Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Rules and Regulations 18493

Grade

Minimum limits of— Maximum Limits of—

Test weight

per bushel

(pounds)

Sound barley (percent)Damaged

kernels 1

(percent)

Heat damaged kernels (percent)

Foreign material (percent)Broken kernels (percent)

Thin barley

(percent)

U.S. No. 5 ................................................. 36.0 75.0 10.0 3.0 5.0 28.0 75.0

U.S. Sample Grade:

U.S. Sample grade shall be barley that:

(a) Does not meet the requirements for the grades 1, 2, 3, 4, or 5; or

(b) Contains 8 or more stones or any number of stones which have an aggregate weight in excess of 0.2 percent of the sample weight, 2 or

more pieces of glass, 3 or more crotalaria seeds (Crotalaria spp.), 2 or more caster beans (Ricinus communis L.), 4 or more particles of unknown foreign substance(s) or commonly recognized harmful or toxic substance(s), 8 or more cocklebur (Xanthium spp.) or similar seeds singly

or in combination, 10 or more rodent pellets, bird droppings, or equivalent quantity of other animal filth per 11⁄8 to 11⁄4 quarts of barley; or

(c) Has a musty, sour, or commercially objectionable foreign odor (except smut or garlic odor); or

(d) Is heating or otherwise of distinctly low quality.

1 Includes heat-damaged kernels. Injured-by-frost kernels and injured-by-mold kernels are not considered damaged kernels.

Dated: April 8, 1996.

James R. Baker,

Administrator.

[FR Doc. 96–10305 Filed 4–25–96; 8:45 am]

BILLING CODE 3410–EN–P

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1980

RIN 0570–AA11

Business and Industrial Loan

Program—Audit Requirements

AGENCIES: Rural Housing Services, Rural

Business-Cooperative Service, Rural

Utilities Service, and Farm Service

Agency, USDA.

ACTION: Final rule.

SUMMARY: The Rural BusinessCooperative Service (RBS) is amending

the regulations for the Business and

Industry (B&I) Loan Program. The action

clarifies the requirements for annual

financial statements and establishes

thresholds for determining which

borrowers will be required to provide

audited statements.

EFFECTIVE DATE: April 26, 1996.

FOR FURTHER INFORMATION CONTACT:

Richard T. Bonnet, Commercial Loan

Specialist, Rural Business-Cooperative

Service, USDA, Ag Box 3221,

Washington DC 20250–3221, Telephone

(202) 720–1804.

SUPPLEMENTARY INFORMATION:

Classification

This final rule has been determined to

be significant and was reviewed by the

Office of Management and Budget under

Executive Order 12866.

Intergovernmental Review

This program is listed in the Catalog

of Federal Domestic Assistance under

number 10.768, and is subject to

intergovernmental consultation in

accordance with Executive Order 12372,

and as stated in FmHA Instruction

1940–J, ‘‘Intergovernmental Review of

Farmers Home Administration Programs

and Activities.’’

Environmental Impact Statement

This action has been reviewed in

accordance with 7 CFR Part 1940,

Subpart G, ‘‘Environmental Program.’’

The Agency has determined that this

action does not constitute a major

Federal action significantly affecting the

quality of the human environment and,

in accordance with the National

Environmental Policy Act of 1969, Pub.

L. 91–190, an Environmental Impact

Statement is not required.

Civil Justice

This rule has been reviewed under

Executive Order 12778, Civil Justice

Reform. In accordance with this rule: (1)

All State and local laws and regulations

that are in conflict with this rule will be

preempted; (2) no retroactive effect will

be given to this rule; and (3)

administrative proceedings in

accordance with the regulations of the

agency at 7 CFR Part 1900 Subpart B or

those regulations published by the

Department of Agriculture to implement

the provisions of the National Appeals

Division as mandated by the

Department of Agriculture

Reorganization Act of 1994 must be

exhausted before bringing suit in court

challenging action taken under this rule

unless those regulations specifically

allow bringing suit at an earlier time.

Unfunded Mandate Reform Act

Title II of the Unfunded Mandate

Reform Act of 1995 (UMRA), Pub. L.

104–4, establishes requirements for

Federal agencies to assess the effects of

their regulatory actions on State, local,

and tribal governments and the private

sector. Under section 202 of the UMRA,

RBS generally must prepare a written

statement, including a cost-benefit

analysis, for proposed and final rules

with ‘‘Federal mandates’’ that may

result in expenditures to State, local, or

tribal governments, in the aggregate, or

to the private sector, of $100 million or

more in any one year. When such a

statement is needed for a rule, section

205 of the UMRA generally requires

RBS to identify and consider a

reasonable number of regulatory

alternatives and adopt the least

burdensome alternative that achieves

the objectives of the rule.

