35662 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

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
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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
35664 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

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 projectbased 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 SetAside, 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 SetAside, 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

§ 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
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 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 § 5.801

provides that entities covered by

subpart H must submit electronically to

HUD certain annual financial
35666 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

information, prepared in accordance

with generally accepted accounting

principles, and in the format prescribed

by HUD. In accordance with paragraph

(c) of § 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 § 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

Number of

respondents

Frequency

of response

Estimated

time (hours)

Average response

(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:
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 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 GAAPbased 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)
35668 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

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

§ 5.801, is added to part 5 to read as

follows:

Subpart H—Uniform Financial

Reporting Standards

§ 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 SetAside, 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 SetAside, 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:
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 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 § 200.36 is added

immediately after § 200.35 to read as

follows:

§ 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:

§ 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 § 266.505, paragraph (b)(7) is

revised to read as follows:

§ 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 § 880.601, paragraph (d)(1) is

revised to read as follows:

§ 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 § 886.318, paragraph (d)(1) is

revised to read as follows:

§ 886.318 Responsibilities of the owner.

* * * * *

(d) * * *

(1) Financial information in

accordance with 24 CFR part 5, subpart

H; and

* * * * *

PART 982—SECTION 8 TENANTBASED 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 § 982.158, paragraph (a) is

amended by adding a sentence at the

end, to read as follows:

§ 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