This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

27829

Vol. 66, No. 98

Monday, May 21, 2001

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1773

RIN 0572–AB66

Policy on Audits of RUS Borrowers;

Management Letter

AGENCY: Rural Utilities Service, USDA.

ACTION: Direct final rule.

SUMMARY: The Rural Utilities Service

(RUS) is amending its regulations by

revising certain requirements regarding

the management letter to be provided to

RUS by certified public accountants

(CPAs) as part of audits of RUS

borrowers.

DATES: This rule will become effective

July 5, 2001, unless we receive written

adverse comments or written notice of

intent to submit adverse comments on

or before June 20, 2001. If we receive

such comments or notice, we will

publish a timely document in the

Federal Register withdrawing the rule.

A second public comment period will

not be held. Parties interested in

commenting on this action should do so

at this time.

ADDRESSES: Submit adverse comments

or notice of intent to submit adverse

comments to F. Lamont Heppe, Jr.,

Director, Program Development and

Regulatory Analysis, Staff, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1522, Washington, DC

20250–1522. RUS requests a signed

original and three copies of all

comments (7 CFR 1700.4). All

comments received will be made

available for public inspection at room

4030, South Building, Washington, DC,

between the 8 a.m. and 4 p.m. (7 CFR

1.27(b)).

FOR FURTHER INFORMATION CONTACT:

Richard Annan, Chief, Technical

Accounting and Auditing Staff, Program

Accounting Services Division, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1523, Washington, DC

20250–1523. Telephone: 202–720–5227.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be

not significant for the purposes of

Executive Order 12866 and, therefore,

has not been reviewed by the Office of

Management and Budget (OMB).

Executive Order 12372

This rule is excluded from the scope

of Executive Order 12372,

Intergovernmental Consultation, which

may require consultation with state and

local offices. See the final rule related

notice entitled ‘‘Department Programs

and Activities Excluded from Executive

Order 12372,’’ (50 FR 47034).

Executive Order 12988

This rule has been reviewed under

Executive Order 12988, Civil Justice

Reform. RUS has determined that this

rule meets the applicable standards

provided in section 3 of the Executive

Order. In addition, all State and local

laws and regulations that are in conflict

with this rule will be preempted; no

retroactive effect will be given to this

rule; and, in accordance with section

212(e) of the Department of Agriculture

Reorganization Act of 1994 (7 U.S.C.

6912(e)) administrative appeal

procedures, if any are required, must be

exhausted before an action against the

Department or its agencies.

Regulatory Flexibility Act Certification

The Administrator of RUS has

determined that this rule will not have

significant impact on a substantial

number of small entities defined in the

Regulatory Flexibility Act (5 U.S.C. 601

et seq.). The RUS loan programs provide

borrowers with loans at interest rates

and terms that are more favorable than

those generally available from the

private sector. Borrowers, as a result of

obtaining federal financing, receive

economic benefits that exceed any

direct cost associated with RUS

regulations and requirements.

National Environmental Policy Act

Certification

The Administrator of RUS has

determined that this rule will not

significantly affect the quality of the

human environment as defined by the

National Environmental Policy Act of

1969 (42 U.S.C. 4321 et seq.). Therefore,

this action does not require an

environmental impact statement or

assessment.

Catalog of Federal Domestic Assistance

The program described by this rule is

listed in the Catalog of Federal Domestic

Assistance programs under Nos. 10.850,

Rural Electrification Loans and Loan

Guarantees, 10.851, Rural Telephone

Loans and Loan Guarantees, and 10.852,

Rural Telephone Bank Loans. This

catalog is available on a subscription

basis from the Superintendent of

Documents, the United States

Government Printing Office,

Washington, DC 20402–9325, telephone

number (202) 512–1800.

Information Collection and

Recordkeeping Requirements

The reporting and recordkeeping

requirements contained in this rule have

been approved by the Office of

Management and Budget (OMB) under

OMB Control Number 0572–0095,

pursuant to the Paperwork Reduction

Act of 1995 (44 U.S.C. Chapter 35).