This rule contains no Federal

mandates (under the regulatory

provisions of Title II of the UMRA) for

State, local, and tribal governments or

the private sector. Thus today’s rule is

not subject to the requirements of

sections 202 and 205 of the UMRA.

Paperwork Reduction Act

The collection of information

requirements contained in this

regulation have been previously

approved by the Office of Management

and Budget (OMB) under the provisions

of 44 U.S.C. chapter 35 and have been

assigned OMB control number 0575–

0029. This final rule does not impose

any new information collection

requirements from those approved by

OMB.

Background

This regulatory package is an Agency

initiative to enhance the program by

reducing the financial burden on small

business borrowers of obtaining annual

audits of their financial statements. The

existing regulations require annual

audited financial statements from all

borrowers, except those with loans that

have been paid down to no more than

$100,000 and to no more than twothirds of the original balance and have
18494 Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Rules and Regulations

been current on repayments for at least

24 months. The cost of the audits can

often be the difference between a profit

and a loss for the year for small

businesses. Many small businesses that

need and want the assistance of the B&I

guaranteed loan decide not to apply

because they are unwilling to commit to

the cost of an annual audit. Small

businesses that have obtained B&I

guaranteed loans sometimes become

delinquent on the loans because the

funds were spent on audits or refuse to

honor their agreement to provide the

audits.

Discussion of Comments

On March 28, 1994, a proposed rule

was published in the Federal Register

(59 FR 14371) to remove or allow the

Agency to waive the requirement for

annual audits for all loans of $500,000

or less and for loans that have been

outstanding and have provided audits

for three years, have an unpaid balance

not exceeding $1 million, and are

current on repayments. As proposed, all

borrowers that did not provide audited

financial statements would be required

to provide financial statements

compiled or reviewed by an

independent certified public accountant

or licensed public accountant.

Guaranteed loan borrowers subject to

OMB Circulars A–128 or A–133 would

also have to comply with those

Circulars. Insured (direct) B&I loans are

governed by the requirements of 7 CFR

1942.

Eleven letters commenting on the

proposed rule were received. Ten

strongly supported the concept of

relaxing audit requirements. None of the

writers objected to the concept. Two

writers recommended raising the

threshold for requiring audits in

connection with new loans from

$500,000 to $1 million. Also, two

writers recommended removing the

proposed requirement that existing

borrowers with loans not exceeding $1

million must provide audited

statements for three years before an

exception to the audit requirements may

be made. To deal with both of these

issues, the final rule provides for only

one threshold for either new or existing

loans. The threshold for requiring

audited statements will be a total

Agency guaranteed loan balance

exceeding $1 million.

Two writers objected to the proposed

requirement that audits be performed in

accordance with Generally Accepted

Government Auditing Standards

(GAGAS) rather than Generally

Accepted Accounting Principles

(GAAP). The Agency has determined

that since most businesses already use

GAAP and there is no reason to require

audits be done two different ways,

GAAP will be used. That requirement is

changed in the final rule.

One writer recommended the

language be revised to make it clear that

the monetary threshold is referring to

the total principal plus interest balance

at year end. This suggestion has been

adopted.

One writer objected to the use of the

term ‘‘quality’’ in reference to whether

financial statements are audited,

reviewed, or compiled. The phrasing

has been revised in the final rule to

eliminate that word usage.

One writer questioned how an

individual borrower could be expected

to know when the Agency wanted

audited or unaudited financial

statements in excess of the minimum

requirements. We believe it is

sufficiently clear that the Agency will

inform the lender and borrower of the

requirements being imposed for each

loan. The final rule is not different from

the proposed rule in this regard.

One writer suggested the specific

threshold for audits to be performed

under OMB Circulars A–128 and A–133

be removed because the threshold set by

OMB might change. This suggestion has

been adopted.

List of Subjects in 7 CFR part 1980

Loan programs—Business, Rural

areas, Rural development assistance.

