[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Proposed Rules]
[Pages 35662-35669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17270]
[[Page 35661]]
_______________________________________________________________________
Part IV
_______________________________________________________________________
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 5, 200, et al.
Uniform Financial Reporting Standards for HUD Housing Programs;
Proposed Rule
Federal Register / Vol. 63, No. 125 / Tuesday, June 30, 1998 /
Proposed Rules
[[Page 35662]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 5, 200, 236, 266, 880, 886, and 982
[Docket No. FR-4321-P-01]
RIN 2501-AC49
Uniform Financial Reporting Standards for HUD Housing Programs
AGENCY: Office of the Secretary, HUD.
ACTION: Proposed rule.
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SUMMARY: This rule would establish for HUD's Public Housing, Section 8
housing, and multifamily insured housing programs uniform annual
financial reporting standards. The rule would require public housing
agencies and project owners of HUD-assisted housing to submit
electronically to HUD, on an annual basis, certain financial
information in a standardized format. Electronic submission is
necessary because the manual submission of annual financial information
to HUD has become a significant administrative burden to housing
authorities, project owners, and mortgagees, as well as to HUD. This
rule also would require that the annual financial information to be
submitted to HUD must be prepared in accordance with generally accepted
accounting principles. HUD is developing the format and the content of
the financial information to be reported to HUD annually.
The objective of this rule is to standardize the annual financial
information submission process and, through standardization, bring
consistency to the evaluation of the financial condition of housing
assisted under HUD programs.
DATES: Comment due date: Comments must be submitted on or before July
30, 1998.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Regulations Division, Office of General
Counsel, Room 10276, Department of Housing and Urban Development, 451
Seventh Street, SW, Washington, DC 20410. Communications should refer
to the above docket number and title. Facsimile (FAX) comments are not
acceptable. A copy of each communication submitted will be available
for public inspection and copying between 7:30 a.m. and 5:30 p.m.
weekdays at the above address.
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) 755-2082 (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. Background
HUD 2020 Management Reforms
The HUD 2020 Management Reform Plan announced in June 1997, and
published in the Federal Register on August 12, 1997 (62 FR 43204)
presents significant changes to HUD's structure, processes and systems.
These changes are directed to improving the efficiency and
effectiveness of HUD's programs, operations and the provision of its
services. One of the major reforms announced in the HUD 2020 Management
Reform Plan is the establishment of a Real Estate Assessment Center
(REAC) to be a separate organization within HUD apart from the
traditional program functional areas. The REAC is responsible for
evaluating the performance of entities managing or owning housing for
which HUD has a financial interest or statutory obligation to monitor.
Specifically, REAC is responsible for monitoring the following
areas: (1) the physical conditions of HUD properties; (2) the financial
conditions of the properties; (3) the management capabilities of the
property owners of this housing; and (4) general resident satisfaction.
The objective of REAC is to protect HUD's interest (as well as the
interest of taxpayers) by identifying and mitigating the risks of
financial loss due to: (1) physical deterioration from neglected/
inadequate maintenance or modernization; (2) financial insolvency of
the owner that impacts the availability of funds to meet HUD program
obligations; or (3) intentional fraud, waste and abuse. The resident
satisfaction process will allow REAC to hear of conditions directly
from tenants and to take or require action when survey results
significantly differ from other analysis results.
For REAC to properly evaluate and monitor the financial condition
of HUD properties, certain financial information must be provided to
HUD on an annual basis. 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. However, the
financial reporting standards vary to some degree from program to
program.
As part of HUD's management reform, HUD created working groups
familiar with both FHA properties and public housing properties to
examine the annual financial information that now is submitted to HUD
under its various housing programs. The working groups discussed what
financial information needs to be submitted to HUD on an annual basis,
and how preparation and submission of this information, and the
evaluation by HUD, could be made less burdensome while preserving the
enforcement integrity of the information. The conclusion of the working
groups was that the annual financial information required of PHAs and
project owners should be made uniform to the extent possible across the
various HUD housing programs, and that the information should be
submitted to HUD in a standardized format. Additionally, there was
agreement that the information should be prepared by the entities in
accordance with generally accepted accounting principles (GAAP), and
the information should be submitted to HUD electronically.
