[Federal Register Volume 63, Number 169 (Tuesday, September 1, 1998)]
[Rules and Regulations]
[Pages 46582-46593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23420]
[[Page 46581]]
_______________________________________________________________________
Part VIII
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 5, et al.
Uniform Financial Reporting Standards for HUD Housing Programs; Final
Rule
Federal Register / Vol. 63, No. 169 / Tuesday, September 1, 1998 /
Rules and Regulations
[[Page 46582]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 5, 200, 236, 266, 880, 886, and 982
[Docket No. FR-4321-F-03]
RIN 2501-AC49
Uniform Financial Reporting Standards for HUD Housing Programs
AGENCY: Office of the Secretary, HUD.
ACTION: Final rule.
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SUMMARY: This rule makes final a June 30, 1998 proposed rule that
proposed to establish for HUD's Public Housing, Section 8 housing, and
multifamily insured housing programs uniform annual financial reporting
standards. The rule requires public housing agencies and project owners
of HUD-assisted housing, which already, under longstanding regulatory
and contractual requirements, submit financial information on annual
basis to HUD to submit this information electronically to HUD. The rule
also requires that the annual financial information to be submitted to
HUD must be prepared in accordance with generally accepted accounting
principles (GAAP). Electronic submission is important in reducing the
administrative burden that manual submission presents to housing
authorities, project owners, mortgagees and HUD. It is also important
in bringing HUD and its program partners up-to-date with modern
technology. Reporting in GAAP is important because GAAP accounting is
more widely accepted and allows for financial consistency among various
entities.
The objective of this rule is to standardize the annual financial
information submission process and, through standardization, bring
consistency and increased fairness to the evaluation of the financial
condition of housing assisted under various HUD programs. This final
rule takes into consideration public comments received on the June 30,
1998 proposed rule.
EFFECTIVE DATE: October 1, 1998.
FOR FURTHER INFORMATION CONTACT: For further information contact the
Real Estate Assessment Center, Attention Paul Maxwell, Department of
Housing and Urban Development, 490 L'Enfant Plaza East, SW, Room 8204,
Washington, DC 20410; telephone (202) 755-7540, ext. 132 (this is not a
toll-free number). Persons with hearing or speech impairments may
access that number via TTY by calling the Federal Information Relay
Service at (800) 877-8399.
SUPPLEMENTARY INFORMATION:
I. The Proposed Rule
On June 30, 1998 (63 FR 35662), HUD published a proposed rule that
would establish for HUD's public housing, Section 8 housing, other
assisted housing, and multifamily insured housing programs annual
financial reporting standards. The rule proposed to require public
housing agencies and project owners of HUD-assisted housing, which
already, under longstanding regulatory and contractual requirements,
submit financial information on annual basis to HUD to submit this
information electronically to HUD in accordance with a standardized
format to be established by HUD. The rule also proposed that the annual
financial information to be submitted to HUD must be prepared in
accordance with generally accepted accounting principles (GAAP).
Electronic Submission
Electronic submission was determined important in reducing the
administrative burden that manual submission presents to housing
authorities, project owners, mortgagees and HUD. It is also important
in bringing HUD and its program partners up-to-date with modern
technology. With the dramatic growth of personal computer ownership,
reports are compiled electronically and electronic reporting will allow
for the rapid submission of the reports and enhances HUD's ability to
analyze these reports quickly, which is of benefit to the reporting
entities (or individuals).
GAAP Accounting
The rule also proposed to require that the annual financial
information to be reported to HUD must be prepared in accordance with
generally accepted accounting principles (GAAP). ``Generally accepted
accounting principles'' has the meaning specified in generally accepted
auditing standards issued by the American Institute of Certified Public
Accountants (AICPA). Under GAAP, the accounting principles and
financial reporting standards are established by the Governmental
Accounting Standards Board (GASB) for governmental entities, and by the
Financial Accounting Standards Board (FASB) for nongovernmental
entities. Reporting in GAAP was determined important because GAAP
accounting is more widely accepted and allows for financial consistency
among various entities. HUD's FHA multifamily program participants are
already reporting in GAAP (and have been for sometime). The requirement
for all financial reports to be prepared in accordance with GAAP would
bring public housing agencies (PHAs) under similar accounting standards
as FHA multifamily program participants, thereby increasing consistency
and fairness in the reporting process, including the evaluation of
these reports.
Report Submission Date
The rule proposed that the annual submission date for the report
would be sixty (60) days after the end of the covered entity's fiscal
year. The proposed report due date was consistent with the reporting
deadline established for multifamily program participants, and would
have added an additional 15 days to the established annual reporting
deadline for PHAs.
Standardized Format
In the proposed rule, HUD explained that the format of the
financial report would be substantially the same for all covered
programs, although the format may vary in certain respects to reflect
different types of reporting entities (e.g., owners of multifamily/FHA-
related housing vs. PHAs). However, the content of the annual financial
report to be submitted to HUD would not have been materially altered by
the proposed rule; the proposed rule would have continued to require
much of the financial information that is now submitted to HUD. The
manner in which the financial information is prepared and the format in
which it is submitted would be altered by the requirements to comply
with GAAP and to submit the report electronically and in a standardized
format. A standardized format is anticipated to bring uniformity and
consistency to the evaluation of the financial data. Electronic
submission is anticipated to bring efficiency to the process and reduce
administrative burden.
Covered Programs
HUD proposed to apply the uniform financial reporting standards to
owners and/or administrators of housing under the following HUD
programs:
1. Public Housing
The reporting requirements would apply to PHAs receiving assistance
under sections 5, 9, or 14 of the U.S. Housing Act of 1937 (42 U.S.C.
1437c, 1437g, and 1437l) (the 1937 Act).
2. PHAs Administering Section 8 Housing Assistance Payments Programs
The reporting requirements would apply to PHAs as contract
administrators for any Section 8 project-based or tenant-based housing
[[Page 46583]]
assistance payments program, which includes assistance under the
following programs:
(i) Section 8 project-based housing assistance payments programs,
including, but not limited to, the Section 8 New Construction,
Substantial Rehabilitation, Loan Management Set-Aside, Property
Disposition, and Moderate Rehabilitation (including the Single Room
Occupancy program for homeless individuals);
(ii) Section 8 Project-Based Certificate programs;
(iii) Any program providing Section 8 project-based renewal
contracts; and
(iv) Section 8 tenant-based assistance under the Section 8
Certificate and Voucher program.
3. Owners of Housing Receiving Section 8 Project-Based Housing
Assistance
The reporting requirements would apply to owners of housing
assisted under any Section 8 project-based housing assistance payments
program:
(i) Including, but not limited to, the Section 8 New Construction,
Substantial Rehabilitation, Loan Management Set-Aside, and Property
Disposition programs;
(ii) Excluding the Section 8 Moderate Rehabilitation Program (which
includes the Single Room Occupancy program for homeless individuals)
and the Section 8 Project-Based Certificate Program.
4. Multifamily Housing
The reporting requirements would apply to owners of housing
receiving assistance or loans under the following HUD programs:
(i) Section 202 Program of Supportive Housing for the Elderly;
(ii) Section 811 Program of Supportive Housing for Persons with
Disabilities; and
(iii) Section 202 loan program for projects for the elderly and
handicapped (including 202/8 projects and 202/162 projects).
The reporting requirements would also apply to owners of all
housing with mortgages insured, coinsured, or held by HUD, or housing
that is receiving assistance from HUD. Such housing would include, but
may not be limited to, housing under the following authorities:
(iv) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701
et seq.) (Rental Housing Insurance);
(v) Section 213 of the NHA (Cooperative Housing Insurance);
(vi) Section 220 of the NHA (Rehabilitation and Neighborhood
Conservation Housing Insurance);
(vii) Section 221(d)(3) and (5) of the NHA (Housing for Moderate
Income and Displaced Families);
(viii) Section 221(d)(4) of the NHA (Housing for Moderate Income
and Displaced Families);
(ix) Section 231 of the NHA (Housing for Elderly Persons);
(x) Section 232 of the NHA (Mortgage Insurance for Nursing Homes,
Intermediate Care Facilities, Board and Care Homes);
(xi) Section 234(d) of the NHA (Rental) (Mortgage Insurance for
Condominiums);
(xii) Section 236 of the NHA (Rental and Cooperative Housing for
Lower Income Families);
(xiii) Section 241 of the NHA (Supplemental Loans for Multifamily
Projects); and
(xiv) Section 542(c) of the Housing and Community Development Act
of 1992 (12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing
Program).
