(a) A political subdivision or agency of this state may dispute information submitted by another political subdivision. A dispute shall be initiated by filing written notice with the department of the issue(s) disputed.
(b) A dispute may concern a political subdivision's calculation of unreimbursed expenditures, not whether a political subdivision is entitled to a share of the annual distribution.
(c) A dispute must be filed by December 31 of the year in which the disputed information was submitted.
(d) An audit of the political subdivision that submitted the disputed information may be performed.
  (1) The audit shall be initiated by the department or the comptroller. The department or the comptroller shall choose the auditor which may be the department, the comptroller, an outside auditor, or another state agency.
  (2) The political subdivision shall fully cooperate in the audit. The audit may include a review of any audit or financial statement of the political subdivision.
(e) The filing of a dispute will not affect the percentage of the annual distribution to be paid to the political subdivision for the year for which the information that is the subject of the dispute was submitted.
(f) A political subdivision for which an audit indicates an overstatement may request in writing a hearing on the matter within 20 days of receiving written notice from the department of the audit findings. The notice shall state whether a monetary penalty is proposed. A monetary penalty may not exceed 10% of the overstated unreimbursed health care costs. A monetary penalty may be imposed if the political subdivision failed to exercise reasonable diligence to comply with the requirements of these rules.
(g) If a hearing is requested, the hearing shall be a contested case under the Administrative Procedure Act, Government Code, Chapter 2001, and the department's formal hearing rules in Chapter 1 of this title (relating to Miscellaneous Provisions). If the department elects to impose a monetary penalty, the hearings officer shall consider from the parties evidence regarding, and issue findings of fact and conclusions of law about, whether the political subdivision failed to exercise reasonable diligence to comply with the requirements of these rules.
(h) If a political subdivision fails to timely request a hearing or to appear at a scheduled hearing, the findings of the audit and any penalty amount shall be considered final and reported to the comptroller.
(i) If after a hearing the department's hearing examiner, on behalf of the Executive Commissioner of the Health and Human Services Commission, finds an overstatement, the findings shall be considered final and reported to the comptroller. This section delegates to the hearing examiner authority to make findings under this section.
(j) The costs of the audit shall be paid by the party to the dispute (the entity which originally invoked the dispute process or the political subdivision on which the audit was performed) which does not prevail in the dispute.
(k) After a final decision following an audit and the opportunity for a hearing, if a political subdivision has overstated unreimbursed health care expenditures in the information submitted for any year, the department shall report that fact to the comptroller and shall reduce that political subdivision's percentage of the subsequent annual distribution appropriately.
(l) If a monetary penalty is applied, the department shall also reduce the political subdivision's percentage of the subsequent annual distribution appropriately.
(m) If a political subdivision is assessed the cost of an audit, the department shall report the amount assessed to the comptroller, and the comptroller may withhold that amount from the political subdivision's subsequent annual distribution. The comptroller may use the amount withheld to reimburse the general revenue fund for the cost of the audit.

Source Note: The provisions of this §102.5 adopted to be effective February 3, 2000, 25 TexReg 579; amended to be effective November 20, 2003, 28 TexReg 10225; amended to be effective December 30, 2007, 32 TexReg 9631; amended to be effective October 7, 2012, 37 TexReg 7752