Federal Register/Vol. 82, No. 205/Wednesday, October 25, 2017
Department of Agriculture
Rural Housing Service
7 CFR Part 3560
Agency: Rural Housing Service, USDA
Summary: The Rural Housing Service (RHS) is revising its existing regulations regarding financial reporting. This action is necessary to align RHS requirements with those of the United States Department of Housing and Urban Development (HUD) utilizing a risk-based threshold reporting which will reduce the burden on the borrower to produce multiple Financial reports; focus on high-risk properties; and, reduce the financial cost of reporting on properties.
On October 25, The Department of Agriculture’s Rural Housing Service (RHS) department released the long-awaited final rule (Rule) regarding financial reporting and auditing requirements for the Agency’s 515 Direct Loan program. The action was deemed necessary to align the RHS reporting requirements with those of similar agencies.
In summary, entities expending $500,000 or more in federal awards will be required submit audited financial statements which include a Yellowbook report on internal control and compliance as well as an opinion on the compliance with the agency’s requirements for compliance. These procedures mirror, in general, those contained in the HUD Audit Guide (Guide). However, the agency clearly states that it is not modifying the Guide for purposes of the required testing procedures. At this point, it is not clear if the agency will be issuing their own version of an audit guide. Non-profit owners with more than $750,000 will continue to follow the auditing and reporting requirements of Uniform Guidance.
Entities receiving less than the stated major program limits ($500,000 for for-profit, $750,000 for non-profit) will be required to submit compiled GAAP financial statements. These entities may engage an independent CPA to develop the compiled statements.
With the adoption of this rule, CPAs will discontinue the issuance of the agreed-upon procedures engagement.
Owners will continue to be required to self-certify to the performance standards at 7 CFR 3560.308(b) which are as follows:
- Required accounts are properly maintained and tracked separately;
- Payments from operating accounts are disclosed and accurately represented on financial reports;
- The reserve amount is at the authorized level and there are no encumbrances;
- Tenant security deposit accounts are fully-funded and are maintained in separate accounts and meet state and local requirements;
- Amount of payment of owner return was consistent with the terms of the applicable loan agreement;
- The borrower has maintained proper insurance in accordance with the requirements of § 3560.105(b)
- All financial records are adequate and suitable for examination.
- There have been no changes in project ownership other than those approved by the Agency and identified in the certification.
- Real estate taxes are paid in accordance with state and/or local requirements and are current.
- Replacement Reserve accounts have been used for only authorized purposes.
The effective date of the Rule is November 25, 2017. However, in a subsequent email to owners, RHS indicated the Final Rule changes will be OPTIONAL in Fiscal Year 2018, as proposed budgets have been submitted, but will be MANDATORY starting in Fiscal Year 2019.