II. Uniform Financial Reporting Standards
Highlights of the Rule
This rule would establish for HUD's public housing, Section 8
housing, other assisted housing, and multifamily insured housing
programs annual financial reporting standards. The rule would require
public housing agencies and project owners to submit electronically to
HUD, on an annual basis, certain financial information, as determined
by HUD, and in accordance with a standardized format to be established
by HUD. Electronic submission is necessary because the manual
submission of HUD financial information has become a significant
administrative burden to housing agencies and project owners as well as
to HUD. This rule would also 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
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Accounting Standards Board (GASB) for governmental entities, and by the
Financial Accounting Standards Board (FASB) for nongovernmental
entities.
The specific compliance dates for covered entities to meet the
reporting requirements in this rule are discussed in more detail later
in this preamble under the heading ``Compliance with New Uniform
Financial Reporting Requirements.'' Generally, however, this rule
proposes that the annual submission date for the report would be no
later than sixty (60) days after the end of the covered entity's fiscal
year. Public housing agencies are currently required to report the
results of operations based on HUD accounting requirements within 45
days following the close of their fiscal year. Accordingly, this rule
amends the time period for public housing agencies by establishing this
60-day time period in part 5, subpart H. HUD is currently developing
the content and the format in which the annual financial information is
to be submitted. The format will be substantially the same for all
covered programs, but the format may vary in certain respects to
reflect different types of reporting entities (e.g., owners of
multifamily/FHA-related housing vs. PHAs). HUD's objective is to
standardize the financial information submission process and through
standardization bring consistency to the assessment of the financial
condition of the housing.
Standardized Financial Information
All HUD housing programs currently require the submission of
financial information at least annually to HUD. Much of the financial
information that is now submitted to HUD would continue to be submitted
to HUD. The content of the annual financial report to be submitted to
HUD would not be materially altered by this rule. It is HUD's
intention, however, to remove from this report redundant information
wherever it is identified. Therefore, with respect to information to be
reported, this rule would not represent a significant departure from
current reporting practice. 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.
Generally Accepted Accounting Principles (GAAP)
Accounting and reporting in accordance with GAAP, as prescribed by
GASB and FASB, would bring much needed consistency to HUD program
evaluation. Conversion to GAAP would require the covered HUD program
participant to manage its accounting and reporting in accordance with a
standard set of rules published by auditing and accounting
professionals and recognized both within and outside of government. The
use of GAAP, therefore, would enable HUD and program participants to
account for transactions and report results of operations using widely
accepted protocols. Financial reports based on GAAP are widely accepted
by industry and government and are, therefore, widely understood. The
relative consistency of GAAP would allow HUD to perform analysis on its
large housing portfolio in ways that would assure the overall
reliability and validity of the results. As noted earlier in this
preamble, HUD has contacted industry leaders and participants in HUD's
public housing and insured and subsidized housing programs, and has
discussed GAAP and financial reporting, generally, with these parties.
From these discussions, HUD has learned that GAAP accounting and
reporting is more meaningful than present HUD accounting, and that
these entities seek the benefits of the change. By and large the
multifamily housing industry already adheres to GAAP tenets.
With respect to public housing, many PHAs are also already adhering
to GAAP tenets. At least two States (Louisiana and Tennessee) require
that all PHAs in those States convert their HUD basis of accounting
financial statements to a GAAP basis for State reporting purposes.
Therefore, PHAs, as well as the accountants and auditors in those two
States have experience with the GAAP conversion process. Additionally,
several large PHAs (New York, Chicago, Denver, Seattle, and Baltimore,
for example) have already converted to GAAP. It is expected that many
PHAs have quantified the effect of the differences between GAAP and the
HUD basis of accounting because of the guidance given in the Public and
Indian Housing Low Rent Accounting Guide and because of other business
and operating needs (e.g., the liability for sick and vacation leave).