Accordingly, chapter XVIII, title 7,

Code of Federal Regulations is amended

as follows:

PART 1980—GENERAL

1. The authority citation for part 1980

continues to read as follows:

Authority: 7 CFR 1989; 42 U.S.C. 1480; 5

U.S.C. 301; 7 CFR 2.23; 7 CFR 2.70

Subpart E—Business and Industrial

Loan Program

2. Section 1980.445 is added to read

as follows:

§ 1980.445 Periodic financial statements

and audits.

All borrowers will be required to

submit periodic financial statements to

the lender. Lenders must forward copies

of the financial statements and the

lender’s analysis of the statements to the

Agency.

(a) Audited financial statements.

Except as provided in paragraphs (d)

and (e) of this section, all borrowers

with a total principal and interest loan

balance for loans under this subpart, at

the end of the borrower’s fiscal year of

more than $1 million, must submit

annual audited financial statements.

The audit must be performed in

accordance with generally accepted

accounting principles (GAAP). In

addition, the audits are also to be

performed in accordance with

approriate Office of Management and

Budget (OMB) circulars and any Agency

requirements specified in this subpart.

(b) Unaudited financial statements.

For borrowers with a loan balance

(principal plus interest at year-end) of

$1 million or less, the Agency will

require annual financial statements

which may be statements compiled or

reviewed by an accountant qualified in

accordance with the publication

‘‘Standards for Audit of Governmental

Organizations, Programs, Activities and

Functions’’ instead of audited financial

statements.

(c) Internal financial statements. The

Agency may require submission of

financial statements prepared by the

borrower at whatever frequency is

determined necessary to adequately

monitor the loan. Quarterly financial

statements will be required on new

business enterprises or those needing

close monitoring.

(d) Minimum requirements. This

section sets out minimum requirements

for audited and unaudited financial

statements to be submitted to the

Agency. If specific circumstances

warrant, the Agency may require

audited financial statements or

independent unaudited financial

statements in excess of the minimum

requirements. For example, loans that

depend heavily on inventory and

accounts receivable for collateral will

normally be audited, regardless of the

size of the loan. Nothing in this section

shall be considered an impediment to

the lender requiring financial statements

more frequently than required by the

Agency or requiring audited financial

statements when the Agency would

accept unaudited financial statements.

(e) Public bodies and nonprofit

corporations. Notwithstanding other

provisions of this section, any public

body or nonprofit corporation that

receives a guarantee of a loan that meets

the thresholds established by OMB

Circular A–128 or A–133 for coverage

under such circular, must provide an

audit in accordance with the applicable

OMB Circular A–128 or A–133 for the

fiscal year of the borrower in which the

Loan Note Guarantee is issued. If the

loan is for development or purchases

made in a previous fiscal year through

interim financing, an audit, in

accordance with the applicable circular,

will also be provided for the fiscal year

in which the development or purchases

occurred. Any audit provided by a

public body or nonprofit corporation in
Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Rules and Regulations 18495

compliance with OMB Circular A–128

or A–133 will be considered adequate to

meet the requirements of this section for

that year. OMB Circulars are available

from the Office of Management and

Budget, EOP Publications Office, 725

17th Street, NW., Room 2200, New

Executive Office Building, Washington,

DC 20503.

3. Section 1980.451 is amended by

revising paragraph (i)(13) introductory

text to read as follows:

§ 1980.451 Filing and processing

applications.

* * * * *

(i)* * *

(13) Proposed loan agreement. (See

paragraph VII of Form FmHA 449–35).

Loan agreements between the borrower

and lender will be required. The final

executed loan agreement must include

the Agency requirements as set forth in

the Form FmHA 449–14 including the

requirements for periodic financial

statements in accordance with

§ 1980.445. The loan agreement must

also include, but is not limited to, the

following:

* * * * *

§ 1980.454 [Amended]

4. Section 1980.454 is amended by

removing and reserving

ADMINISTRATIVE A. 1.

§ 1980.469 [Amended]

5. Section 1980.469 is amended by

removing and reserving

ADMINISTRATIVE c. 1.

Dated: January 30, 1996.

Jill L. Thompson,

Under Secretary, Rural Economic and

Community Development.

[FR Doc. 96–10144 Filed 4–25–96; 8:45 am]

BILLING CODE 3410–32–P

FEDERAL RESERVE SYSTEM

12 CFR Parts 207, 220, 221, and 224

[Regulations G, T, U, and X]

Securities Credit Transactions; List of

Marginable OTC Stocks; List of

Foreign Margin Stocks

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule; determination of

applicability of regulations.

