[Federal Register Volume 60, Number 57 (Friday, March 24, 1995)]
[Rules and Regulations]
[Pages 15481-15483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7331]



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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Parts 44 and 45

[Docket No. R-95-1777; FR-3767-F-01]
RIN 2501-AB85


Non-Federal Audit Report Submission Requirements

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: HUD is amending the single audit requirements for the 
submission of audit reports. HUD's current regulations require 
recipients of Federal financial assistance from HUD to submit a copy of 
their audit report to HUD. This rule describes the circumstances under 
which a ``no finding'' report need not be submitted.

EFFECTIVE DATE: April 24, 1995.

FOR FURTHER INFORMATION CONTACT: Peter Bell, Office of the Inspector 
General, Room 8180, Department of Housing and Urban Development, 451 
Seventh Street SW., Washington, D.C. 20410, telephone (202) 708-0383. 
Hearing or speech-impaired individuals may call HUD's TDD number (202) 
708-9300 (These telephone numbers are not toll free.)

SUPPLEMENTARY INFORMATION:

I. Background

    HUD is amending the single audit requirements for the submission of 
audit reports found at 24 CFR 44.10(f) and 24 CFR 45.4.

A. 24 CFR Part 44

    Part 44 implements the general audit requirements for recipient 
organizations in OMB Circular A-128 ``Audits of State and local 
governments.'' The OMB Circular was issued under the Single Audit Act 
of 1984 (31 U.S.C. 7501-7507) (the Act). The Act requires State or 
local governments that receive $100,000 or more a year in Federal 
financial assistance to have an audit conducted according to the Act's 
standards.
    State or local governments that receive between $25,000 and 
$100,000 a year have the option of having an audit conducted according 
to the Act's standards or having a grant specific financial audit 
performed. The requirements for conducting these grant specific audits 
are described in 24 CFR 44.1(c)(2). State or local governments that 
receive less than $25,000 a year are exempt from the audit 
requirements.
    Section 7505 of the Act requires the Office of Management and 
Budget (OMB) to establish procedures and guidelines to implement the 
Act. It specifies that OMB shall assign an overseeing, or cognizant, 
Federal agency to each recipient in order to facilitate the auditing 
process and ensure that the audit requirements are met. The 
responsibilities of cognizant agencies are set forth in 24 CFR 44.8.

B. 24 CFR Part 45

    Part 45 implements the audit requirements for recipient 
organizations in OMB Circular A-133 ``Audits of Institutions of Higher 
Education and Other Nonprofit Institutions.'' Section 45.1 requires 
that nonprofit institutions whose receipts of Federal financial 
assistance and outstanding Federal direct, guaranteed, or insured loan 
balances total $100,000 or more a year have an audit conducted in 
accordance with the requirements of OMB Circular A-133. [[Page 15482]] 
    Nonprofit institutions which meet the $100,000 requirement but 
participate in only one Federal financial assistance program may elect 
to have an audit conducted in compliance with the OMB Circular's 
requirements or have a program specific audit performed. Nonprofit 
institutions whose total receipt of Federal financial assistance and 
outstanding Federal direct, guaranteed, or insured loan balances are 
between $25,000 and $100,000 a year are given the same choice. The 
requirements for conducting these program specific audits are described 
in 24 CFR 45.1(b)(2).
    Nonprofit institutions that have annual receipts of Federal 
financial assistance and outstanding Federal direct, guaranteed or 
insured loan balances totalling less than $25,000 are exempt from the 
audit requirements. HUD programs listed in 24 CFR 45.1(c) are also 
excused from the audit report requirements.