Send questions or comments

regarding this burden or any other

aspect of these collections of

information, including suggestions for

reducing the burden, to F. Lamont

Heppe, Jr., Director, Program

Development and Regulatory Analysis,

Rural Utilities Service, USDA, 1400

Independence Ave., SW., Stop 1522,

Washington, DC 20250–1522.

Unfunded Mandates

This rule contains no Federal

mandates (under the regulatory

provision of title II of the Unfunded

Mandates Reform Act) for State, local,

and tribal governments or the private

sector. Thus, this rule is not subject to

the requirements of sections 202 and

205 of the Unfunded Mandates Reform

Act.

Background

Title 7 part 1773 implements the

standard RUS security instrument

provision requiring RUS electric and

telecommunications borrowers to

prepare and furnish to RUS, at least

once during each 12-month period, a

full and complete report of its financial

condition, operations, and cash flows,

27830 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

in form and substance satisfactory to

RUS; audited and certified by an

independent Certified Public

Accountant (CPA), satisfactory to RUS,

and accompanied by a report of such

audit, in form and substance satisfactory

to RUS.

This rule revises requirements for the

management letter. Section 1773.33(c) is

revised to address continuing property

records (CPRs) rather than the term

plant records. In addition, the

requirement that the CPA state whether

the CPRs have been established, is

expanded wherein the CPA must state

that the CPRs are established,

maintained on a current basis, and are

reconciled to the general ledger plant

accounts. The requirements for the CPA

to determine that the borrower secured

RUS approval for the sale of plant in

§ 1773(c)(5) is expanded to include the

sale, lease, or transfer of assets secured

under the mortgage and to state whether

the proceeds were handled in

conformance with RUS requirements.

The following requirements under

§ 1773.33 are eliminated: (1) The

requirement for the CPA to determine

that loan funds were deposited in banks

designated in the loan documents; (2) a

corresponding requirement in the

telecommunications management letter;

(3) the requirement for the CPA to

determine that the borrower has

complied with the RUS requirement for

approval of any lease of a building or

land, standard traffic settlement

agreement, billing and collecting

agreements, toll pooling arrangements,

directory service agreements, and jointuse agreement; and (4) the requirement

for the CPA to determine borrower

compliance with the requirement to

maintain a net plant to secured debt

ratio or a funded reserve for certain

loans wherein the maturity period

exceeds the economic life of the plant

facilities being financed.

Section 1773.33, Management Letter,

specifies the minimum requirements for

the CPA’s management letter. RUS

borrowers have increasingly diversified

into other utility and nonutility related

activities through the formation of

subsidiary and affiliated companies.

RUS has need of information on

investments in these subsidiary and

affiliated companies to assist in its

efforts to monitor loan security issues

and respond to claims of cross

subsidization. A new requirement for

the CPA to provide a detailed analysis

of borrowers’ investments is therefore

being added to the management letter

requirements. The CPA is required to

disclose certain general and financial

information regarding each of a

borrower’s investments in subsidiary

and affiliated companies accounted for

on the cost or equity basis. This

information is readily available in the

investment subsidiary records.

In previous versions of part 1773 the

sample reports, financial statements,

and management letters were contained

in four appendices, two for electric

borrowers and two for

telecommunications borrowers.

Beginning with this revision of part

1773, the appendices will no longer be

codified in the Code of Federal

Regulations. The appendices will be

available in new RUS Bulletin 1773–1,

which will contain all of 7 CFR part

1773 and the appendices. Appendix A

will contain the sample reports,

financial statements and management

letter for electric borrowers while

Appendix B will contain similar sample

for telecommunications borrowers. The

exhibits of the management letters,

which are included in the appendices,

are attached to this notice for

information only. Publishing part 1773

in bulletin form will provide the RUS

audit policy in a user-friendly format. A

single copy of this publication will be

provided to all RUS borrowers and

certified public accounts approved to

perform audits of RUS borrowers and

will be available at http://

www.usda.gov/rus/ruswide.htm.