SUMMARY: The List of Marginable OTC

Stocks (OTC List) is composed of stocks

traded over-the-counter (OTC) in the

United States that have been determined

by the Board of Governors of the Federal

Reserve System to be subject to the

margin requirements under certain

Federal Reserve regulations. The List of

Foreign Margin Stocks (Foreign List) is

composed of foreign equity securities

that have met the Board’s eligibility

criteria under Regulation T. The OTC

List and the Foreign List are published

four times a year by the Board. This

document sets forth additions to and

deletions from the previous OTC List

and the previous Foreign List.

EFFECTIVE DATE: May 13, 1996.

FOR FURTHER INFORMATION CONTACT:

Peggy Wolffrum, Securities Regulation

Analyst, Division of Banking

Supervision and Regulation, (202) 452–

2781, Board of Governors of the Federal

Reserve System, Washington, D.C.

20551. For the hearing impaired only,

contact Dorothea Thompson,

Telecommunications Device for the Deaf

(TDD) at (202) 452–3544.

SUPPLEMENTARY INFORMATION: Listed

below are the deletions from and

additions to the Board’s OTC List,

which was last published on January 29,

1996 (61 FR 2667), and became effective

February 12, 1996. A copy of the

complete OTC List is available from the

Federal Reserve Banks.

The OTC List includes those stocks

that meet the criteria in Regulations G,

T and U (12 CFR Parts 207, 220 and 221,

respectively). This determination also

affects the applicability of Regulation X

(12 CFR Part 224). These stocks have the

degree of national investor interest, the

depth and breadth of market, and the

availability of information respecting

the stock and its issuer to warrant

regulation in the same fashion as

exchange-traded securities. The OTC

List also includes any OTC stock

designated for trading in the national

market system (NMS security) under

rules approved by the Securities and

Exchange Commission (SEC).

Additional OTC stocks may be

designated as NMS securities in the

interim between the Board’s quarterly

publications. They will become

automatically marginable upon the

effective date of their NMS designation.

The names of these stocks are available

at the SEC and at the National

Association of Securities Dealers, Inc.

and will be incorporated into the

Board’s next quarterly publication of the

OTC List.

Also listed below are the deletions

from and additions to the Board’s

Foreign List, which was last published

on January 29, 1996 (61 FR 2667), and

became effective February 12, 1996. The

Foreign List includes those foreign

securities that meet the criteria in

section 220.17 of Regulation T and are

eligible for margin treatment at brokerdealers on the same basis as domestic

margin securities. A copy of the

complete Foreign List is available from

the Federal Reserve Banks.

Public Comment and Deferred Effective

Date

The requirements of 5 U.S.C. 553 with

respect to notice and public

participation were not followed in

connection with the issuance of this

amendment due to the objective

character of the criteria for inclusion

and continued inclusion on the Lists

specified in 12 CFR 207.6(a) and (b),

220.17(a), (b), (c) and (d), and 221.7(a)

and (b). No additional useful

information would be gained by public

participation. The full requirements of 5

U.S.C. 553 with respect to deferred

effective date have not been followed in

connection with the issuance of this

amendment because the Board finds

that it is in the public interest to

facilitate investment and credit

decisions based in whole or in part

upon the composition of these Lists as

soon as possible. The Board has

responded to a request by the public

and allowed approximately a two-week

delay before the Lists are effective.

List of Subjects

12 CFR Part 207

Banks, Banking, Credit, Margin,

Margin requirements, National Market

System (NMS Security), Reporting and

recordkeeping requirements, Securities.

12 CFR Part 220

Banks, Banking, Brokers, Credit,

Margin, Margin requirements,

Investments, National Market System

(NMS Security), Reporting and

recordkeeping requirements, Securities.

12 CFR Part 221

Banks, Banking, Credit, Margin,

Margin requirements, National Market

System (NMS Security), Reporting and

recordkeeping requirements, Securities.

12 CFR Part 224

Banks, Banking, Borrowers, Credit,

Margin, Margin requirements, Reporting

and recordkeeping requirements,

Securities.

Accordingly, pursuant to the

authority of sections 7 and 23 of the

Securities Exchange Act of 1934, as

amended (15 U.S.C. 78g and 78w), and

in accordance with 12 CFR 207.2(k) and

207.6 (Regulation G), 12 CFR 220.2(u)

and 220.17 (Regulation T), and 12 CFR

221.2(j) and 221.7 (Regulation U), there

is set forth below a listing of deletions

from and additions to the OTC List and

the Foreign List.