Welf. & Inst. Code, § 14707

(a) In the case of federal audit exceptions, the department shall follow federal audit appeal processes unless the department, in consultation with the County Behavioral Health Directors Association of California, determines that those appeals are not cost beneficial.

(b) Whenever there is a final federal audit exception against the state resulting from expenditure of federal funds by individual counties, the department may offset federal reimbursement and request the Controller’s office to offset the distribution of funds to the counties from the Mental Health Subaccount, the Mental Health Equity Subaccount, and the Vehicle License Collection Account of the Local Revenue Fund, funds from the Mental Health Account and the Behavioral Health Subaccount of the Local Revenue Fund 2011, and any other mental health realignment funds from which the Controller makes distributions to the counties by the amount of the exception. The department shall provide evidence to the Controller that the county has been notified of the amount of the audit exception no less than 30 days before the offset is to occur. The department shall involve the appropriate counties in developing responses to any draft federal audit reports that directly impact the county.