Proposed Implementation Schedule. As described in the June 30, 1998
proposed rule, for PHAs (as recipients of assistance under sections 5,
9, or 14, or as contract administrators of the various Section 8
assisted housing programs listed above), HUD proposed that the
requirement of electronic submission of GAAP-based financial reports,
in the manner and in the format prescribed by HUD, would begin with
those PHAs with fiscal years ending September 30, 1999 and later.
Unaudited financial statements would be required 60 days after the
PHA's fiscal year end (i.e., November 30, 1999), and audited financial
statements would then be required no later than 9 months after the
PHA's fiscal year end, in accordance with the Single Audit Amendments
Act of 1996 and revised OMB Circular A-133. For all other entities to
which this rule would apply (``other covered entities''), HUD proposed
that the requirement of electronic submission of GAAP-based audited
financial reports, as provided in this rule, would begin with those
other covered entities with fiscal years ending December 31, 1998 and
later.
II. Changes at the Final Rule Stage
The initial due date for the receipt of public comments on the
proposed uniform financial reporting standards was July 30, 1998. HUD
published a notice extending the deadline for public comments until
August 13, 1998 (63 FR 41754). HUD received 73 comments on the proposed
rule.
As a result of the public comments, the following two changes were
made to the rule at the final rule stage.
1. Report Submission Deadline for Multifamily Housing Properties Is
April 30, 1999 for First Year of Compliance
The final rule provides that for the first year of implementation
of the uniform financial reporting requirements, the annual report
submission deadline for entities (or individuals) with fiscal years
ending December 31, 1998 reporting on multifamily housing properties is
April 30, 1998 for the first year of compliance only.
2. Clarification of Owner Responsibility for Submission of Financial
Report
The final rule clarifies that the owner is responsible for the
submission of the financial report.
III. Discussion of Public Comments
The majority of the public commenters on this rule supported the
proposed changes in annual financial reporting announced in the June
30, 1998 proposed rule. The commenters stated that accounting in
accordance with GAAP and electronic submission reporting were steps in
the right direction. They commented that: reporting in accordance with
GAAP will bring more standardization and thus more comprehensive
understanding of financial reports produced by housing authorities; a
significant byproduct of the conversion to GAAP will be to make
agencies much more conversant with the private industry; and use of
electronic submission of annual statements via the internet would
result in significant benefits to both HUD and program participants.
The majority of the commenters supporting these changes, however,
expressed reservations about certain components of the proposed rule,
and particularly expressed reservations about the following three
areas. First, the commenters expressed concern that the implementation
date for financial reporting changes was too early, and would not allow
sufficient time to make the conversion to GAAP and electronic
submission. Second, the commenters expressed concern that there would
be increased costs as a result of conversion to GAAP and electronic
submission. Third, the commenters expressed concern about the annual
report submission due date. The commenters thought a report due date of
60 days after the end of the fiscal year was not reasonable,
particularly during the first year of compliance with the reporting
requirements.
As already noted in section II of this preamble, the final rule
provides for an extended report due date for the first
[[Page 46584]]
year of compliance for entities (or individuals) with fiscal years
ending December 31, 1998 and reporting on multifamily housing
properties. For PHAs, the final rule provides, as did the proposed
rule, for compliance with the reporting requirements beginning with
fiscal years ending September 30, 1999 and later. The longer
implementation period for PHAs, and the changes made by this final rule
with respect to multifamily housing properties, should address to a
significant degree concerns about the implementation date, and should
minimize costs concerns raised by the commenters as will be discussed
further below. The following provides a more detailed discussion of
these concerns as well as other issues raised by the public commenters
on the June 30, 1998 proposed rule.
A. General Comments on the Proposed Rule
The Public Comment Period for the Rule Was Not Sufficient
Several commenters responded that a 30-day comment period for the
proposed rule was inadequate. The commenters stated that 30 days is not
sufficient time for a rule that addresses such critically important
responsibilities of housing providers.
HUD notes that the public comment period for this rule was extended
through August 13, 1998 in response to commenters' request.
Additionally, HUD notes that although the financial reporting changes
proposed in the June 30, 1998 rule address important responsibilities,
the changes themselves are not dramatic. First, the rule does not
impose a new annual financial reporting requirement. The statutes,
regulations and contracts governing HUD housing programs currently
provide for the annual submission of financial information to HUD, as
well as such other information that HUD may require to monitor
compliance with program statutory, regulatory, and contractual
requirements.
Second, the financial information to be submitted is not changed
significantly by this rule. As the proposed rule stated, much of the
financial information that is now submitted to HUD would continue to be
submitted to HUD. The changes in financial information that HUD has
targeted for revision are those that result in a needed update to
reflect existing requirements, the elimination of redundant
information, or greater standardization. These changes are designed to
reduce the administrative burden of preparing the annual financial
information.
Third, FHA multifamily program participants have been reporting in
accordance with GAAP for a substantial period of time. There are some
changes in GAAP reporting for the annual financial report to be
submitted by multifamily program participants but these changes are
those that primarily result from the issuance of an updated chart of
accounts that captures accounting information that is already
separately recorded by project owners. PHAs that have not yet converted
to GAAP (and a number of PHAs already have) will not be disadvantaged
by the new reporting requirements because again the final rule
provides, as did the proposed rule, that reporting in accordance with
the uniform financial reporting requirements will begin with PHAs with
fiscal years ending September 30, 1999 and later.
Fourth, electronic reporting should not create an undue
administrative burden for entities covered by this rule. With the
dramatic growth of personal computer ownership and the even more
dramatic growth of internet access through personal computers, most
entities, including small entities, have internet access. As discussed
later in this rule, PHAs and FHA multifamily program participants are
already submitting electronically to HUD data necessitated under other
program requirements.
Fifth, as the June 30, 1998 proposed rule discussed, in the
development of the uniform financial reporting requirements, HUD
created working groups involving HUD's program participants and others
familiar with both FHA properties and public housing properties, GAAP
reporting and electronic submission, to examine the annual financial
information that is now submitted to HUD and how preparation and
evaluation of that information could be made less burdensome while
preserving the enforcement integrity of the information. HUD also
posted this rule on HUD's web page to provide greater dissemination of
notice of this proposed rulemaking, and the Federal Register also
provides electronic posting of published rules. Given the pre-
publication discussions with program participants, the limitation on
changes to financial reporting requirements proposed by the June 30,
1998, and the benefits to be reaped through implementation of uniform
financial reporting requirements, HUD believes that the comment period
provided was adequate.
The Rule Needs to Provide Additional Information About the Financial
Reporting Requirements
Several commenters stated that the proposed rule failed to provide
the specifics on the implementation of the reporting requirements and
on the financial information to be provided. One commenter stated that
the proposed rule failed to describe what information is to be
submitted and by whom. Another commenter asked who will provide the
necessary software and training that will be needed in complying with
these requirements.
HUD believes that the proposed rule was clear on the implementation
schedule of the uniform financial reporting requirements, both in the
preamble to the rule and the text of the rule. That schedule is also
found later in Section IV of this preamble under the heading
``Compliance Schedule for Uniform Financial Reporting Requirements.''
With respect to the details of the financial information to be
reported, HUD's current regulations, and indeed other agency
regulations, have not provided in regulatory text the details of the
financial information to be submitted. This information can be lengthy
and technical and not suitable for an authority (the Code of Federal
Regulations) which is updated only once a year. The regulation provides
the broad reporting requirements, but the specifics of the financial
information is left to supplemental documents such as handbooks and
guidebooks, which allow for a more detailed discussion of the financial
information to be submitted (and therefore more helpful), allows for
examples and model reports to be included, and can be corrected and
updated easily, as a result of users' suggestions and recommendations,
and as a result of experience in using the model reports and forms
provided.