List of Subjects in 7 CFR Part 1773

Accounting, Electric power, Loan

programs—communications, Loan

programs—energy, Reporting and

recordkeeping requirements, Rural

areas, Telephone.

For the reasons set forth in the

preamble, RUS amends 7 CFR Chapter

XVII as follows:

PART 1773—POLICY ON AUDITS OF

RUS BORROWERS

1. The authority citation for Part 1773

is revised to read as follows:

Authority: 7 U.S.C. 901 et seq., 1921 et

seq., 6941 et seq.

§ 1773.33 [Amended]

2. Amend § 1773.33 by:

A. Removing paragraphs (e)(1)(i),

(e)(2)(i), (e)(2)(i)(B) through (e)(2)(ii),

and (e)(2)(iv);

B. Redesignate paragraphs as listed in

the table below:

From To

(e)(1)(ii) ..................... (e)(1)(i)

(e)(1)(iii) ..................... (e)(1)(ii)

(e)(2)(i)(A) ................. (e)(2)(i)

(e)(2)(iii) ..................... (e)(2)(ii)

C. Revising paragraphs (c)(1), (c)(5),

(e) introductory text, (e)(1) introductory

text, and (e)(2) introductory text and

redesignated paragraphs (e)(1)(i) and

(e)(2)(i); and

D. Adding a new paragraph (i).

The revisions and additions read as

follows:

§ 1773.33 Management letter.

* * * * *

(c) * * *

(1) Whether continuing property

records (CPRs) have been established,

are updated on a current basis, at least

annually, and are reconciled with the

controlling general ledger plant

accounts;

* * * * *

(5) Whether RUS approval was

obtained for the sale, lease or transfer of

capital assets secured under the

mortgage when approval is required,

and whether proceeds from the sale or

lease of plant, material or scrap were

handled in conformance with RUS

requirements.

* * * * *

(e) Compliance with RUS loan and

security instrument provisions. State

whether the following provisions of

RUS’ loan and security instruments

have been complied with:

(1) For electric borrowers, provisions

related to:

(i) The requirements for a borrower to

obtain written approval of mortgagees to

enter into any contract for the

management, operation, or maintenance

of the borrower’s system if the contract

covers all or substantially all (90

percent) of the electric system. For

purposes of this part, the following

contracts shall be deemed as requiring

RUS approval:

* * * * *

(2) For telecommunications

borrowers, provisions relating to the

requirement for a borrower to obtain

written approval of the mortgagees to

enter into:

(i) Any contract, agreement or lease

between the borrower and an affiliate

other than as allowed under 7 CFR part

1744, subpart E;

* * * * *

(i) Investments. For electric and

telecommunications borrowers, provide

a detailed schedule of all investments in

subsidiary and affiliated companies

accounted for on either the cost or

equity basis. This requirement includes

investments in corporations, limited

liability corporations and partnerships,

joint ventures, etc. For all investments

list the name of the entity, ownership

percentage, and the principal business

in which the entity is engaged. For

investments recorded on the cost basis

include the original investment,

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27831

advances, dividends declared or paid in

the current and prior years and the net

investment. For investments recorded

on the equity basis include the

ownership percentage, original

investment, advances, and current and

prior years’ earnings and losses,

including accumulated losses in excess

of the original investment.

Dated: May 8, 2001.

Blaine D. Stockton,

Acting Administrator, Rural Utilities Service.