Further, many PHAs have expressed to HUD their interest in GAAP
reporting for the purpose of ease of understanding by their board
members and for acceptance by lenders for private funding and for other
non-HUD reporting purposes.
For those PHAs that may not be familiar with GAAP or that have not
had occasion to prepare GAAP financial reports for other submissions
(for example, reports that may be required to be submitted to State or
local governments), accounting support services are an eligible expense
under the performance funding system (PFS). To ease the conversion, the
current public housing agency accounting guide and chart of accounts
will not be modified except to add those additional accounts needed to
record new transactions in accordance with GAAP or to enhance the
existing chart of accounts to address current business operation
requirements. Some illustrative examples of these new accounts are: (1)
An allowance for uncollectible receivables and the related bad debt
expense; (2) an allowance for depreciation of buildings, structures,
and equipment and the related depreciation expense; and (3) liability
and expense accounts for probable losses expected from litigation,
claims and other contingencies. While a PHA's accounting staff will
have to quantify the amounts to be recorded in these new accounts, the
PHA's independent public accountants can provide guidance on GAAP. HUD
also will offer guidance for purposes of standardizing the conversion
results.
Electronic Submission
Both HUD and the various entities that participate in HUD programs
are making more extensive use of automated systems. Vice President
Gore's Report of the National Performance Review has, as a stated
objective, the expanded use of new technologies and telecommunications
to create an electronic government. (September 7, 1993, Report of the
Vice President's National Performance Review, pp. 113-117, Ref. 2).
Requiring the electronic submission of financial data in HUD housing
programs is another step in implementing the Vice President's
objective. The electronic submission of information results in
significant benefits, such as increasing the speed of information
preparation and exchange, cost savings from reduced need for storage
space, improved product because electronic preparation generally
results in reduced errors, and faster HUD review and analysis.
The manner of electronic submission of financial reports
contemplated by HUD is via the Internet, rather than through tape,
diskette, or paper. HUD, however, may approve transmission of
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the data by tape or diskette if HUD determines that the cost of
electronic Internet transmission would be excessive. In this day and
age of increased automation in communications and business
transactions, including the reporting of information, HUD anticipates
that the instances in which covered entities will not be able to comply
with submission of financial data electronically via Internet will be
very few. Implementation of this electronic standardized financial
reporting system would help to bring HUD up to speed with its program
partners in terms of modern technology.
Financial Report Submission Date
The rule provides that the annual submission date for the report
will be sixty (60) days after the end of the covered entity's fiscal
year. The 60-day requirement appears in existing regulations,
regulatory agreements, and/or subsidy contracts for most of the housing
covered by this rule (see, e.g., the Section 8 project-based assistance
programs). Since HUD has determined that the 60-day requirement has
provided a reasonable amount of time to compile and submit the required
information, and since a majority of the covered entities are familiar
with this time period, HUD has determined that there is no compelling
reason to change the 60-day requirement. Since under existing practice,
public housing agencies generally report the results of operations to
HUD within 45 days following the end of their fiscal years, this rule
would allow PHAs 15 extra days during which to submit their financial
reports. The dates on which HUD intends to make these reporting
requirements effective and mandatory are discussed later in this
preamble, under the heading ``Compliance with New Uniform Financial
Reporting Requirements.''
HUD Programs Covered
The uniform financial reporting standards would apply 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
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:
--Section 202 Program of Supportive Housing for the Elderly;
--Section 811 Program of Supportive Housing for Persons with
Disabilities; and
--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:
--Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701 et
seq.) (Rental Housing Insurance);
--Section 213 of the NHA (Cooperative Housing Insurance);
--Section 220 of the NHA (Rehabilitation and Neighborhood Conservation
Housing Insurance);
--Section 221(d)(3) and (5) of the NHA (Housing for Moderate Income and
Displaced Families);
--Section 221(d)(4) of the NHA (Housing for Moderate Income and
Displaced Families);
--Section 231 of the NHA (Housing for Elderly Persons);
--Section 232 of the NHA (Mortgage Insurance for Nursing Homes,
Intermediate Care Facilities, Board and Care Homes);
--Section 234(d) of the NHA (Rental) (Mortgage Insurance for
Condominiums);
--Section 236 of the NHA (Rental and Cooperative Housing for Lower
Income Families);
--Section 241 of the NHA (Supplemental Loans for Multifamily Projects);
and
--Section 542(c) of the Housing and Community Development Act of 1992
(12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing Program).
