§ 3560.302 Accounting, bookkeeping, budgeting, and financial management systems. ( a ) *General.* Borrowers must establish the accounting, bookkeeping, budgeting and financial management procedures necessary to conduct housing project operations in a financially safe and sound manner. Borrowers must maintain records in a manner suitable for an audit, and must be able to report accurate operational results to the Agency from these accounts and records.
( b ) *Acceptable methods of accounting.* ( 1 ) Borrowers are required to use the accrual method of accounting in preparing annual financial reports, as identified in § 3560.308.
( 2 ) Borrowers must describe their accounting, bookkeeping, budget preparation, and financial reporting procedures in their management plan.
( 3 ) Borrowers must notify the Agency of any changes in their accounting, bookkeeping, budget preparation, and financial management reporting systems through a revision of their management plan.
( c ) *Account requirements.* ( 1 ) As used in this paragraph, the term account is used interchangeably to mean a bookkeeping account (ledger) or a bank account.
( 2 ) At a minimum, borrowers must maintain the accounts required by their loan agreement or resolution.
( 3 ) The following list identifies the financial accounts that are required for each housing project. Additional accounts may be required by third-party lenders. Accounts are to be funded in the following priority order, except that paragraphs (c)(3)(iv), (v), and (vi) of this section are funded directly by tenant security deposits or patron capital receipts respectively: ( i ) General operating account;
( ii ) Real estate tax and insurance account (if not part of the general operating account or unless escrowed by the Agency);
( iii ) Reserve account (unless escrowed by the Agency in accordance with § 3560.65);
( iv ) Tenant security deposit account;
( v ) Membership fee account for cooperative housing; and
( vi ) For cooperative housing only, a patron capital account.
( 4 ) Amounts escrowed for taxes and insurance may be kept in the general operating account as long as the accounting system reflects the amount escrowed.
( 5 ) Regardless of the number or types of accounts established, the borrower must meet the following requirements: ( i ) All housing project funds must be held only in financial institution accounts insured by an agency of the Federal Government or held in securities meeting the conditions in this subpart.
( ii ) Funds maintained in an institution may not exceed the limit established for Federal deposit insurance. Funds exceeding the Federally insured limit under a Tax ID Number must be moved to a different qualified banking institution that will ensure the funds unless the current financial institution provides additional surety such as a collateral pledge that may already be in place.
( iii ) All funds and proceeds in any account must be used only for authorized purposes as described in Agency's regulations, loan or grant documents. Use of funds for non-program purposes constitutes non-monetary default as described in § 3560.452(c).
( iv ) All funds received and held in any account, except the tenant security deposit, membership fee, and patron capital accounts, are considered assets of the property and must be held in trust by the borrower for the loan obligations until used and serve as security, through transfers or assumptions for the Agency loan or grant until all outstanding balances are satisfied.
( v ) Borrowers must be able to account for housing project funds with accounting methods or practices that maintain the proprietary identity of the funds for each project. A borrower may operate one account for multiple projects as long as the funds for each project themselves are accounted for separately.
( vi ) Each borrower must have access to at least one demand deposit or checking account.
( vii ) Housing project funds may not be pledged as collateral for debts without Agency approval. If such a need arises for an eligible program purpose, the borrower must obtain prior Agency approval.
( 6 ) Tenant security deposit accounts or membership fee accounts and patron capital accounts must be maintained in a separate account in trust for the tenants or members and handled in a manner consistent with state and local laws.
( d ) *Documentation of separate accountability.* Housing project funds may be combined in one or more bank accounts for two or more housing projects as long as the borrower's accounting system segregates and tracks funds for each project separately. ( 1 ) When borrowers request Agency approval of an accounting system that combines funds from two or more housing projects, they must demonstrate to the Agency that the accounting systems are structured to segregate and maintain separate accountability for each housing project. Such demonstration must include a statement issued by a Certified Public Accountant (CPA) stating that the accounting system is structured to meet this principle of separate accountability.
( 2 ) The accounting system and management plan must document the method for prorating revenue and expenses that are not clearly identifiable as being associated with a particular housing project.
( 3 ) Funds for housing projects managed by the same management company must not be co-mingled.
( e ) *Records.* ( 1 ) Borrowers must retain all housing project financial records, books, and supporting material for at least three years after the issuance of their financial reports. Upon request, these materials will immediately be made available to the Agency, its representatives, the USDA Office of Inspector General (OIG), or the Government Accountability Office (GAO).
( 2 ) Borrower accounts and records will be kept or made available in a location with reasonable access for inspection, review, and copying by the Agency, other authorized representatives of the USDA, OIG, or GAO.
( 3 ) Automated records may be used if they meet the conditions of paragraph (f) of this section.
( f ) *Forms generated by automated systems.* ( 1 ) The forms and formats approved for use by borrowers may be prepared on automated systems when they meet the requirements of this paragraph.
( 2 ) Forms may be automated if they meet the following requirements: ( i ) The identical wording and nomenclature of an official form must be included in the automated version of the form, including the Office of Management and Budget (OMB) approval number.
( ii ) The logic or mathematical calculation of an official form must be the same in an automated version of the form.
( iii ) The name or logo of the source of the automated form must be visible on each output of the automated form.
( iv ) Output size must be 81 ⁄ 2 × 11 inches.
( v ) Nominal spacing adjustment and colored paper are allowed.
( g ) *Farm Labor Housing.* Borrowers with on-farm labor housing units will be considered in compliance with this section by virtue of completing the record keeping and reporting requirements outlined in subpart M of this part.
[69 FR 69106, Nov. 26, 2004, as amended at 82 FR 49285, Oct. 25, 2017; 87 FR 11283, Mar. 1, 2022]