This performance audit of the Adult Care Homes Reimbursement Rates administered by the Department of Health and Human Services was requested by the Senate Appropriations Subcommittee on Human Resources and the House Appropriations Subcommittee on Health and Human Services. This report consists of an executive summary, operational findings and recommendations, and program overview. The objectives of the audit were to: 1) identify the adult care homes populations and total amount of supplemental assistance and to determine and assess governance and oversight responsibilities, 2) review the laws and regulations governing the cost reimbursement system, 3) analyze the financial information collected by the Department for adult care homes, and 4) analyze the impact of occupancy rates on reimbursement rates. Some of the recommendations include: The General Assembly should carefully review the number of beds approved under each exemption category. Consideration should be given to the intent of the exemption and to whether the intent is being achieved. The General Assembly may want to consider amending the exemptions if the moratorium remains in effect beyond the September 30, 2001 deadline. The Department should develop procedures to periodically determine the status of exempted adult care home beds. These records should be maintained and be available for the General Assembly to review. The Department should continue efforts to address the provision of adult care home services as part of the continuum of long-term care. As part of this plan, provisions should address the growth of the adult care homes industry, the cost of providing adult care homes services, as well as methods to assure the quality of the services provided. The Division of Facility Services should immediately implement a process to suspend admission of those facilities not in compliance with GS 131D-4.2. Facility Services should develop and implement clear, step-by-step procedures to follow when a facility does not submit the required cost reports. We support the Department s initiative in exploring alternative payment procedures that could have a more direct affect on quality of care. The Department should communicate payment options to the General Assembly for its consideration.