HUD's approach to the uniform reporting requirements will follow
this traditional practice. As changes have come about in reporting
requirements, HUD developed the necessary guidance for its program
participants. For example, when revisions were made to OMB Circular A-
133 (Audits of States, Local Governments, and Nonprofit Organizations)
as a result of changes made by the Single Audit Amendments Act of 1996
(Pub. L. 104-156, approved July 5, 1996), HUD developed and issued the
necessary guidance to assist program participants in understanding and
complying with the changes made by this statute and the revised
circular. HUD revised and issued Handbook 2000.04 REV-2 on Consolidated
Audit Guide for Audits of HUD Programs.
[[Page 46585]]
HUD also issued a notice to all multifamily project mortgagors on the
new audit requirements resulting from the statute and legislation
(Notice H-98-25, issued April 24, 1998). Another example of detailed
assistance is the guidance that HUD prepared and issued on the Annual
Financial Data Submission Requirements. This guidance, issued December
9, 1997, details the requirements for electronic submission of annual
financial data to HUD by multifamily housing project owners, or their
authorized employees or agents. For PHAs, HUD has developed and made
available a HUD-GAAP Conversion Guide for PHAs. This guidance document
is in the final development stage.
As has been the case in the past, HUD will provide the necessary
additional details and documentation, and guidance and technical
assistance that entities covered by this rule will need to comply with
the uniform financial reporting requirements.
Implementation of the Uniform Financial Reporting Requirements Should
Be Delayed for One Year
Several commenters stated that compliance with the uniform
financial reporting requirements, which will entail conversion to GAAP
and electronic submission, constitute major changes and the start-up
dates in the rule are not reasonable. Other commenters suggested that
these requirements first be instituted as a pilot or test program
before national implementation.
HUD has carefully considered the comments and suggestions regarding
the rule's implementation dates and has concluded that, except for the
changes made by this final rule, the dates provided in the June 30,
1998 proposed rule should remain applicable. Again, HUD's multifamily
housing program participants already report in accordance with GAAP and
have been reporting in GAAP for a considerable period of time. HUD
acknowledges that the implementation schedule for entities (or
individuals) reporting on multifamily housing properties and that have
fiscal years ending December 31, 1998, will require conversion to HUD's
uniform financial reporting requirements in the middle of an accounting
cycle. This conversion, however, is not anticipated to be a difficult
transition to make because the changes to be addressed for multifamily
property annual financial reports (that are already prepared in
accordance with GAAP) are those that primarily result from the issuance
of an updated chart of accounts that captures accounting information
that is already separately recorded by multifamily housing project
owners. Although the conversion changes for entities and individuals
are not anticipated to be difficult, HUD has provided in the final
rule, as already discussed in this preamble, an extended report
submission date for the first year of compliance for those entities (or
individuals) that have fiscal years ending December 31, 1998 and are
reporting on multifamily housing properties.
With respect to electronic submission, many FHA multifamily program
participants already submit reports electronically to HUD. For example,
24 CFR part 208 provides for the electronic transmission of certain
required data pertaining to certification and recertification of
tenant's eligibility for multifamily subsidized projects. This rule was
promulgated in 1993. More recently, HUD published a proposed rule that
would require mortgagees that hold or service multifamily mortgages
insured by HUD to submit to HUD electronically data on mortgage
delinquencies, defaults, and defaults, among other things. This rule
published on May 13, 1998 (63 FR 26702) provided a 60-day public
comment period, and no public comments were received on the rule.
In the case of PHAs, the rule allows a full fiscal year to convert
accounting systems and records to provide the few new or changed
accounts and entries necessary to convert to GASB/GAAP and HUD's
revised annual reporting requirements. While the lead time is not long
for affected PHAs with fiscal years beginning October 1, 1998, HUD's
guidelines show that the nature of the changes will not require an
extensive break-out or reconstruction of transaction detail, even if
the changes are made in the middle of an annual accounting cycle. With
respect to electronic submission, PHAs also already submit various
reports electronically to HUD. For example, 24 CFR part 908 provides
for the electronic transmission of certain required family data for
PHAs operating public housing, Indian housing or Section 8 Rental
Certificate or Voucher programs.
HUD also reminds entities subject to compliance with the uniform
financial reporting requirements that the final rule provides, as did
the proposed rule, that HUD may approve transmission of the financial
data by tape or diskette if HUD determines that the cost of electronic
transmission via the internet would be excessive.
HUD wants the uniform financial reporting requirements to succeed,
to assist and benefit HUD's program participants, as well as HUD. HUD
will provide the necessary guidance and technical assistance, and as
the process gets underway, HUD will carefully consider any
circumstances that may arise and may make compliance with these
reporting requirements difficult or necessitate additional time in a
given situation.
The Content and Format of the Financial Report Should Be Published for
Comment
Five commenters requested that the content and format of the
financial report be published for advance notice and comment.
HUD will make the content and format of the report available.
Again, however, as HUD noted in the proposed rule, the uniform
financial reporting requirements do not substantively change the
existing annual financial reporting requirements of HUD's housing
program participants, or the format in which the information is to be
submitted. The rule will result in some changes to the chart of
accounts used in financial reporting to HUD, including changes to:
streamline or eliminate unnecessary account detail; add some additional
accounts required to comply with new GASB/GAAP requirements for PHAs;
and update the multifamily housing chart of accounts to more fully
capture existing program requirements.
Currently, HUD guidelines on the specific nature of these changes
is available from the HUD/REAC web site (http://www.hud.gov/reac/
reafin.html). As the HUD/REAC system development effort nears
completion, further guidance on specific procedures for reporting
formats and electronic submission will be provided.
Uniform Financial Reporting Will Not Assure Comparative Analysis of
Performance.
A few commenters stated that HUD's assumption that uniform
financial reporting of financial data will facilitate more effective
analysis of project operating data is not necessarily correct. The
commenters stated that the financial conditions of the projects under
review (public housing and multifamily properties) are so different and
so any variations are involved in each of these categories, that
uniform financial reporting will not achieve the comparative analysis
HUD desires.
The rule's primary purpose is to provide for greater uniformity in
the accounting principles, account structure, and financial and
compliance reporting formats applicable to HUD's housing programs. HUD
acknowledges the basic differences between its PHA
[[Page 46586]]
and FHA multifamily housing, but believes that the uniform financial
report procedures, coupled with new electronic submission requirements,
the rule's uniform standards will greatly enhance HUD's ability to
perform timely, meaningful comparative analyses of the financial
performance and compliance of its housing program participants and
portfolio.
The Rule Adversely Impacts Small Entities
Several commenters stated that the changes in reporting
requirements proposed by the June 30, 1998 rule would adversely impact
small entities.
HUD disagrees with the commenters that the uniform financial
reporting requirements will have a significant economic impact on a
substantial number of small entities for several reasons. First, for
small entities reporting on multifamily properties, these entities are
already familiar and reporting in accordance with GAAP accounting.
Multifamily chart of account changes primarily pertain to needed
updates to better reflect existing rather than new requirements. For
small PHAs, HUD has provided a year before reporting in GAAP is
required. Second, HUD notes that the Single Audit Act Amendments of
1996 raised significantly the monetary threshold for when an entity
that receives Federal assistance is required to have an audit. The
threshold was raised from $25,000 to $300,000. This change
significantly reduces reporting costs for small entities. Therefore,
although small entities must continue to submit an annual financial
report to HUD, an audited report is not required. Third, the June 30,
1998 proposed rule although clearly expressing a preference for
internet submission of financial reports provides that HUD will approve
transmission of financial data by tape or diskette if HUD determined
that the cost of electronic internet transmission would be excessive.