C. The Amendments

    HUD's single audit requirements for the submission of audit reports 
are contained in 24 CFR 44.10(f) and 24 CFR 45.4. These regulations 
require recipients of Federal financial assistance from HUD to submit a 
copy of their audit reports to HUD. The audit report must be submitted 
regardless of whether HUD is the recipient's cognizant agency or the 
report is a ``no finding'' audit report. A ``no finding'' report is one 
which expresses an unqualified opinion on the financial statements; 
identifies no material instances of noncompliance; identifies no 
material weakness in internal controls; contains no schedule of 
findings and questioned costs applicable to a HUD program; identifies 
no potential illegal act which could result in a criminal prosecution; 
and contains no uncorrected significant finding from a prior audit.
    HUD believes that it is not necessary in all cases for recipients 
to provide it with copies of ``no finding'' audit reports. A new 
paragraph (f)(2) has been added to 24 CFR 44.10 and a new paragraph 
(b)(1) added to 24 CFR 45.4 which permit HUD to provide by program 
notice that the recipient is not required to submit a copy of the audit 
report if HUD is not the cognizant agency for the recipient and if the 
report is a ``no finding'' report. HUD also believes that even where it 
is the cognizant agency that the provision of information about the 
content of certain reports being submitted would effect greater 
efficiency in their processing.
    A new paragraph (f)(5) has been added to 24 CFR 44.10 and a new 
paragraph (b)(2) added to 24 CFR 45.4 which set forth the requirements 
a recipient must fulfill in lieu of submitting a copy of the audit 
report to HUD.

II. Justification for Final Rule Making

    In general, the Department publishes rules for public comment 
before their issuance for effect, in accordance with its own 
regulations on rulemaking, 24 CFR part 10. However, part 10 provides 
exceptions from that general rule where the agency finds good cause to 
omit advance notice and public participation. The good cause 
requirement is satisfied when prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest'' (24 
CFR 10.1). The Department finds that good cause exists to publish this 
rule for effect without first soliciting public comment, in that prior 
public procedure is unnecessary because the Department is merely 
alleviating an administrative burden imposed on recipients and program 
offices by modifying its audit report submission requirements.
III. Other Matters

A. Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations, 
the policies and procedures contained in this rule relate only to HUD 
administrative procedures and, therefore, are categorically excluded 
from the requirements of the National Environmental Policy Act.

B. 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 rule will not have substantial direct effects on 
states or their political subdivisions, or the relationship between the 
federal government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Specifically, 
the requirements of this rule involve the submission of audit reports 
by state and local governments that receive federal financial 
assistance through HUD programs. It effects no changes in the current 
relationships between the federal government, the states and their 
political subdivisions in connection with these programs.

C. Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule does not have 
potential for significant impact on family formation, maintenance, and 
general well-being, and, thus is not subject to review under the order. 
This rule applies only to the submission of audit reports from 
governmental entities and nonprofit institutions to HUD. No change in 
existing HUD policies or programs will result from promulgation of this 
rule, as those policies and programs relate to family concerns.

D. Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this rule, and in so doing 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities. This rule alleviates an 
administrative burden imposed on governmental entities and nonprofit 
institutions. Accordingly, the rule will not have a significant 
economic impact on a substantial number of small entities.

E. Regulatory Agenda
    This final rule was not listed in the Department's Semiannual 
Agenda of Regulations published on November 14, 1994 (59 FR 57632) in 
accordance with Executive Order 12866 and the Regulatory Flexibility 
Act.

List of Subjects

24 CFR Part 44

    Accounting, Grant programs, Indians, Intergovernmental relations, 
Loan programs, Reporting and recordkeeping requirements.

24 CFR Part 45

    Accounting, Colleges and universities, Grant programs, Loan 
programs, Nonprofit organizations, Reporting and recordkeeping 
requirements.

    Accordingly, 24 CFR parts 44 and 45 are amended as follows:

PART 44--NON-FEDERAL AUDIT REQUIREMENTS FOR STATE AND LOCAL 
GOVERNMENT

    1. The authority citation for 24 CFR part 44 continues to read as 
follows:

    Authority: 31 U.S.C. 7501-7507; 42 U.S.C. 3535(d).

    2. Section 44.10 is amended by revising paragraph (f) to read as 
follows:


Sec. 44.10  Audit reports.