Section 5.801(a)(4) of this proposed rule lists those sections of
the National Housing Act that specifically give the Secretary authority
to insure mortgages. Sections of the NHA that give the Secretary
authority to insure mortgages ``pursuant to'' another section of the
NHA are not listed in the coverage of Sec. 5.801 of this proposed rule,
because HUD ultimately has insured the mortgages under one of the
listed statutory sections (e.g., a coinsured mortgage may be insured
under section 207 of the NHA, pursuant to section 244 of the NHA).
Compliance With New 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 section 2, above, HUD intends that the requirement
of electronic submission of GAAP-based financial reports, in the manner
and in the format prescribed by HUD, will begin with those PHAs with
fiscal years ending September 30, 1999 and later. 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
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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''), HUD intends that the requirement of electronic
submission of GAAP-based audited financial reports, as provided in this
rule, 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. Other covered entities
with fiscal years ending December 31, 1998 are required to submit
electronic, GAAP-based, audited financial reports by no later than
March 1, 1999 (60 days after the close of the fiscal year). Covered
entities with fiscal years ending December 31, 1998 that elect to
submit their audited reports earlier than the due date of March 1, 1999
must submit their audited financial reports electronically and prepared
in accordance with GAAP, in the manner and format prescribed by HUD, as
provided by this rule. 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.
III. Cross-Cutting Financial Reporting and Recordkeeping
Requirements
While the statutory authorities for the individual HUD housing
programs (e.g., the U.S. Housing Act of 1937 or the National Housing
Act) provide for the submission of financial information to HUD, in
such form and at such times as prescribed by HUD, there are also
certain statutory financial reporting and recordkeeping requirements
that cut across several HUD programs. This rule would not supersede the
requirements. These cross-cutting requirements are as follows:
The Byrd Amendment
Section 814 of the Housing Act of 1954 (42 U.S.C. 1434) (the Byrd
Amendment) provides that every contract between HUD and any person or
local body for a loan, advance, grant or contribution must provide that
the person or local body must keep such records as HUD prescribes. The
records must permit a speedy and effective audit and fully disclose the
amount and disposition of the proceeds by the person or local body. The
Byrd Amendment also provides that no mortgage covering new or
rehabilitated multifamily housing shall be insured unless the mortgagor
certifies that the mortgagor will keep the records as are prescribed by
HUD in such form as to permit a speedy and effective audit. Finally,
the Byrd Amendment provides that HUD and the Comptroller General of the
United States shall have access to and the right to examine and audit
the records.
The Single Audit Act
The Single Audit Act of 1984 (31 U.S.C. 7501 et seq.) (the Act), as
amended by the Single Audit Act Amendments of 1996 (Pub. L. 104-156;
approved July 5, 1996) (Single Audit Act of 1996), sets audit
requirements for State and local governments and nonprofit
organizations that receive Federal awards, including loan guarantees.
The Single Audit Act of 1996 raised the monetary threshold for
expenditures--from $25,000 to $300,000--over which it requires an
entity to have an audit. The Act now provides that each entity that
expends $300,000 or more shall have either a single audit or a program-
specific audit annually. The Single Audit Act of 1996 also shortened
the financial report submission date from 13 months to 9 months, and it
included a report submission process that includes a data collection
form and streamlined filing requirements.
OMB Circular A-128 implemented the Act for State and local
governments, and a separate OMB Circular A-133 implemented audit
requirements for nonprofits. Similarly, the regulations in 24 CFR part
44 implemented OMB Circular A-128 audit requirements for State and
local governments, and the regulations in 24 CFR part 45 set forth the
audit requirements for nonprofits under OMB Circular A-133. The program
regulations for many of the housing programs addressed in this rule
refer to the audit requirements in parts 44 and/or 45 (e.g., 24 CFR
200.11, 236.901, 266.510, 880.211, 886.131, 891.160).