The Following Appendixes Will Not

Appear in the Code of Federal

Regulations

Exhibit 5—Illustrative Independent Auditor’s

Management Letter for Electric Borrowers to

Appendix A to RUS Bulletin 1773–1, Sample

Auditor’s Report for an Electric Cooperative

Exhibit 5—Illustrative Independent Auditor’s

Management Letter for Electric Borrowers

RUS requires that CPAs auditing RUS

borrowers provide a management letter in

accordance with § 1773.33. This letter must

be signed by the CPA, bear the same date as

the auditor’s report, and be addressed to the

borrower’s board of directors.

Illustrative Independent Auditors’

Management Letter for Electric Borrowers

March 2, 20X2

Board of Directors

Center County Electric Energy Association,

Inc.

[City, State]

We have audited the financial statements

of Center County Electric Energy Association,

Inc. for the year ended December 31, 20X1,

and have issued our report thereon dated

March 2, 20X2. We conducted our audit in

accordance with generally accepted auditing

standards, the standards applicable to

financial audits contained in Government

Auditing Standards issued by the

Comptroller General of the United States, and

7 CFR Part 1773, Policy on Audits of Rural

Utilities Service (RUS) Borrowers. Those

standards require that we plan and perform

the audit to obtain reasonable assurance

about whether the financial statements are

free of material misstatement.

In planning and performing our audit of

the financial statements of Center County

Electric Energy Association, Inc. for the year

ended December 31, 20X1, we considered its

internal control over financial reporting in

order to determine our auditing procedures

for the purpose of expressing an opinion on

the financial statements and not to provide

assurance on the internal control over

financial reporting.

Our consideration of the internal control

over financial reporting would not

necessarily disclose all matters in the

internal control over financial reporting that

might be material weaknesses. A material

weakness is a condition in which the design

or operation of one or more of the internal

control components does not reduce to a

relatively low level the risk that

misstatements in amounts that would be

material in relation to the financial

statements being audited may occur and not

be detected within a timely period by

employees in the normal course of

performing their assigned functions. We

noted no matters involving the internal

control over financial reporting that we

consider to be material weaknesses. [If a

material weakness was noted, refer the reader

to the independent auditors’ report on

compliance and on internal control over

financial reporting.]

Section 1773.33 requires comments on

specific aspects of the internal control over

financial reporting, compliance with specific

RUS loan and security instrument provisions,

and other additional matters. We have

grouped our comments accordingly. In

addition to obtaining reasonable assurance

about whether the financial statements are

free from material misstatements, at your

request, we performed tests of specific

aspects of the internal control over financial

reporting, of compliance with specific RUS

loan and security instrument provisions, and

of additional matters. The specific aspects of

the internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and

additional matters tested include, among

other things, the accounting procedures and

records, materials control, compliance with

specific RUS loan and security instrument

provisions set forth in § 1773.33(e)(1), related

party transactions, depreciation rates, a

schedule of deferred debits and credits, and

a schedule of investments upon which we

express an opinion. In addition, our audit of

the financial statements also included the

procedures specified in § 1773.38 through

1773.45. Our objective was not to provide an

opinion on these specific aspects of the

internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, or additional

matters, and accordingly, we express no

opinion thereon.

No reports other than our independent

auditors’ report and our independent

auditors’ report on compliance and on

internal control over financial reporting, all

dated March 2, 2002 or summary of

recommendations related to our audit have

been furnished to management.

Our comments on specific aspects of the

internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and other

additional matters as required by § 1773.33

are presented below.

Comments on Certain Specific Aspects of the

Internal Control Over Financial Reporting

We noted no matters regarding Center

County Electric Energy Association, Inc.’s

internal control over financial reporting and

its operation that we consider to be a material

weakness as previously defined with respect

to:

—The accounting procedures and records

[list other comments];

—The process for accumulating and

recording labor, material, and overhead

costs, and the distribution of these costs to

construction, retirement, and maintenance

or other expense accounts [list other

comments]; and

—The materials control [list other

comments].

