Welf. & Inst. Code, § 14170

(a) (1) Amounts paid for services provided to Medi-Cal beneficiaries shall be audited by the department in the manner and form prescribed by the department. The department shall maintain adequate controls to ensure responsibility and accountability for the expenditure of federal and state funds. Cost reports and other data submitted by providers to a state agency for the purpose of determining reasonable costs for services or establishing rates of payment shall be considered true and correct unless audited or reviewed by the department within 18 months after July 1, 1969, the close of the period covered by the report, or after the date of submission of the original or amended report by the provider, whichever is later. Moreover the cost reports and other data for cost reporting periods beginning on January 1, 1972, and thereafter shall be considered true and correct unless audited or reviewed within three years after the close of the period covered by the report, or after the date of submission of the original or amended report by the provider, whichever is later.

(2) (A) Nothing in this section shall be construed to limit the correction of cost reports or rates of payment when inaccuracies are determined to be the result of intent to defraud, or when a delay in the completion of an audit is the result of willful acts by the provider or inability to reach agreement on the terms of final settlement.

(B) Nothing in this section shall be construed to preclude the department from further review of cost reports and other data for cost reporting periods beginning on January 1, 1998, after the three-year period contained in paragraph (1) of subdivision (a), where after the three-year period the department discovers information not customarily contained in these cost reports and other data for the fiscal periods in question that indicates the provider may have engaged in practices that have resulted in overreimbursement.

(3) Notwithstanding any other provision of law, nursing facilities and all categories of intermediate care facilities for the developmentally disabled which have received and are receiving funds for salary increases pursuant to Sections 14110.6 and 14110.7 shall maintain payroll and personnel records for examination by auditors from the department and the Labor Commissioner beginning March 1985 until the records have been audited, or until December 31, 1992, whichever occurs first.

(b) Notwithstanding any other provision of law, costs reported for reimbursement purposes relative to Medi-Cal beneficiaries in nursing facilities that are distinct parts of acute care hospitals shall be audited by the department at least annually. The audits may be performed on a sample basis and, when the sample is statistically reliable, as determined by the department, may be used for ratesetting purposes.