[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.

-----------------------------------------------------------------------

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

[[Page 35663]]

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

[[Page 35664]]

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

[[Page 35665]]

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

[[Page 35666]]

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:

[[Page 35667]]

    (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