On June 30, 1997 (62 FR 35278), OMB published in the Federal
Register the final revisions to OMB Circular A-133. The revisions were
undertaken to reflect the changes made to the Act by the Single Audit
Act of 1996. Revised OMB Circular A-133 consolidated the requirements
for States and local governments with the requirements for nonprofits,
and therefore rescinded OMB Circular A-128. By interim rule published
on November 18, 1997 (62 FR 61616), HUD adopted the requirements of
revised OMB Circular A-133. Through the November 18, 1997 interim rule,
HUD removed and reserved 24 CFR parts 44 and 45, since these parts are
no longer applicable (upon issuance of revised OMB Circular A-133). HUD
is currently developing a rule that will correct all references in
HUD's regulations to those obsolete regulations. The financial
reporting submission requirements in this proposed rule would be
consistent with the provisions of the Act and OMB Circular A-133.
IV. Objective of the Rule
The purpose of this rule is to bring uniformity and consistency to
the financial reporting component of HUD housing programs, which
otherwise varies from program to program, in most cases solely on the
basis that the program is not administered by the same HUD office. This
rule will improve the efficiency of the financial reporting process,
and reduce the administrative burden for covered entities and for HUD.
V. 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
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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 developing a
separate proposal regarding the overall assessment of public housing,
in which HUD will further address 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 proposed in this rule would be to
add a new Sec. 200.36, which would refer to the uniform financial
reporting requirements in subpart H of part 5. Section 200.36 would
apply 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 proposes
to amend the heading for subpart A of part 200 to clarify that the
financial reporting requirement would be a continuing eligibility
requirement.
HUD may make additional conforming amendments at the final rule
stage of this rule to remove any outdated or inconsistent regulatory
provisions.
VI. Justification for Shortened Comment Period
In general, it is HUD's policy that notices of proposed rulemaking
are to afford the public not less than 60 days for submission of
comments, in accordance with its regulations on rulemaking in 24 CFR
part 10. However, HUD has determined that there is good cause to reduce
the public comment period for this proposed rule to 30 days. As
discussed in more detail earlier in this preamble, the announcement,
through this rule, of HUD's proposal to require standardized financial
information, to be prepared in accordance with GAAP and electronically
submitted, has been developed with the participation of HUD's program
participants, industry leaders and experts in the financial and
accounting industries. As also discussed in the preamble, the change to
GAAP and the requirement of the submission of annual financial reports
in electronic and standardized format will not be a significant change
for many HUD program participants. In HUD's multifamily programs, the
multifamily program participants already largely adhere to GAAP tenets.
In HUD's public housing programs, several public housing agencies
already adhere to GAAP tenets. These PHAs can serve as resources to
other PHAs for assistance in the conversion process.
GAAP requires that financial statements prepared on another
comprehensive basis of accounting (the basis prescribed by HUD
accounting, for example) include in the accompanying notes, a summary
of significant accounting policies that would include the basis of
presentation and describe how that basis differs from generally
accepted accounting principles. PHAs, therefore, under current non-GAAP
reporting are already aware, or should be aware, of the differences
between the basis of accounting prescribed by HUD and that prescribed
by GAAP. Additionally, the timetable for this rule recognizes the time
allowed by the Single Audit Act for the preparation and submission of
the final audited statements. This period of time allows HUD to work
with PHAs and private owners not currently using GAAP to assist them in
the conversion process.
The changes to the financial reporting requirements, proposed by
this rule, will bring consistency to the evaluation of the financial
condition of housing assisted under various HUD programs, which
benefits the entities covered by this rule. The standardization of and
electronic submission of the annual financial information due to HUD
will not only bring consistency for all program participants, it will
reduce the administrative burden on program participants. Electronic
submission of financial information results in cost savings from
reduced need for storage space, improved product because electronic
preparation generally results in reduced errors as well as other
benefits such as increased speed in the preparation and exchange of
information preparation and exchange, and faster HUD review and
analysis.