Fourth, the change made at this final rule stage (the extended report
due date for certain entities reporting on multifamily housing
properties) also will contribute to reducing any possible
disproportionate administrative burden that this rule may have had on
small entities. Additionally, to further ease any administrative burden
on small entities, and all entities subject to these requirements, HUD
will provide submission software, supplemental guidance, training and
other technical assistance.
B. Comments on Reporting in Accordance with GAAP
Conversion to GAAP Will Take Longer and Be More Costly than HUD
Estimates and Will Not Bring Consistency
Several PHA commenters stated that the conversion to GAAP will take
longer and be more costly than HUD estimates. These commenters stated
that the conversion of PHA financial statements from the current HUD
reporting to a GAAP basis may not be as simplistic as HUD staff
foresees; could require significant effort for the auditor and the
organizations; and could result in major differences in the financial
statement amounts if PHAs are treated as business-type activities
rather than governmental entities.
HUD understands PHA concerns about the conversion to GAAP, but
believes that these concerns are based on misunderstanding or
misconceptions about GAAP. First GAAP standards take into account
governmental entities. As noted in the proposed rule, there is
``governmental GAAP''--that is, financial reporting standards
established by the Governmental Accounting Standards Board (GASB).
These standards are sometimes referred to as GASB GAAP. Second, GAAP
standards are not as rigid as some of the commenters may believe. GAAP
permits choices among acceptable options for certain accounting
transactions. For PHAs, GAAP permits two types of reporting mechanisms,
the governmental method and the enterprise methods. The use of either
method is acceptable to HUD. Each PHA has the discretion to determine
its own method. The guiding criteria should be the type of activities
performed by the PHA.
Because the purpose of converting to GAAP is to achieve uniform and
consistent financial data from all reporting entities, HUD has selected
preferred options for those transactions within the two types of
methods (governmental and enterprise) where GAAP allows an entity to
choose from more than one method. HUD's PHA GAAP Conversion Guide
identifies HUD's preference on the allowable treatment of select
accounting issues to provide desired standardization across the HUD-
supported portfolio. For example, HUD will prefer that PHA's: accrue
all expenses, expense inventory as consumed, report depreciation on
fixed assets, and report the accrual of compensated absences. These
preferences are all allowable under GASB/GAAP, and under both a
governmental or enterprise fund model. Additionally, HUD points out
that conversion to GAAP does not require change of recordkeeping.
HUD notes that for PHAs the GAAP conversion process entails only
year-end adjustments to convert a PHA's recordkeeping so that
information may be reported under GAAP. Compliance with GAAP does not
require the whole-sale conversion of PHA accounting software in order
to meet the rule's implementation date for PHAs, nor does it require
PHAs to change their current accounting and recordkeeping systems. PHAs
are only required to report this information using GAAP as the
accounting basis. Reporting financial information in accordance with
GAAP allows for financial consistency among PHAs. It also provides a
common mechanism for HUD to fairly and accurately assess the financial
condition of each PHA as compared to its peers. Additionally, GAAP
reporting presents a more accurate picture of PHA financial condition
by accounting and accruing for all liabilities that may exist.
Another commenter stated that the proposed rule mentioned two
different standard setting bodies in the proposed rule--FASB and GASB.
The commenter noted that FASB exercises jurisdiction over private
enterprises and nonprofits while GASB exercises jurisdiction over
government. The commenter asked how HUD proposes to maintain
consistency in accounting and financial reporting when there is no
consistency in the underlying accounting standards.
HUD acknowledges the distinctions between housing entities covered
by FASB/GAAP versus GASB/GAAP, but notes that FASB and GASB have been
established to be as consistent with each other as feasible given the
types of entities each covers. To maintain that consistency, HUD will
not be advocating any deviation from the appropriate standards
applicable to each housing entity. As noted earlier in this preamble,
there are various fund types and reporting options available to
entities governed under GASB/GAAP. There are options within those
variable bases of accounting which can realize consistency of treatment
of the many specific types of transactions or accounting issues.
GAAP Requires the Calculation of Depreciation, Which Is Not Currently
Done by PHAs and Benefit of This Information Unclear
Several PHA commenters expressed concern about the introduction of
depreciation (a GAAP requirement) into the public housing financial
system. The commenters stated that depreciation calculations will
increase expenses, and therefore, have an impact
[[Page 46587]]
on the balance sheet and income statement.
HUD believes that the reporting of the accumulated depreciation of
PHAs assets will better enable HUD to assess a PHA's performance and
funding needs. The availability of such information will enable the PHA
to operate in a more business-like manner. Recording of depreciation
provides each PHA with a systematic allocation method showing the cost
of an asset over its useful life. The recording of deprecation permits
each PHA to show the directly related consumption of the asset over the
periods in which the asset is used. The HUD-GAAP Conversion Guide for
PHAs provides guidance and training on a straightforward, simplistic
approach to establishing the current depreciated value of fixed assets
during the conversion process.
HUD Circular Letter LM-85 Provides an Exception to GAAP Filings
Three commenters stated that under HUD Circular Letter LM-85,
accrual based financial statements prepared on the same basis of
accounting as a project's tax return are acceptable to HUD provided
that the only two differences are the write off (rather than
capitalization) of certain interest and taxes incurred during the
construction period and the methods and lives of depreciating fixed
assets. The commenters stated that this, therefore, provides an
exception to the GAAP rule in that it avoids the need for owners and
property managers to duplicate certain GAAP and income tax basis
records for many projects.
HUD Circular Letter LM-85 was superseded by HUD Handbook changes
requiring GAAP-based financial reporting by all multifamily housing
program participants. While individual HUD field offices may have
inconsistently enforced the existing requirement for GAAP-based
financial reporting, one of the objectives of this rule is to ensure
compliance with the uniform financial reporting requirements.
Changes to Existing Chart of Accounts Will Create Problems
A few commenters expressed concerns about change to the chart of
accounts. The commenters stated that the existing chart of accounts
includes surplus accounts that are unique to HUD, and these should not
be changed. The commenters also stated that the existing chart of
accounts provides for tracking subsidies on a cash basis, and confusion
would result if HUD grants and cumulative grants were no longer tracked
on a cash basis. One commenter stated that the chart of account will
not accommodate recording of transactions under both FASB and GASB.
Some commenters expressed concern that the changes to the chart of
accounts will be occurring after 1998 transactions already have been
recorded. These commenters stated that to meet the implementation
deadlines of the proposed rule, they would have to reclassify
transactions already recorded. The commenters also stated that there
would have to be changes in the computer programs now administered by
the private management companies but also in other forms and procedures
established by HUD.
HUD does not intend to eliminate the HUD surplus accounts that are
currently within the chart of accounts. Additional accounts required to
permit conformity with GAAP are being added to the chart of accounts.
With respect to subsidies, these can be tracked under GAAP. In fact,
reporting of subsidies under GAAP will provide a clearer picture of
cumulative HUD grants and will not compromise the integrity of the
operating reserve and cash analysis system. HUD also has expanded the
chart of accounts for both public and multifamily housing programs, and
the respective charts for these programs now contain the accounts
needed to fulfill HUD's needs in accordance with the appropriate FASB
or GASB requirements. The new accounts needed for PHAs to convert to
GASB/GAAP are described in HUD's ``PHA GAAP Conversion Guide.'' With
respect to concerns about changes to the chart of accounts after the
1998 reporting year is underway, HUD notes that the revisions to the
old chart of accounts for multifamily housing projects were only those
necessary to update the chart to reflect already existing requirements.
Some of the new accounts capture data previously reported on
supplemental compliance data schedules that are being eliminated under
HUD's new financial assessment process. Therefore, the changes to the
chart of accounts are not anticipated to require any extensive
reconstruction or break-out of accounting transactions to implement.
HUD has recently developed guidance that describes the specific nature
of the new chart of accounts and the basis and preferred treatment of
any additions, deletions or other changes. This guidance is available
through the HUD REAC web site. On the matter of changes to existing
handbooks and forms, HUD Handbook 4370.2 is being revised to introduce
the new chart of accounts and new HUD budget worksheets. Other
handbooks and forms will be updated as necessary.