* * * * *
    (f) (1) In accordance with generally accepted government audit 
standards, reports shall be submitted by the auditor to the 
organization audited and to those requiring or arranging for the audit. 
In addition, the recipient shall submit copies of the reports to each 
Federal [[Page 15483]] department or agency that provided Federal 
Financial assistance funds to the recipient, except as provided in 
paragraph (f)(2) of this section.
    (2) HUD may provide by program notice that:
    (i) Reports are not required to be sent to HUD if HUD is not the 
cognizant agency for the recipient and if the report meets all the 
following conditions: an unqualified opinion was expressed on the 
financial statements; the report identified no material instances of 
noncompliance; the report identified no reportable condition or 
material weakness in internal controls; the report contains no schedule 
of findings and questioned costs applicable to a HUD program; the 
report identified no potential illegal act which could result in a 
criminal prosecution; and the report contained no uncorrected 
significant finding from a prior audit; and
    (ii) Reports are required to be sent to HUD in all cases where HUD 
is the cognizant agency; however in those cases where a report meets 
the conditions specified in paragraph (f)(2) of this section, the 
report shall be accompanied by a transmittal letter indicating that 
such conditions have been met.
    (3) Subrecipients shall submit copies to recipients that provided 
them Federal assistance funds.
    (4) The reports shall be sent within 30 days after completion of 
the audit, but no later than one year after the end of the audit 
period, unless a longer period is agreed to with the cognizant agency.
    (5) If no report is required to be submitted as provided in 
paragraph (f)(2)(i) of this section, the recipient must notify the 
appropriate HUD office in writing that the report met the conditions 
set forth in paragraph (f)(2) of this section; indicate the report 
date, fiscal year audited, and identifying information on the 
independent auditor; and attach a copy of the Schedule of Federal 
Financial Assistance.
* * * * *

PART 45--NON-FEDERAL AUDIT REQUIREMENTS FOR INSTITUTIONS OF HIGHER 
EDUCATION AND OTHER NONPROFIT INSTITUTIONS

    3. The authority citation for part 45 continues to read as follows:

    Authority: 42 U.S.C. 3535(d).

    4. Section 45.4 is revised to read as follows:
Sec. 45.4  Submission of reports.

    (a) Except for the organizations subject to the requirements set 
forth in Sec. 45.1(c), the report shall be due within 30 days after the 
completion of the audit, but the audit should be completed and the 
report submitted not later than 13 months after the end of the 
recipient's fiscal year unless a longer period is agreed to with the 
cognizant or oversight agency.
    (b)(1) HUD may provide by program notice that:
    (i) Reports are not required to be sent to HUD if HUD is not the 
cognizant agency for the recipient and if the report meets all the 
following conditions: an unqualified opinion was expressed on the 
financial statements; the report identified no material instances of 
noncompliance; the report identified no reportable condition of 
material weakness in internal controls; the report contains no schedule 
of findings and questions applicable to a HUD program; the report 
identified no potential illegal act which could result in criminal 
prosecution; and the report contained no uncorrected significant 
finding from a prior audit; and
    (ii) Reports are required to be sent to HUD in all cases where HUD 
is the cognizant agency; however in those cases where a report meets 
the conditions specified in paragraph (b)(1) of this section, the 
report shall be accompanied by a transmittal letter indicating that 
such conditions have been met.
    (2) If no report is required to be submitted as provided in 
paragraph (b)(1)(i) of this section, the recipient must notify the 
appropriate HUD office in writing that report met the conditions set 
forth in paragraph (b)(1) of this section; indicate the report date, 
fiscal year audited, and identifying information on the independent 
auditor; and attach a copy of the Schedule of Federal Financial 
Assistance.

    Dated: March 16, 1995.
Henry G. Cisneros,
Secretary.
[FR Doc. 95-7331 Filed 3-23-95; 8:45 am]
BILLING CODE 4210-32-P