Rural Development

Chad Parker

Deputy Administrator

Rural Housing Service

1400 Independence Ave, SW 

Room 5011-S 

Washington, D.C. 20250

Telephone: (202) 720-1500

TO: State Directors 

Rural Development 

RD AN No. 4889 (1942-A, 5001, and 3570-B) 

September 19, 2022

ATTN: Community Programs Directors

FROM: Chad Parker /s/ Chad Parker

Deputy Administrator

Community Programs

SUBJECT: Community Facilities Direct and Guaranteed Loan Borrowers, and 

Grant Recipients Annual Audit and Financial Reporting 

Requirements

PURPOSE

This Administrative Notice is issued to clarify the requirements of the Community 

Facilities (CF) Loan Borrowers and Grant Recipients to submit annual financial 

reports.

COMPARISON WITH PREVIOUS AN

This AN replaces and updates 4880 (1942-A, 3570-B and 3575-A) dated May 11, 

2021.

“OMB Circular A-133 Audit Reporting Requirements, Community Facilities Direct 

and Guaranteed Loan Borrowers and Grant Recipients”, dated January 12, 2017 

discussed OMB Circular A-133 requirements. 2 CFR Part 200, “Uniform 

Administrative Requirements, Cost Principles, and Audit Requirements for Federal 

Awards Subpart F” now governs audit requirements for CF Borrowers and Grantees.

BACKGROUND

The Agency has received numerous inquiries regarding the requirement for the 

annual financial reports. 2 CFR Part 200 Subpart F establishes when an audit report 

is required. RD Instruction 1942-A, §1942.17(q)(4) outlines the requirements for 

the borrower’s annual financial report or those borrowers which do not meet the 

threshold of 2 CFR Part 200 Subpart F to submit an audit report. RD Instruction 

3570-B, §3570.83 outlines the requirements for grantees submission of annual audit 

reports.

EXPIRATION DATE: FILING INSTRUCTIONS: 

September 30, 2023 Preceding RD Instructions 

1942-A, 5001, and 3570-B 

USDA is an equal opportunity lender, provider, and employer.
Page 2

AUDIT REPORTS

2 CFR Part 200, Subpart F establishes audit requirements that borrowers must follow.

Federal funds expended during a Borrowers fiscal year: 2 CFR Part 200, §200.501(a) requires 

a borrower that expends $750,000 or more in Federal Awards in their fiscal year to submit a single 

or program-specific audit. A CF Direct Loan, Loan Guarantee, and CF Grant would be considered 

a Federal Award.

Grantees: Grantees that expend $750,000 or more in a year in Federal awards must have an audit 

conducted in accordance with 2 CFR Part 200 Subpart F-Audit Requirements except when they 

elect to have a program specific audit conducted. 

Prior loan and loan guarantees: 2 CFR Part 200, §200.502(b) establishes the basis for including 

loan and loan guarantees (loans) on the Schedule of Expenditures of Federal Awards (SEFA). The 

value of new loans made or received during the audit period plus the beginning of the audit period 

balance of loans from previous years for which the Federal Government imposes continuing 

compliance requirement must be reported on the SEFA. CF Program loans require its borrowers to 

meet continuing compliance requirements as discussed below under CONTINUING

COMPLIANCE REQUIREMENTS. 

SUBMISSION OF AUDIT REPORTS

Borrowers and grantees must submit audits within nine months from the end of the borrower’s 

fiscal year or 30 days after receipt from the auditor whichever is earlier. The audited financial 

statements must be submitted to the Federal Audit Clearinghouse.

BORROWERS EXEMPTED FROM AUDIT REQUIREMENTS

2 CFR Part 200, §200.501(d) exempts a borrower or grantee from audit requirements if the 

borrower or grantee does not expend $750,000 in Federal Awards in their fiscal year. For those 

borrowers and grantees that do not expend nor have outstanding loan balances of $750,000 or 

more must comply with RD Instruction 1942.17(q)(5) which states all borrowers who are exempt 

from Rural Development audit requirements and who do not otherwise have annual audits, will 

within 60 days following the end of each fiscal year, furnish the Rural Development Area Director 

with annual financial statements, consisting of a verification of the organization's balance sheet 

and statement of income and expense by an appropriate official of the organization. Forms RD 

442-2 “Statement of Budget, Income and Equity” and 442-3 “Balance Sheet” may be used. For 

borrowers using Form RD 442-2, the dual purpose of fourth quarter management reports, when 

required, and annual statements of income will be met with this one submission. 
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CONTINUING COMPLIANCE REQUIREMENTS

CF borrowers are required to fund reserves, maintain insurance, deposit funds in Federally insured 

banks, meet financial covenants, maintain sufficient debt service ratios, comply with civil rights 

requirements, and in some cases comply with additional requirements established as part of the 

loan approval process. The above illustrates the continuing compliance requirements that CF 

borrowers must meet. As noted in the 2 CFR Part 200 Appendix XI,” Compliance Supplements 

for July 2020 and 2021, USDA expects borrowers to comply with the continuing compliance 

requirements as well as borrowers’ audits to comply with 2 CFR 200, Subpart F.

FINANCIAL STATEMENTS

In accordance with RD Instruction 1942-A, 1942.17 (q)(5), borrowers and grantees not meeting 

the threshold for submitting an audit report must provide financial information utilizing Forms RD 

442-2 and RD 442-3. This ensures the verification of their balance sheet and statement of income 

and expenses. Borrowers have 60 days following the end of their fiscal year to submit to the 

Agency their financial statements. Grantees who are not required to submit an audit report will 

within 60 days following the end of the fiscal year in which any grant funds were expended furnish 

the Agency with annual financial statements.

SUMMARY

CF Borrowers and Grantees who expend $750,000 or more in their fiscal year, have CF loan 

balances totaling $750,000 or more, or a combination of the two must submit an audit in 

accordance with 2 CFR 200 Subpart F. CF Borrowers and Grantees who do not expend or have 

loan balances of $750,000 or more must submit financial statements within 60 days of the end of 

their fiscal year.

If you have any questions, please contact the appropriate Asset Risk Management Specialist in 

your region.