Conversion to GAAP Will Be Burdensome to Small Entities
With respect to concerns about the administrative burden of
conversion to GAAP, and particularly that such burden that may fall on
small entities, these concerns addressed earlier in the preamble under
Section III.A. As noted earlier, HUD is allowing a full year before
reporting in GAAP will be required (again FHA multifamily program
participants are already reporting in accordance with GAAP). Also,
given that GAAP takes into account the financial distinctions of
governmental entities, and given that GAAP is not as rigid as some
commenters may believe, HUD does not believe that the conversion
process will be as burdensome as the commenters believe. HUD already
has developed, and provided to PHAs as well as posted on the HUD
website at www://hud.gov the HUD-GAAP Conversion Guide for PHAs.
C. Comments on Electronic Submission
Electronic Submission Is Administratively Burdensome and Costly
Several commenters, including those who already have converted to
GAAP, expressed concern about electronic submission of the financial
report via the internet. The commenters stated that although they
realize that electronic submission results in significant
administrative efficiencies, electronic submission via the internet
creates administrative burdens that they believe exceed the burdens of
manual submission requirements. A few commenters stated that electronic
submission adversely impacts small entities since systems of many small
property owners are not electronic and their ability to complete
electronic submissions is limited and in some instances non-existent.
Other commenters stated that electronic submission will not replace a
hard copy report and therefore the benefits for the reporting entities
are not that significant. Several commenters also raised concerns that
audit costs would increase as a result of electronic submissions
because housing authorities and agencies would ask their accountants to
handle the electronic submission.
With respect to internet transmission, HUD acknowledges that until
recently on-line transmission and on-line use of information was
generally limited to large entities. The dramatic growth in
[[Page 46588]]
personal computer ownership, however, has enabled smaller entities to
access on-line information just as readily as large entities. For those
entities without internet capability at their place of business, access
is readily available at other business or public locations for
reasonable usage fees. Many Federal, State, and local government
agencies are a possible source of internet access for those in need of
internet capability, including local HUD offices.
There are significant benefits to internet capability for
information delivery. Internet capability by allowing for rapid
transmission of the data from the reporting entity to HUD, increasing
the ability of HUD to analyze the information, and facilitating HUD's
response to the reporting entity about the financial information
provided. Additionally, use of the internet eliminates the time-
consuming paperwork required to manually transmit the financial reports
to HUD.
HUD is aware that for some entities, perhaps small entities, there
may be an initial administrative burden and cost associated with the
new requirement for electronic submission of financial statements.
However, as discussed above, the widespread use of personal computers
and internet services, should make the administrative burden and cost
minimal, and this burden and cost will be offset by the increased
efficiency that electronic submission provides for the reporting entity
for HUD's overall financial oversight process.
To simplify the electronic submission process, HUD will provide
submission software to reporting entities, at no cost, that can be
downloaded from the internet. The software provides a template to more
easily enable reporting entities to submit their financial report
information, and better assures the quality of the data. This user
friendly software reduces the electronic submission process to more of
a clerical process, as opposed to the time consuming professional
accounting services effort envisioned in many of the comments. HUD will
provide training with this software and the REAC Customer Service
Center will further assist entities in understanding and fulfilling
these new requirements. Additionally, the extended report due date for
multifamily project owners with fiscal years ending December 31, 1998
should significantly ease the initial administrative burden that occurs
in the first year of compliance with the new requirements. The
software, the training, the extended report due date are steps that HUD
is taking to alleviate concerns over the degree of difficulty and cost
associated with the required electronic submission process. While it is
true that the electronic submission to HUD may not replace the need to
provide a hard copy report to other agencies or organizations for other
purposes, more and more organizations are requiring electronic
submissions of reporting. As noted earlier, HUD's program participants
are already submitting reports electronically to HUD in several areas.
With respect to the impact on small entities, in addition to the
reasons just discussed that will minimize any burden or cost associated
with internet transmission, HUD reminds the commenters that the rule
provides that HUD may consider electronic submission other than through
the internet if the cost of electronic submission via the internet
would be significant.
How Will Electronically Submitted Information Be Verified and Be Made
Secure
A few commenters asked how independent auditors would verify the
electronic information.
HUD's Financial Assessment Subsystem will contain internal edit
checks to preclude the submission of incomplete or mathematically
inaccurate information. Auditors will be able to access the financial
audit information submitted to HUD by their clients. Auditors should
check the validity of last year's report submissions as part of the
current year audit. Furthermore, HUD's REAC will have a quality
assurance program to validate audit quality and PHA and multifamily
owner data submissions. Suspected occurrences of false submissions will
be referred to HUD's Enforcement Center for the pursuit of possible
criminal, civil and/or administrative sanctions.
D. Comments on the Financial Report Due Date
Several commenters requested that the report submission date be
extended to 90 days or longer. The commenters stated that the report
due date that provides for 60-days after the end of the entity's fiscal
year is not sufficient. Other commenters stated that the report due
date is burdensome for entities who must file under OMB Circular A-133
standards.
HUD believes that the submission due date of 60 days from the end
of an entity's fiscal year is a reasonable amount of time. For entities
and individuals reporting on multifamily housing properties, this is
the standard annual financial report due date found in existing
regulatory and contractual agreements governing multifamily housing
programs. Since HUD is not substantially changing the multifamily
report requirements, additional time is not believed to be warranted,
beyond the initial compliance year, as discussed earlier in this
preamble. In the case of PHAs, the 60-day submission date gives PHAs an
additional 15 days beyond the previous 45-day submission requirement.
Additionally, for PHAs, the first year of compliance begins for fiscal
years ending September 1999. In all cases, HUD will consider extensions
of the report due date for entities submitting their first reports
under the uniform financial reporting requirements. Apart from the
first reporting year under the uniform financial reporting
requirements, requests for extensions of time can be submitted to REAC,
but these extensions only will be approved for unusual circumstances
beyond an entity's control.
With respect to entities who must file reports under A-133
standards, HUD is not requiring non-profit entities who must comply
with A-133 standards to provide all the schedules which are normally
prepared and forwarded as a part of these entities' audited financial
statements to HUD within 60 days. In accordance with A-133 standards,
the audited financial statement itself is not due to HUD until 9 months
after the end of an entity's fiscal year. In those cases, owners would
still have to submit the required unaudited financial reports within
the 60-day period, in accordance with the existing requirements of
their HUD regulatory agreement or contract.
E. Other Comments on the Proposed Rule
Compensation for the Costs of Conversion Is Necessary
Several commenters especially non-public housing agencies were
concerned that they would not be compensated for the increased costs of
conversion to GAAP and in submitting reports electronically.
As discussed earlier in this preamble, the costs of implementing
the accounting and electronic submission changes resulting from this
rule are not expected to be significant. HUD believes that any
additional cost incurred will be offset by corresponding decreases in
program participant burdens through greater efficiencies in HUD's
overall assessment of the financial condition of HUD public housing and
other HUD assisted properties. Costs associated with implementing the
new requirements are eligible project expenses under existing program
requirements.
[[Page 46589]]
The Uniform Financial Reporting Requirements Constitute an Unfunded
Mandate
Several commenters stated that the electronic submission
requirements constitute an unfunded mandate under the Unfunded Mandates
Reform Act (UMRA).
Section 201 of the UMRA requires agencies to assess the effects of
Federal regulatory actions on State, local, and tribal governments, and
the private sector. HUD has assessed the effects of this rule on
housing authorities and other owners and managers of HUD housing. While
this rule provides uniform financial reporting requirements for HUD
housing, these requirements are not dramatically different from the
reporting requirements with which HUD program participants already
comply. HUD has determined that the uniform financial reporting
requirements will reduce burden after the initial transition year, and
this preamble discusses the many ways in which HUD reduced the
potential for administrative burden during the first year of
compliance. Additionally, the UMRA provides an exemption for entities
participating in voluntary Federal programs. Since HUD has assessed the
effects of this rule on State, local, and tribal governments, and on
the private sector, and since this rule does not include a Federal
mandate, HUD has complied with the Unfunded Mandates Reform Act of
1995.