Comments on Compliance With Specific RUS

Loan and Security Instrument Provisions

At your request, we have performed the

procedures enumerated below with respect to

compliance with certain provisions of laws,

regulations, contracts, and grants. The

procedures we performed are summarized as

follows:

—Procedures performed with respect to the

requirement for a borrower to obtain

written approval of the mortgagee to enter

into any contract for the operation or

maintenance of property, or for the use of

mortgaged property by others for the year

ended December 31, 20X1:

1. Obtained and read a borrower-prepared

schedule of new written contracts entered

into during the year for the operation or

maintenance of its property, or for the use of

its property by others as defined in

§ 1773.33(e)(1)(i).

2. Reviewed Board of Director minutes to

ascertain whether board-approved written

contracts are included in the borrowerprepared schedule.

3. Noted the existence of written RUS [and

other mortgagee] approval of each contract

listed by the borrower.

Procedure performed with respect to the

requirement to submit RUS Form 7 or

Form 12 to the RUS:

1. Agreed amounts reported in Form 7 or

Form 12 to Center County Electric Energy

Association, Inc.’s records.

The results of our tests indicate that, with

respect to the items tested, Center County

Electric Energy Association, Inc. complied,

except as noted below, in all material

respects, with the specific RUS loan and

security instrument provisions referred to

below. The specific provisions tested, as well

as any exceptions noted, include the

requirements that:

—The borrower has obtained written

approval of the RUS [and other mortgagees]

to enter into any contract for the operation

or maintenance of property, or for the use

of mortgaged property by others as defined

in § 1773.33(e)(1)(i) [list all exceptions];

and

—The borrower has submitted its Form 7 or

Form 12 to the RUS and the Form 7 or

Form 12, Financial and Statistical Report,

as of December 31, 20X1, represented by

the borrower as having been submitted to

RUS is in agreement with the Center

County Electric Energy Association, Inc.’s

audited records in all material respects [list

all exceptions] [or if the audit year end is

other than December 31], appears

reasonable based upon the audit

procedures performed [list all exceptions].

Comments on Other Additional Matters

In connection with our audit of the

financial statements of Center County

Electric Energy Association, Inc., nothing

came to our attention that caused us to

believe that Center County Electric Energy

Association, Inc. failed to comply with

respect to:

—The reconciliation of continuing property

records to the controlling general ledger

27832 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

plant accounts addressed at § 1773.33(c)(1)

[list all exceptions];

—The clearing of the construction accounts

and the accrual of depreciation on

completed construction addressed at

§ 1773.33(c)(2) [list all exceptions];

—The retirement of plant addressed at

§ 1773.33(c)(3) and (4) [list all exceptions];

—Approval of the sale, lease, or transfer of

capital assets and disposition of proceeds

for the sale or lease of plant, material, or

scrap addressed at § 1773.33(c)(5) [list all

exceptions];

—The disclosure of material related party

transactions, in accordance with Statement

of Financial Accounting Standards No. 57,

Related Party Transactions, for the year

ended December 31, 2001, in the financial

statements referenced in the first paragraph

of this report addressed at § 1773.33(f) [list

all exceptions];

—The depreciation rates addressed at

§ 1773.33(g) [list all exceptions];

—The detailed schedule of deferred debits

and deferred credits; and

—The detailed schedule of investments.

Our audit was made for the purpose of

forming an opinion on the basic financial

statements taken as a whole. The detailed

schedule of deferred debits and deferred

credits required by § 1773.33(h) and the

detailed schedule of investments required by

§ 1773.33(i), and provided below, are

presented for purposes of additional analysis

and are not a required part of the basic

financial statements. This information has

been subjected to the auditing procedures

applied in our audit of the basic financial

statements and, in our opinion, is fairly

stated in all material respects in relation to

the basic financial statements taken as a

whole.

[The detailed schedule of deferred debits

and deferred credits would be included here.

The total amount of deferred debits and

deferred credits as reported in the schedule

must agree with the totals reported on the

Balance Sheet under the specific captions of

‘‘Deferred Debits’’ and ‘‘Deferred Credits’’.

