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 requirements.
  (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 as follows.
      (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 handled.
      (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 unallowable.
    (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 section;
    (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 report instructions.
  (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 as possible.
  (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 cost reports.
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