Education and Training by HUD of the New Requirements Are Critical
Several commenters stressed that they wanted HUD to ensure that it
would take responsibility in providing education and training of the
uniform financial reporting requirements.
HUD acknowledges that it has this responsibility, and already has
begun providing guidance on the uniform financial reporting
requirements. Initial guidance is already available through the HUD
REAC web site or Customer Service Center, and plans are being made by
REAC for additional guidance and training of PHAs, project owners,
mortgagees, housing industry groups and CPAs.
Information Collection Burden is Understated in Rule
Four commenters stated that they thought that the information
collection burden of .75 hours reported in the Paperwork Reduction Act
Statement section of the rule was understated.
HUD appreciates the comments in this area, and is reexamining
whether the burden is greater than the .75 reported at the proposed
rule stage. HUD's decision to develop electronic submission software,
which will provide an easy to use submission template, at no cost to
housing entities, will have an impact on reducing the reporting burden
of electronic submission.
HUD Handbook 4370.2 REV Restricts Business Relationships Between
Independent Accountants and Mortgagor
One commenter stated that existing HUD policy in HUD Handbook
4370.2 REV restricts business relationships between the independent
accountants and mortgagor, except for the performance of audit,
accounting systems work and tax preparation. The commenter stated that
HUD should therefore issue a formal interpretation relative to the
definition of ``fee accountant'' which is currently defined by HUD or
an individual who performs manual or automated bookkeeping services
and/or maintains the official accounting records. HUD currently
prohibits accountants from performing the audit of the mortgage.
The term ``fee accountant'' is defined in HUD's Consolidated Audit
Guide for Audits of HUD Programs (IG 2000.04, REV-2. It is also
important to note that an accountant who keeps the books for a specific
project is prohibited from performing the audit of a project.
Why Is Reporting Responsibility Imposed on Auditor and Not Owner
One commenter asked why the responsibility is being placed on the
auditor to submit the report to HUD.
Since only one commenter asked this question, HUD believes that the
proposed rule was clear that the responsibility for the submission of
the report is with the owner. Nevertheless, the final rule clarifies
that the owner has responsibility for submission of the report to HUD.
HUD Should Reexamine the Applicability of the Uniform Financial
Reporting Requirements to Certain Programs
There were several comments suggesting that certain HUD programs
should be excluded from the applicability of the uniform financial
reporting requirements. One commenter stated that pre-1980 Section 8
projects are outside of the financial reporting requirements. Another
commenter stated that audited financial report requirements should not
be applied to Section 8 and other HUD housing subsidy programs. One
commenter stated that FHA-Insured Properties should be exempt from
audited financial report requirements, and another commenter stated
that these reporting requirements should not be applied to non-profit
sponsored projects.
HUD firmly believes that the uniform financial reporting
requirements should apply to as many HUD programs as legal authority
provides. As has been stated throughout this preamble, the uniform
financial reporting requirements established by this rule do not
present a dramatic change from the reporting requirements to which
HUD's program participants have been subject to date. Where changes
require some time for implementation (conversion to GAAP, electronic
submission), HUD is providing the necessary time and technical guidance
to assist these entities in making the conversion to GAAP and
electronic reporting.
HUD believes that the uniform financial reporting requirements will
improve the efficiency and effectiveness of financial reporting by HUD
program participants, improve the efficiency and fairness of HUD's
evaluation of these reports, and reduce the administrative burden for
HUD and covered entities that manual reporting presents.
IV. Regulatory Amendments
New Subpart for Uniform Financial Reporting Standards
This rule creates a new subpart H in 24 CFR part 5. The regulations
in part 5 represent HUD's general program requirements, as well as
requirements that cut across one or more HUD programs. This new subpart
H consists of one section. Section 5.801(a) describes the entities to
which the uniform financial reporting standards will apply. Paragraph
(b) of Sec. 5.801 provides that entities covered by subpart H must
submit electronically to HUD certain annual financial information,
prepared in accordance with generally accepted accounting principles,
and in the format prescribed by HUD. In accordance with paragraph (c)
of Sec. 5.801, the information must be submitted to HUD annually, no
later than 60 days after the end of the fiscal year of the reporting
entity.
Conforming Amendments in Program Regulations
In accordance with the uniform financial reporting standards, this
rule also makes several conforming amendments to HUD's program
regulations to reference compliance with the uniform financial
reporting standards in 24 CFR part 5, subpart H. HUD is issuing a
separate rule regarding
[[Page 46590]]
the overall assessment of public housing, in which HUD further
addresses the applicability of the uniform financial reporting
standards in 24 CFR part 5, subpart H, to the public housing programs.
One of the conforming amendments in this rule is to add a new
Sec. 200.36, which refers to the uniform financial reporting
requirements in subpart H of part 5. Section 200.36 applies the new
financial reporting requirements to all HUD's multifamily mortgage
insurance programs, since many of the various program regulations
(e.g., 24 CFR parts 207, 213, 220, 221, 231, 232, 234, 241) refer to
the cross-cutting requirements in part 200. This rule amends the
heading for subpart A of part 200 to clarify that the financial
reporting requirement is a continuing eligibility requirement.
Compliance Schedule for Uniform Financial Reporting Requirements
For PHAs, as recipients of assistance under sections 5, 9, or 14,
or as contract administrators of the various Section 8 assisted housing
programs listed in Sec. 5.801(a) (1) and (2) of the rule, the
requirement of electronic submission of GAAP-based financial reports
will begin with those PHAs with fiscal years ending September 30, 1999
and later. Again, HUD believes that this compliance schedule will allow
sufficient conversion time for PHAs that are not currently using GAAP.
Unaudited financial statements will be required 60 days after the PHA's
fiscal year end (i.e., November 30, 1999), and audited financial
statements will then be required no later than 9 months after the PHA's
fiscal year end, in accordance with the Single Audit Act and OMB
Circular A-133. A PHA with a fiscal year ending September 30, 1999 that
elects to submit its unaudited financial report earlier than the due
date of November 30, 1999 must submit its report electronically and
prepared in accordance with GAAP, in the manner and in the format
prescribed by HUD, as provided by this rule. On or after September 30,
1998 but prior to November 30, 1999 (except for a PHA with its fiscal
year ending September 30, 1999), PHAs may submit their financial
reports in accordance with the financial reporting requirements of this
rule, but would not be required to do so.
For all other entities to which this rule would apply (``other
covered entities''), the requirement of electronic submission of GAAP-
based audited financial reports will begin with those other covered
entities with fiscal years ending December 31, 1998 and later. The
earlier starting date reflects the widespread use of GAAP by other
covered entities. Beginning on January 1, 1999 and thereafter, all
financial reports submitted to HUD by other covered entities would be
required to be submitted in accordance with the requirements of this
rule. For the first year of compliance with the uniform reporting
requirements, other covered entities with fiscal years ending December
31, 1998 are required to submit electronic, GAAP-based, audited
financial reports by no later than April 30, 1999 (120 days after the
close of the fiscal year). This extended due date is only for the first
year of compliance, and only for those other covered entities with
fiscal years ending December 31, 1998. Covered entities with fiscal
years ending December 31, 1998 that elect to submit their audited
reports earlier than the April 30, 1999 must submit their audited
financial reports electronically and prepared in accordance with GAAP,
in the manner and format prescribed by HUD. On or after September 30,
1998 but prior to January 1, 1999, other covered entities may submit
their financial reports in accordance with this rule, but they would
not be required to do so.
The reporting requirements in this rule are not intended to alter
the applicability or timing of the audit requirements in the Single
Audit Act (as discussed below). HUD intends to issue notices and other
guidance on the details relating to the implementation of this rule.
Additionally, to allow for a period of consistent assessment of the
financial reports submitted to HUD under this rule for the purpose of
making any refinements or necessary adjustments, PHAs covered by this
rule will not be allowed to change their fiscal years for their first
three full fiscal years following the effective date of this rule.