Those items that have been approved, in

writing, by RUS should be clearly indicated.]

[The detailed schedule of investments

would be included here. The total of the

investment in each company reported must

agree with the investment subsidiary

accounts.]

This report is intended solely for the

information and use of the board of directors,

management, and the RUS and supplemental

lenders and is not intended to be and should

not be used by anyone other than these

specified parties. However, this report is a

matter of public record and its distribution is

not limited.

Certified Public Accountants

Exhibit 5—Illustrative Independent Auditor’s

Management Letter for Telecommunications

Borrowers to Appendix B to RUS bulletin

1773–1, sample auditor’s report for a

telecommunications Cooperative

Exhibit 5—Illustrative Independent Auditor’s

Management Letter for Telecommunications

Borrowers

RUS requires that CPAs auditing RUS

borrowers provide a management letter in

accordance with § 1773.33. This letter must

be signed by the CPA, bear the same date as

the auditor’s report, and be addressed to the

borrower’s board of directors.

Illustrative Independent Auditors’

Management Letter for Telecommunications

Borrowers

March 2, 2002

Board of Directors

Center County

Telecommunications Systems, Inc.

(City, State)

We have audited the financial statements

of Center County Telecommunications

Systems, Inc. for the year ended December

31, 20X1, and have issued our report thereon

dated March 2, 20X2. We conducted our

audit in accordance with generally accepted

auditing standards, the standards applicable

to financial audits contained in Government

Auditing Standards issued by the

Comptroller General of the United States, and

7 CFR Part 1773, Policy on Audits of Rural

Utilities Service (RUS) Borrowers. Those

standards require that we plan and perform

the audit to obtain reasonable assurance

about whether the financial statements are

free of material misstatement.

In planning and performing our audit of

the financial statements of Center County

Telecommunications Systems, Inc. for the

year ended December 31, 20X1, we

considered its internal control over financial

reporting in order to determine our auditing

procedures for the purpose of expressing an

opinion on the financial statements and not

to provide assurance on the internal control

over financial reporting.

Our consideration of the internal control

over financial reporting would not

necessarily disclose all matters in the

internal control over financial reporting that

might be material weaknesses. A material

weakness is a condition in which the design

or operation of one or more of the internal

control components does not reduce to a

relatively low level the risk that

misstatements in amounts that would be

material in relation to the financial

statements being audited may occur and not

be detected within a timely period by

employees in the normal course of

performing their assigned functions. We

noted no matters involving the internal

control over financial reporting that we

consider to be material weaknesses. [If a

material weakness was noted, refer the reader

to the independent auditors’ report on

compliance and on internal control over

financial reporting.]

Section 1773.33 requires comments on

specific aspects of the internal control over

financial reporting, compliance with specific

RUS loan and security instrument provisions,

and other additional matters. We have

grouped our comments accordingly. In

addition to obtaining reasonable assurance

about whether the financial statements are

free from material misstatements, at your

request, we performed tests of specific

aspects of the internal control over financial

reporting, of compliance with specific RUS

loan and security instrument provisions, and

of additional matters. The specific aspects of

the internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and

additional matters tested include, among

other things, the accounting procedures and

records, materials control, compliance with

specific RUS loan and security instrument

provisions set forth in § 1773.33(e)(2), and

related party transactions and investments. In

addition, our audit of the financial

statements also included the procedures

specified in § 1773.38 through 1773.45. Our

objective was not to provide an opinion on

these specific aspects of the internal control

over financial reporting, compliance with

specific RUS loan and security instrument

provisions, or additional matters, and

accordingly, we express no opinion thereon.

No reports other than our independent

auditors’ report, and our independent

auditors’ report on compliance and on

internal control over financial reporting, all

dated March 2, 2002 or summary of

recommendations related to our audit have

been furnished to management.

