§ 1773.4 Auditee's responsibilities. ( a ) *Selection of a qualified auditor.* The auditee's governance board is responsible for the selection of a qualified auditor that meets the requirements set forth in § 1773.5. When selecting an auditor, the auditee should consider, among other matters: ( 1 ) The qualifications of auditors available to do the work;
( 2 ) The auditor's experience in performing audits of utilities, related industries, or in the case of grantees, experience in auditing entities comparable to the grantee; and
( 3 ) The auditor's ability to complete the audit and submit the reporting package to the auditee within 90 days of the audit date.
( b ) *Board approval of selection.* The board's approval of an auditor must be recorded by a board resolution that states: ( 1 ) The auditor represents that it meets RUS qualifications to perform an audit; and
( 2 ) The auditee and auditor will enter into an audit engagement in accordance with § 1773.6.
( c ) *Notification of selection.* When the initial selection or subsequent change of an auditor has been made, the auditee must notify RUS, in writing via email, at least 90 days prior to the audit date. Changes in the name of an auditor are considered to be a change in the auditor. ( 1 ) Within 30 days of the date of receipt of such notice, RUS or its designated representative will notify the auditee, in writing via email, if the selection or change in auditor is not satisfactory as identified in § 1773.5.
( 2 ) Notification that the same auditor has been selected for succeeding audits of the auditee's financial statements is not required; however, the procedures outlined in this part must be followed for each new auditor selected, even though such auditor may previously have been approved by RUS to audit records of other RUS auditees.
( d ) *Audit engagement letter.* The auditee must enter into an audit agreement with the auditor that complies with § 1773.6 prior to the initiation of the audit.
( e ) *Debarment certification.* The auditee must obtain, from the selected auditor, a lower tier covered transaction certification or other method in accordance with 2 CFR 180.300 or 2 CFR part 417, as required by Executive Orders 12549 and 12689 and any rules or regulations in this chapter issued thereunder.
( f ) *Peer review report.* The auditee must obtain, from the selected auditor, a copy of the auditor's most recently accepted peer review report, which should be dated within 36 months of the engagement letter.
( g ) *Preparation of schedules.* The auditee must prepare any schedules that are required by the auditor to perform the audit, including a complete set of financial statements, a schedule of deferred debits and deferred credits and a detailed schedule of investments in subsidiary and affiliated companies accounted for on the cost, equity, or consolidated basis. The detailed schedule of investments can be included in the notes to the financial statements or as a separate schedule as long as all information required is adequately disclosed. If the auditee uses a method other than GAAP, reconciliation schedules should be included with the reporting package. ( 1 ) The schedule of deferred debits and deferred credits must include a description of the deferral and a notation as to whether the deferral has received written approval from RUS. If a determination is made that prior written approval is not required, cite the specific authority for the deferral.
( 2 ) The schedule of investments must include investments in subsidiary and affiliated companies, corporations, limited liability corporations and partnerships, joint ventures, etc. accounted for on either the cost, equity or on a consolidated basis. For all investments, the auditee must list the name of the entity, ownership percentage, and the principal business in which the entity is engaged. For investments recorded on the cost basis, the auditee must include the original investment, advances, dividends declared or paid in the current and prior years and the net investment. For investments recorded on the equity or consolidated basis, the auditee must include the ownership percentage, original investment, advances, dividends declared or paid in the current and prior years, and current and prior years' earnings and losses, including accumulated losses in excess of the original investment.
( h ) *Scope limitations.* The auditee will not limit the scope of the audit to the extent that the auditor is unable to provide an unmodified opinion that the financial statements are presented fairly in conformity with GAAP due to the scope limitation.
( i ) *Submission of reporting package.* The auditee must submit to RUS, via the Agency designated system, the required reporting package as set forth in § 1773.21. ( 1 ) A reporting package that fails to meet the requirements detailed in this part will be returned to the auditee via email with a written explanation of noncompliance.
( 2 ) The auditee must, within 30 days of the date of the email detailing the noncompliance, submit a corrected reporting package to RUS via the Agency designated system.
( 3 ) If a corrected reporting package is not received within 30 days of the date of the email detailing the noncompliance, RUS will take appropriate action, depending on the severity of the noncompliance. Per § 1773.1(d), failure to provide an audit in compliance with this part is a serious violation of the RUS security agreement. RUS relies on audited financial statements to assess and monitor the financial condition of its awardees and to fulfill its fiduciary responsibilities.
( j ) *Submission of a plan of corrective action.* If the auditor's report contains findings and recommendations but does not include the auditee's response, the auditee must submit written responses via email to RUS within 180 days of the audit date. The written responses must address: ( 1 ) The corrective action already taken or planned, or the reason the auditee believes no action is necessary; and
( 2 ) The status of corrective action taken on previously reported findings and recommendations.
[83 FR 19907, May 7, 2018, as amended at 88 FR 7563, Feb. 6, 2023]