V. Findings and Certifications
Paperwork Reduction Act
The information collection requirements in this rule have been
approved by the Office of Management and Budget (OMB) in accordance
with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and
assigned OMB approval number by 2535-0107. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a valid control number.
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866, Regulatory Planning and Review, issued by the
President on September 30, 1993. OMB determined that this rule is a
``significant regulatory action,'' as defined in section 3(f) of the
Order (although not economically significant, as provided in section
3(f)(1) of the Order). Any changes made to this rule subsequent to its
submission to OMB are identified in the docket file, which is available
for public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the
Office of the Rules Docket Clerk, Office of General Counsel, Room
10276, Department of Housing and Urban Development, 451 Seventh Street,
SW, Washington, DC.
Environmental Impact
This rule involves external administrative requirements and does
not constitute a development decision affecting the physical condition
of specific project areas or building sites. Accordingly, under 24 CFR
50.19(c)(6) and (where this rule would amend existing provisions)
50.19(c)(2), this rule is categorically excluded from environmental
review under the National Environmental Policy Act of 1969 (42 U.S.C.
4321).
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this rule before publication and by
approving it certifies that this rule is not anticipated to have a
significant economic impact on a substantial number of small entities.
As discussed in detail in the preamble to the final rule, there are
several factors present that reduce the possibility of any significant
economic impact on a substantial number of small entities.
As noted in the preamble, this rule does not create a new reporting
requirement. The annual reporting of certain financial information is a
preexisting HUD program requirement. This rule standardizes, to the
extent possible, the content of the information and the preparation of
the information (in accordance with GAAP), and requires electronic
submission. HUD anticipates that these changes will bring consistency,
simplicity, and reduced administrative burden to the reporting process.
For those entities unfamiliar with GAAP, and particularly for any small
entities that may be unfamiliar with GAAP, HUD intends to conduct
training seminars in order to assist them in their conversion to GAAP.
With respect to costs, the audit costs assumed by PHAs and multifamily
project owners are a recognized part of operating and administrative
expenses, and accordingly, HUD anticipates that
[[Page 46591]]
there will be no (or very little) monetary costs incurred. As noted in
the preamble, the Federal Housing Commissioner has required GAAP-based
accounting for a number of years, and the vast majority of owners
already adhere to its tenets. Therefore, any burden involved in
conversion to GAAP in FHA programs is anticipated to be minimal. For
PHAs, the rule provides a year for before compliance with these
reporting requirements must begin.
With respect to electronic submission, although electronic
submission via the internet is preferred, the rule provides that HUD
will consider submission through tape, diskette or paper if HUD
determines that the costs of electronic submission via the internet
would be excessive.
In addition to the issues of training and costs, many entities will
have up to 9 months to submit audited financial statements in
accordance with GAAP (the period of time allowed under the Single Audit
Act).
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this rule will not have substantial direct effects on
States or their political subdivisions, on the relationship between the
Federal Government and the States, or on the distribution of power and
responsibilities among the various levels of government. As a result,
this rule is not subject to review under the Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMBRA) establishes requirements for
Federal agencies to assess the effects of their regulatory actions on
State, local, and tribal governments, and the private sector. As was
discussed earlier in the preamble to this final rule, this rule would
not impose a Federal mandate within the definitions provide in section
101 of the UMRA because this rule merely provides for uniform financial
reporting requirements that arise from participation in a voluntary
Federal program, for which funds are provided through budget authority
that is not entitlement authority.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance numbers for the programs
that would be affected by this rule are:
14.126--Mortgage Insurance--Cooperative Projects (Section 213)
14.129--Mortgage Insurance--Nursing Homes, Intermediate Care
Facilities, Board and Care Homes and Assisted Living Facilities
(Section 232)
14.134--Mortgage Insurance--Rental Housing (Section 207)
14.135--Mortgage Insurance--Rental and Cooperative Housing for
Moderate Income Families and Elderly, Market Rate Interest (Sections
221(d)(3) and (4))
14.138--Mortgage Insurance--Rental Housing for Elderly (Section 231)
14.139--Mortgage Insurance--Rental Housing in Urban Areas (Section
220 Multifamily)
14.157--Supportive Housing for the Elderly (Section 202)
14.181--Supportive Housing for Persons with Disabilities (Section
811)
14.188--Housing Finance Agency (HFA) Risk Sharing Pilot Program
(Section 542(c))
14.850--Public Housing
14.851--Low Income Housing--Homeownership Opportunities for Low
Income Families (Turnkey III)
14.852--Public Housing--Comprehensive Improvement Assistance Program
14.855--Section 8 Rental Voucher Program
14.856--Lower Income Housing Assistance Program--Section 8 Moderate
Rehabilitation
14.857--Section 8 Rental Certificate Program
14.859--Public Housing--Comprehensive Grant Program
List of Subjects
24 CFR Part 5
Administrative practice and procedure, Aged, Claims, Drug abuse,
Drug traffic control, Grant programs--housing and community
development, Grant programs--Indians, Individuals with disabilities,
Loan programs--housing and community development, Low- and moderate-
income housing, Mortgage insurance, Pets, Public housing, Rent
subsidies, Reporting and recordkeeping requirements.
24 CFR Part 200
Administrative practice and procedure, Claims, Equal employment
opportunity, Fair Housing, Home improvement, Housing standards,
Incorporation by reference, Lead poisoning, Loan programs--housing and
community development, Minimum property standards, Mortgage insurance,
Organization and functions (Government agencies) Penalties, Reporting
and recordkeeping requirements, Social security, Unemployment
compensation, Wages.
24 CFR Part 236
Grant programs--housing and community development, Low and moderate
income housing, Mortgage insurance, Rent subsidies, Reporting and
recordkeeping requirements.
24 CFR Part 266
Aged, Fair housing, Intergovernmental relations, Mortgage
insurance, Low and moderate income housing, Reporting and recordkeeping
requirements.
24 CFR Part 880
Grant programs--housing and community development, Rent subsidies,
Reporting and recordkeeping requirements.
24 CFR Part 886
Grant programs--housing and community development, Lead poisoning,
Rent subsidies, Reporting and recordkeeping requirements.
24 CFR Part 982
Grant programs--housing and community development, Housing, Rent
subsidies, Reporting and recordkeeping requirements.
Accordingly, for the reasons stated in the preamble, title 24 of
the CFR is amended as follows:
PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS
1. The authority citation for 24 CFR part 5 continues to read as
follows:
Authority: 42 U.S.C. 3535(d), unless otherwise noted.
2. A new subpart H, consisting of Sec. 5.801, is added to part 5 to
read as follows:
Subpart H--Uniform Financial Reporting Standards
Sec. 5.801 Uniform financial reporting standards.
(a) Applicability. This subpart H implements uniform financial
reporting standards for:
(1) Public housing agencies (PHAs) receiving assistance under
sections 5, 9, or 14 of the 1937 Act (42 U.S.C. 1437c, 1437g, and
1437l) (Public Housing);
(2) PHAs as contract administrators for any Section 8 project-based
or tenant-based housing assistance payments program, which includes
assistance under the following programs:
(i) Section 8 project-based housing assistance payments programs,
including, but not limited to, the Section 8 New Construction,
Substantial Rehabilitation, Loan Management Set-
[[Page 46592]]
Aside, Property Disposition, and Moderate Rehabilitation (including the
Single Room Occupancy program for homeless individuals);
(ii) Section 8 Project-Based Certificate programs;
(iii) Any program providing Section 8 project-based renewal
contracts; and
(iv) Section 8 tenant-based assistance under the Section 8
Certificate and Voucher program.