Our comments on specific aspects of the

internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and other

additional matters as required by § 1773.33

are presented below.

Comments On Certain Specific Aspects of the

Internal Control Over Financial Reporting

We noted no matters regarding Center

County Telecommunications Systems, Inc.’s

internal control over financial reporting and

its operation that we consider to be a material

weakness as previously defined with respect

to:

—The accounting procedures and records

[list other comments];

—The process for accumulating and

recording labor, material, and overhead

costs, and the distribution of these costs to

construction, retirement, and maintenance

or other expense accounts [list other

comments]; and—

The materials control [list other comments].

Comments On Compliance With Specific

RUS Loan and Security Instrument

Provisions

At your request, we have performed the

procedures enumerated below with respect to

compliance with certain provisions of laws,

regulations, contracts, and grants. The

procedures we performed are summarized as

follows:

—Procedures performed with respect to the

requirement for a borrower to obtain

written approval of the mortgagee to enter

into any contract, agreement or lease

between the borrower and an affiliate for

the year ended December 31, 2001:

1. Obtained and read a borrower-prepared

schedule of new written contracts,

agreements or leases entered into during the

year between the borrower and an affiliate as

defined in § 1773.33(e)(2)(i).

2. Reviewed Board of Director minutes to

ascertain whether board-approved written

contracts are included in the borrowerprepared schedule.

3. Noted the existence of written RUS [and

other mortgagee] approval of each contract

listed by the borrower.

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27833

—Procedure performed with respect to the

requirement to submit RUS Form 479 to the

RUS:

1. Agreed amounts reported in Form 479 to

Center County Telecommunications Systems,

Inc.’s records.

The results of our tests indicate that, with

respect to the items tested, Center County

Telecommunications Systems, Inc. complied,

except as noted below, in all material

respects, with the specific RUS loan and

security instrument provisions referred to

below. The specific provisions tested, as well

as any exceptions noted, include the

requirements that:

—The borrower has obtained written

approval of the RUS [and other mortgagees]

to enter into any contract agreement or

lease with an affiliate as defined in

§ 1773.33(e)(2)(i) [list all exceptions]; and

—The borrower has submitted its Form 479

to the RUS and the Form 479, Financial

and Statistical Report, as of December 31,

2001, represented by the borrower as

having been submitted to RUS is in

agreement with the Center County

Telecommunications Systems, Inc.’s

audited records in all material respects [list

all exceptions] [or if the audit year end is

other than December 31], appears

reasonable based upon the audit

procedures performed [list all exceptions].

Comments on Other Additional Matters

In connection with our audit of the

financial statements of Center County

Telecommunications Systems, Inc., nothing

came to our attention that caused us to

believe that Center County

Telecommunications Systems, Inc. failed to

comply with respect to:

—The reconciliation of continuing property

records to the controlling general ledger

plant accounts addressed at § 1773.33(c)(1)

[list all exceptions];

—The clearing of the construction accounts

and the accrual of depreciation on

completed construction addressed at

§ 1773.33(c)(2) [list all exceptions];

—The retirement of plant addressed at

§ 1773.33(c)(3) and (4) [list all exceptions];

—The approval of the sale, lease, or transfer

of capital assets and disposition of

proceeds for the sale of lease of plant,

material, or scrap addressed at

§ 1773.33(c)(5) [list all exceptions]; The

disclosure of material related party

transactions, in accordance with Statement

of Financial Accounting Standards No. 57,

Related Party Transactions, for the year

ended December 31, 2001, in the financial

statements referenced in the first paragraph

of this report addressed at § 1773.33(f) [list

all exceptions]; and

—The detailed schedule of investments.

Our audit was made for the purpose of

forming an opinion on the basic financial

statements taken as a whole. The detailed

schedule of investments required by

§ 1773.33(i) and provided below is presented

for purposes of additional analysis and is not

a required part of the basic financial

statements. This information has been

subjected to the auditing procedures applied

in our audit of the basic financial statements

and, in our opinion, is fairly stated in all

material respects in relation to the basic

financial statements taken as a whole.