Given these reasons, HUD has determined that the 30-day comment
period for this proposed rule should provide sufficient notice and
opportunity for interested entities to comment. In order to provide the
fullest and most expedient access to the provisions of this proposed
rule, HUD will make it available on the HUD Home Page on the World Wide
Web at http://www.hud.gov, on the date of publication in the Federal
Register. HUD will also directly notify entities that have expressed a
significant interest to HUD by sending such entities a copy of this
proposed rule.
VII. Findings and Certifications
Paperwork Reduction Act
The information collection requirements in this proposed rule have
been submitted to the Office of Management and Budget (OMB) for review,
under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35).
In accordance with 5 CFR 1320.5(a)(1)(iv), HUD estimates the total
reporting and recordkeeping burden that will result from the proposed
collection of information as follows:
Reporting Burden
----------------------------------------------------------------------------------------------------------------
Estimated Average
Number of Frequency time response
respondents of response (hours) (hours)
----------------------------------------------------------------------------------------------------------------
PHAs........................................................ 3,300 1 .75 2,475
Multifamily Housing Owners.................................. 30,000 1 .75 22,500
---------------------------------------------------
Total Reporting Burden................................ ........... ........... ........... 24,975
----------------------------------------------------------------------------------------------------------------
In accordance with 5 CFR 1320.8(d)(1), the Department is soliciting
comments from members of the public and affected agencies concerning
the proposed collection of information to:
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(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of
the proposed collection of information;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collection of information on those
who are to respond; including through the use of appropriate automated
collection techniques or other forms of information technology, e.g.,
permitting electronic submission of responses.
Interested persons are invited to submit comments regarding the
information collection requirements in this proposal. Under the
provisions of 5 CFR part 1320, OMB is required to make a decision
concerning this collection of information between 30 and 60 days after
today's publication date. Therefore, a comment on the information
collection requirements is best assured of having its full effect if
OMB receives the comment within 30 days of today's publication. This
time frame does not affect the deadline for comments to the agency on
the proposed rule, however. Comments must refer to the proposal by name
and docket number (FR-4321) and must be sent to:
Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and
Budget, New Executive Office Building, Washington, DC 20503.
and
Paul Maxwell, Reports Liaison Officer, Department of Housing & Urban
Development, 4900 L'Enfant Plaza East, SW, Room 8204, Washington, DC
20410.
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this proposed
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 in 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 proposed 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 proposed 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.
The financial reporting requirements proposed to be established by this
rule are anticipated to reduce administrative burden for all entities
covered by this rule, including small entities. As noted in the
preamble, this rule does not propose a new reporting requirement. The
annual reporting of certain financial information is already a HUD
program requirement. What this rule proposes is to standardize, to the
extent possible, the content of the information and the preparation of
the information (in accordance with GAAP), and to provide for
electronic submission. These proposed changes to financial reporting to
HUD are anticipated to 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 small entities 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, it is anticipated that 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. Further, in developing its
electronic filing requirements, FHA has involved all stakeholders in
the development effort, including owners and agent organizations and
the accounting profession.
In addition to the issues of training and costs, entities will have
up to 9 months to prepare statements in accordance with GAAP (the
period of time allowed under the Single Audit Act). Notwithstanding
HUD's determination that this rule would not have a significant
economic impact on small entities, HUD specifically invites comments
regarding alternatives to this rule that would meet HUD's objectives as
described in this preamble.
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 proposed rule would 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. This
proposed rule would not impose any Federal mandates on any State,
local, or tribal governments, or on the private sector, within the
meaning of the UMRA.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance numbers for the programs
that would be affected by this proposed 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)
[[Page 35668]]
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))
14.856--Lower Income Housing Assistance Program--Section 8 Moderate
Rehabilitation
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-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 in the electronic format designated by
HUD; 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.
(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:
[[Page 35669]]
(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 (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 [the effective date of the
final rule to be inserted at the final rule stage].
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:
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: June 5, 1998.
Andrew Cuomo,
Secretary.
[FR Doc. 98-17270 Filed 6-29-98; 8:45 am]
BILLING CODE 4210-32-P