(3) Owners of housing assisted under any Section 8 project-based
housing assistance payments program:
(i) Including, but not limited to, the Section 8 New Construction,
Substantial Rehabilitation, Loan Management Set-Aside, and Property
Disposition programs;
(ii) Excluding the Section 8 Moderate Rehabilitation Program (which
includes the Single Room Occupancy program for homeless individuals)
and the Section 8 Project-Based Certificate Program;
(4) Owners of multifamily projects receiving direct or indirect
assistance from HUD, or with mortgages insured, coinsured, or held by
HUD, including but not limited to housing under the following HUD
programs:
(i) Section 202 Program of Supportive Housing for the Elderly;
(ii) Section 811 Program of Supportive Housing for Persons with
Disabilities;
(iii) Section 202 loan program for projects for the elderly and
handicapped (including 202/8 projects and 202/162 projects);
(iv) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701
et seq.) (Rental Housing Insurance);
(v) Section 213 of the NHA (Cooperative Housing Insurance);
(vi) Section 220 of the NHA (Rehabilitation and Neighborhood
Conservation Housing Insurance);
(vii) Section 221(d) (3) and (5) of the NHA (Housing for Moderate
Income and Displaced Families);
(viii) Section 221(d)(4) of the NHA (Housing for Moderate Income
and Displaced Families);
(ix) Section 231 of the NHA (Housing for Elderly Persons);
(x) Section 232 of the NHA (Mortgage Insurance for Nursing Homes,
Intermediate Care Facilities, Board and Care Homes);
(xi) Section 234(d) of the NHA (Rental) (Mortgage Insurance for
Condominiums);
(xii) Section 236 of the NHA (Rental and Cooperative Housing for
Lower Income Families);
(xiii) Section 241 of the NHA (Supplemental Loans for Multifamily
Projects); and
(xiv) Section 542(c) of the Housing and Community Development Act
of 1992 (12 U.S.C. 1707 note) (Housing Finance Agency Risk-Sharing
Program).
(b) Submission of financial information. Entities (or individuals)
to which this subpart is applicable must provide to HUD, on an annual
basis, such financial information as required by HUD. This financial
information must be:
(1) Prepared in accordance with Generally Accepted Accounting
Principles as further defined by HUD in supplementary guidance;
(2) Submitted electronically to HUD through the internet, or in
such other electronic format designated by HUD, or in such non-
electronic format as HUD may allow if the burden or cost of electronic
reporting is determined by HUD to be excessive; and
(3) Submitted in such form and substance as prescribed by HUD.
(c) Annual financial report filing dates. The financial information
to be submitted to HUD in accordance with paragraph (b) of this
section, must be submitted to HUD annually, no later than 60 days after
the end of the fiscal year of the reporting period, and as otherwise
provided by law. For entities listed in paragraphs (a)(3) and (a)(4) of
this section and that have fiscal years ending December 31, 1998, the
report shall be due April 30, 1999. This extended report due date is
only for entities listed in paragraphs (a)(3) and (a)(4) of this
section, and only for the first report due under this section.
(d) Reporting compliance dates. Entities (or individuals) that are
subject to the reporting requirements in this section must commence
compliance with these requirements as follows:
(1) For PHAs listed in paragraphs (a)(1) and (a)(2) of this
section, the requirements of this section will begin with those PHAs
with fiscal years ending September 30, 1999 and later. Unaudited
financial statements will be required 60 days after the PHA's fiscal
year end, and audited financial statements will then be required no
later than 9 months after the PHA's fiscal year end, in accordance with
the Single Audit Act and OMB Circular A-133 (See 24 CFR 84.26). A PHA
with a fiscal year ending September 30, 1999 that elects to submit its
unaudited financial report earlier than the due date of November 30,
1999 must submit its report as required in this section. On or after
September 30, 1998, but prior to November 30, 1999 (except for a PHA
with its fiscal year ending September 30, 1999), PHAs may submit their
financial reports in accordance with this section.
(2) For entities listed in paragraphs (a)(3) and (a)(4) of this
section, the requirements of this section will begin with those
entities with fiscal years ending December 31, 1998 and later. Entities
listed in paragraphs (a)(3) and (a)(4) of this section with fiscal
years ending December 31, 1998 that elect to submit their reports
earlier than the due date must submit their financial reports as
required in this section. On or after September 30, 1998 but prior to
January 1, 1999, these entities may submit their financial reports in
accordance with this section.
(e) Limitation on changing fiscal years. To allow for a period of
consistent assessment of the financial reports submitted to HUD under
this subpart part, PHAs listed in paragraphs (a)(1) and (a)(2) of this
section will not be allowed to change their fiscal years for their
first three full fiscal years following October 1, 1998.
(f) Responsibility for submission of financial report. The
responsibility for submission of the financial report due to HUD under
this section rests with the individuals and entities listed in
paragraph (a) of this section.
PART 200--INTRODUCTION TO FHA PROGRAMS
3. The authority citation for 24 CFR part 200 continues to read as
follows:
Authority: 12 U.S.C. 1701-1715z-18; 42 U.S.C. 3535(d).
4. The heading of Subpart A is revised to read as follows:
Subpart A--Requirements for Application, Commitment, and
Endorsement Generally Applicable to Multifamily and Health Care
Facility Mortgage Insurance Programs; and Continuing Eligibility
Requirements for Existing Projects
5. A new Sec. 200.36 is added immediately after Sec. 200.35 to read
as follows:
Sec. 200.36 Financial reporting requirements.
The mortgagor must comply with the financial reporting requirements
in 24 CFR part 5, subpart H.
PART 236--MORTGAGE INSURANCE AND INTEREST REDUCTION PAYMENT FOR
RENTAL PROJECTS
6. The authority citation for 24 CFR part 236 continues to read as
follows:
Authority: 12 U.S.C. 1715b and 1715z-1; 42 U.S.C. 3535(d).
7. Section 236.1 is amended by revising the heading, by
redesignating paragraph (b) as paragraph (c), and by adding a new
paragraph (b), to read as follows:
[[Page 46593]]
Sec. 236.1 Applicability, cross-reference, and savings clause.
* * * * *
(b) The mortgagor must comply with the financial reporting
requirements in 24 CFR part 5, subpart H.
* * * * *
PART 266--HOUSING FINANCE AGENCY RISK-SHARING PROGRAM FOR INSURED
AFFORDABLE MULTIFAMILY PROJECT LOANS
8. The authority citation for 24 CFR part 266 continues to read as
follows:
Authority: 12 U.S.C. 1707; 42 U.S.C. 3535(d).
9. In Sec. 266.505, paragraph (b)(7) is revised to read as follows:
Sec. 266.505 Regulatory agreement requirements.
* * * * *
(b) * * *
(7) Maintain complete books and records established solely for the
project and comply with the financial reporting requirements in 24 CFR
part 5, subpart H.
* * * * *
PART 880--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR NEW
CONSTRUCTION
10. The authority citation for 24 CFR part 880 continues to read as
follows:
Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and
13611-13619.
11. In Sec. 880.601, paragraph (d)(1) is revised to read as
follows:
Sec. 880.601 Responsibilities of owner.
* * * * *
(d) * * *
(1) Financial information in accordance with 24 CFR part 5, subpart
H; and
* * * * *
PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL
ALLOCATIONS
12. The authority citation for 24 CFR part 886 continues to read as
follows:
Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.
13. In Sec. 886.318, paragraph (d)(1) is revised to read as
follows:
Sec. 886.318 Responsibilities of the owner.
* * * * *
(d) * * *
(1) Financial information in accordance with 24 CFR part 5, subpart
H; and
* * * * *
PART 982--SECTION 8 TENANT-BASED ASSISTANCE: UNIFIED RULE FOR
TENANT-BASED ASSISTANCE UNDER THE SECTION 8 RENTAL CERTIFICATE
PROGRAM AND THE SECTION 8 RENTAL VOUCHER PROGRAM
14. The authority citation for 24 CFR part 982 continues to read as
follows:
Authority: 42 U.S.C. 1437f and 3535(d).
15. In Sec. 982.158, paragraph (a) is amended by adding a sentence
at the end, to read as follows:
Sec. 982.158 Program accounts and records.
(a) * * * The HA must comply with the financial reporting
requirements in 24 CFR part 5, subpart H.
* * * * *
Dated: August 26, 1998.
Andrew Cuomo,
Secretary.
[FR Doc. 98-23420 Filed 8-31-98; 8:45 am]
BILLING CODE 4210-32-P