[The detailed schedule of investments

would be included here. The total of the

investment in each company reported must

agree with the detail investment subsidiary

accounts.]

This report is intended solely for the

information and use of the board of directors,

management, and the RUS and supplemental

lenders and is not intended to be and should

not be used by anyone other than these

specified parties. However, this report is a

matter of public record and its distribution is

not limited.

Certified Public Accountants

[FR Doc. 01–12129 Filed 5–18–01; 8:45 am]

BILLING CODE 3410–15–P

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1773

RIN 0572–AB62

Policy on Audits of RUS Borrowers;

Generally Accepted Government

Auditing Standards (GAGAS)

AGENCY: Rural Utilities Service, USDA.

ACTION: Direct final rule.

SUMMARY: The Rural Utilities Service

(RUS) is amending its regulations to

include in its audit requirements for

electric and telecommunications

borrowers recent amendments to the

Generally Accepted Government

Auditing Standards (GAGAS) issued by

the Government Accounting Office

(GAO) and to make other minor changes

and corrections.

DATES: This rule will become effective

July 5, 2001 unless we receive written

adverse comments or written notice of

intent to submit adverse comments on

or before June 20, 2001. If we receive

such comments or notice, we will

publish a timely document in the

Federal Register withdrawing the rule.

A second public comment period will

not be held. Parties interested in

commenting on this action should do so

at this time.

ADDRESSES: Submit adverse comments

or notice of intent to submit adverse

comments to F. Lamont Heppe, Jr.,

Director, Program Development and

Regulatory Analysis, Rural Utilities

Service, U.S. Department of Agriculture,

1400 Independence Ave., SW., STOP

1522, Washington, DC 20250–1522. RUS

requests a signed original and three

copies of all comments (7 CFR 1700.4).

All comments received will be made

available for public inspection at room

4030, South Building, Washington, DC,

between 8 a.m. and 4 p.m. (7 CFR

1.27(b)).

FOR FURTHER INFORMATION CONTACT:

Richard Annan, Chief, Technical

Accounting and Auditing Staff, Program

Accounting Services Division, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1523, Washington, DC

20250–1523. Telephone: 202–720–5227.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be

not significant for the purposes of

Executive Order 12866 and, therefore,

has not been reviewed by the Office of

Management and Budget (OMB).

Executive Order 12372

This rule is excluded from the scope

of Executive Order 12372,

Intergovernmental Consultation, which

may require consultation with state and

local offices. See the final rule related

notice entitled ‘‘Department Programs

and Activities Excluded from Executive

Order 12372,’’ (50 FR 47034).

Executive Order 12988

This rule has been reviewed under

Executive Order 12988, Civil Justice

Reform. RUS has determined that this

rule meets the applicable standards

provided in section 3 of the Executive

Order. In addition, all State and local

laws and regulations that are in conflict

with this rule will be preempted; no

retroactive effect will be given to this

rule; and, in accordance with section

212(e) of the Department of Agriculture

Reorganization Act of 1994 (7 U.S.C.

6912(e)) administrative appeal

procedures, if any are required, must be

exhausted before an action against the

Department or its agencies.

Regulatory Flexibility Act Certification

The Administrator of RUS has

determined that this rule will not have

significant impact on a substantial

number of small entities defined in the

Regulatory Flexibility Act (5 U.S.C. 601

et seq.). The RUS loan programs provide

borrowers with loans at interest rates

and terms that are more favorable than

those generally available from the

private sector. Borrowers, as a result of

obtaining federal financing, receive

economic benefits that exceed any

direct cost associated with RUS

regulations and requirements.

National Environmental Policy Act

Certification

The Administrator of RUS has

determined that this rule will not

significantly affect the quality of the

human environment as defined by the