC's cost analyses accurately
reflect the costs that an economic and efficient provider must incur,
HHSC sets upper limits for certain wages at the 90th percentile in
the array of costs per unit of service or total annualized cost,
as appropriate for a specific cost categories, as reported by all
contracted facilities, unless otherwise specified. The specific cost
categories that are subject to the 90th percentile cap are:
(A) Related-party facility administrator/director salary,
wages, and benefits with the cap based on an array of nonrelated-party
administrator/director salaries, wages, and benefits;
(B) Related-party assistant administrator/director
salary, wages, and benefits with the cap based on an array of nonrelated-party
assistant administrator/director salaries, wages, and benefits;
(C) Related-party facility owner, partner, or stockholder
salaries, wages, and benefits (when the owner, partner, or stockholder
is not the facility administrator/director or assistant administrator/director),
with the cap based on an array of nonrelated-party administrator/director
salaries, wages, and benefits.
(20) Cost report training. It is the responsibility
of the provider to ensure that each preparer signing the Cost Report
Methodology Certification has completed the required state-sponsored
cost report training. Preparers may be employees of the provider or
persons who have been contracted by the provider for the purpose of
cost report preparation. Preparers must complete cost report training
for each program for which a cost report is submitted. Preparers must
complete cost report training every other year for the odd-year cost
report in order to receive a certificate to complete both that odd-year
cost report and the following even-year cost report. If a new preparer
wishes to complete an even-year cost report and has not completed
the previous odd-year cost report training, to receive a certificate
to complete the even-year cost report, the preparer must Cont'd...