Non-Texas Department of Protective and Regulatory Services (TDPRS) families, facilities, group homes, and child placing agencies that contract with TDPRS to provide 24-hour residential child-care services must submit financial and statistical information according to the requirements specified in this subchapter. Providers of 24-hour residential child care services must report this information on cost-reporting forms approved by TDPRS. The cost report must cover all of the provider's activities during the provider's previous fiscal year unless TDPRS, at its sole discretion, requires a provider to submit a cost report covering selected activities or covering another time period. The requirements specified in this subchapter shall establish minimum rates for fiscal year 1994 only. The word "rate," when used in this subchapter, shall refer to the reimbursements paid either directly or indirectly to a provider with whom TDPRS has a contract or an agreement.

1. (1) Who must file a cost report. Every 24-hour residential child-care provider that directly or indirectly receives payment from PRS for services to children whom PRS 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.
2. (2) Cost report due date. Unless PRS specifies otherwise, providers must submit cost reports within 90 days after receiving cost-reporting forms from PRS.
3. (3) Extension of due date. When circumstances that a provider cannot reasonably be expected to control prevent the provider from submitting a cost report within 90 days as specified in paragraph (2) of this section, PRS may extend the due date for 30 days. The provider must request the extension in writing before the due date, and PRS must respond to the request within 10 workdays after receiving it.
4. (4) Cost-report supplements. To obtain additional financial and statistical information that does not appear in a provider's regular cost report, PRS 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 PRS.
5. (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, PRS 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 PRS has placed the provider on vendor hold may result in nonrenewal or cancellation of the provider's contract with PRS. When a provider is on vendor hold, PRS does not extend the due date for receipt of the provider's cost report.
6. (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. (7) Methods of allocation. TDPRS adjusts allocated costs if the department considers the allocation method to be unreasonable.

   1. (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 this department. The department 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.

   2. (B) When practical and the amounts are material, costs must be allocated on a functional basis. Some examples are listed as follows.

      1. (i) Costs of a central payroll operation could be allocated to all business components based on the number of checks issued.
      2. (ii) Costs of a central purchasing function could be allocated based on the dollar amount of purchases made or requisitions handled.
      3. (iii) Costs of utilities or rent could be allocated based upon square footage.
      4. (iv) Payroll costs for an employee working across business components could be allocated based upon that employees' timesheets and/or a documented time study.
      5. (v) Transportation equipment costs could be allocated based upon mileage logs.
   3. (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 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.
   4. (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. (8) Certification. Providers must complete the certification page of their cost reports to certify that the reports are accurate.

9. (9) Review of cost reports. PRS conducts a desk review 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:

   1. (A) displays financial and statistical information in the format required by PRS;
   2. (B) reports expenses in conformity with the lists of allowable and unallowable costs in §§700.1804-700.1806 of this title (relating to Allowable Costs; Unallowable Costs; and Costs Not Included in Recommended Payment Rates); and
   3. (C) follows GAAP except as specified in paragraph (6) of this section or in the lists of allowable and unallowable costs in §§700.1804-700.1806 of this title (relating to Allowable Costs; Unallowable Costs; and Costs Not Included in Recommended Payment Rates).
10. (10) Requests for additional information. If a cost report fails to conform to applicable requirements as specified in paragraph (9) of this section, PRS returns the report to the provider for correction. PRS also has the authority to require providers to supply additional information to substantiate the information provided in the cost report.
11. (11) On-site audits. PRS performs a sufficient number of on-site audits each year to ensure the fiscal integrity of the 24-hour child-care services program. PRS 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, PRS arranges as many on-site audits as possible.
12. (12) Notification of exclusions and adjustments. PRS gives providers written notification of exclusions and adjustments of reported expenses made during desk reviews and on-site audits of cost reports.
13. (13) Reviews of exclusions and adjustments. When a provider disputes a PRS exclusion or adjustment of a reported expense, the provider may request an informal review of PRS's disallowance. On receipt of the provider's request, PRS reimbursement and audit staff meet with the provider and review the action taken.
14. (14) Access to records. Each provider and each provider's designated agents must give PRS access to any and all records necessary to verify information submitted to PRS 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 PRS to inspect pertinent records within 30 days after PRS sends the provider written notice, PRS places the provider on vendor hold and withholds payments until the provider gives PRS access to the records. PRS has the authority to cancel the provider's contract if the provider continues to deny PRS access.
15. (15) Maintaining records. Providers must ensure that all records pertinent to services rendered under their contracts with PRS are accurate and sufficiently detailed to support the financial and statistical information contained in their cost reports. As specified in §732.202 of this title (relating to Contractors' Records), providers must retain these records for at least three years and 90 days after the end of the contract period.
16. (16) Failure to maintain adequate records. If PRS discovers that a provider has failed to maintain adequate records as specified in paragraph (15) of this section, PRS notifies the provider of the deficiencies in the provider's recordkeeping and gives the provider 90 days to correct them. PRS has the authority to cancel the provider's contract if the provider fails to correct the deficiencies within 90 days after the date of PRS's notification.

Source Note:The provisions of this §700.1801 adopted to be effective July 31, 1991, 16 TexReg 3944; transferred effective September 1, 1992, as published in the Texas Register September 11, 1992, 17 TexReg 6279; amended to be effective January 1, 1994, 18 TexReg 8975.