80 FR 46853 - Multi-Family Housing Program Requirements To Reduce Financial Reporting Requirements

DEPARTMENT OF AGRICULTURE
Rural Housing Service

Federal Register Volume 80, Issue 151 (August 6, 2015)

The Rural Housing Service (RHS) is proposing to amend regulations to change program requirements regarding financial reporting to align RHS requirements with those of the Department of Housing and Urban Development (HUD) which will reduce the burden on the borrower to produce multiple financial reports.

[Federal Register Volume 80, Number 151 (Thursday, August 6, 2015)]
[Proposed Rules]
[Pages 46853-46855]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-19342]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 80, No. 151 / Thursday, August 6, 2015 / 
Proposed Rules

[[Page 46853]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3560

RIN 0575-AC98


Multi-Family Housing Program Requirements To Reduce Financial 
Reporting Requirements

AGENCY: Rural Housing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Housing Service (RHS) is proposing to amend 
regulations to change program requirements regarding financial 
reporting to align RHS requirements with those of the Department of 
Housing and Urban Development (HUD) which will reduce the burden on the 
borrower to produce multiple financial reports.

DATES: Written comments must be received on or before October 5, 2015 
to be assured for consideration.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street SW., 7th Floor, Washington, 
DC 20024.
     All written comments will be available for public 
inspection during regular work hours at 300 7th Street SW., 7th Floor, 
Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Stephanie White, Director, Multi-
Family Housing Portfolio Management Division, Rural Housing Service, 
Room 1263S--STOP 0782, 1400 Independence Avenue SW., Washington, DC 
20250-0782, Telephone: (202) 720-1615.

SUPPLEMENTARY INFORMATION: 

Executive Order 12866, Classification

    This proposed rule has been determined to be non-significant and, 
therefore was not reviewed by the Office of Management and Budget (OMB) 
under Executive Order 12866.

Authority

    The Multi-Family Housing program is administered, subject to 
appropriations, by the U.S. Department of Agriculture (USDA) as 
authorized under Sections 514, 515 and 516 of the Housing Act of 1949, 
as amended (42 U.S.C. 1484, 1485, and 1486).

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' RHS has determined that this 
action does not constitute a major Federal action significantly 
affecting the quality of the environment. In accordance with the 
National Environmental Policy Act of 1969, Public Law 91-190, an 
Environmental Impact Statement is not required.

Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The 
undersigned has determined and certified by signature on this document 
that this rule will not have a significant economic impact on a 
substantial number of small entities since this rulemaking action does 
not involve a new or expanded program nor does it require any more 
action on the part of a small business than required of a large entity.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of Government. This rule does 
not impose substantial direct compliance costs on State and local 
Governments; therefore, consultation with the States is not required.

Executive Order 12988, Civil Justice Reform

    This rule has been reviewed under Executive Order 12988. In 
accordance with this rule: (1) Unless otherwise specifically provided, 
all State and local laws that are in conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule except 
as specifically prescribed in the rule; and (3) administrative 
proceedings of the National Appeals Division of the Department of 
Agriculture (7 CFR part 11) must be exhausted before bringing suit in 
court that challenges action taken under this rule.

Unfunded Mandate Reform Act (UMRA)

    Title II of the UMRA, Public Law 104-4, establishes requirements 
for Federal Agencies to assess the effects of their regulatory actions 
on State, local, and tribal Governments and on the private sector. 
Under section 202 of the UMRA, Federal Agencies generally must prepare 
a written statement, including 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 a Federal Agency to identify and consider a reasonable number 
of regulatory alternatives and adopt the least costly, more cost-
effective, or 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 for the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

Paperwork Reduction Act of 1995

    The information collection requirements contained in this 
regulation have been approved by OMB and have been assigned OMB control 
number 0575-0189. This proposed rule contains no new reporting or 
recordkeeping requirements that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

[[Page 46854]]

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act to promote the use of the Internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services and for other purposes.

Programs Affected

    The programs affected by this regulation are listed in the Catalog 
of Federal Domestic Assistance under number 10.405--Farm Labor Housing 
Loans and Grants; 10.415--Rural Rental Housing Loans; and 10.427--Rural 
Rental Assistance Payments.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on RHS in the development 
of regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the proposed rule does not have a 
substantial direct effect on one or more Indian tribe(s) or on either 
the relationship or the distribution of powers and responsibilities 
between the Federal Government and the Indian tribes. Thus, the 
proposed rule is not subject to the requirements of Executive Order 
13175. If tribal leaders are interested in consulting with RHS on this 
proposed rule, they are encouraged to contact USDA's Office of Tribal 
Relations or Rural Development's Native American Coordinator at (720) 
544-2911 or [email protected] to request such consultation.

Executive Order 12372, Intergovernmental Consultation

    These loans are subject to the provisions of Executive Order 12372 
which require intergovernmental consultation with State and local 
officials. RHS conducts intergovernmental consultations for each loan 
in accordance with 2 CFR part 415, subpart C.

Non-Discrimination Policy

    The U.S. Department of Agriculture (USDA) prohibits discrimination 
against its customers, employees, and applicants for employment on the 
bases of race, color, national origin, age, disability, sex, gender 
identity, religion, reprisal, and where applicable, political beliefs, 
marital status, familial or parental status, sexual orientation, or all 
or part of an individual's income is derived from any public assistance 
program, or protected genetic information in employment or in any 
program or activity conducted or funded by the Department. (Not all 
prohibited bases will apply to all programs and/or employment 
activities.)
    If you wish to file a Civil Rights program complaint of 
discrimination, complete the USDA Program Discrimination Complaint Form 
(PDF), found online at http://www.ascr.usda.gov/complaint_filing_cust.html, or at any USDA office, or call (866) 632-
9992 to request the form. You may also write a letter containing all of 
the information requested in the form. Send your completed complaint 
form or letter to us by mail at U.S. Department of Agriculture, 
Director, Office of Adjudication, 1400 Independence Avenue SW., 
Washington, DC 20250-9410, by fax (202) 690-7442 or email at 
[email protected].
    Individuals who are deaf, hard of hearing or have speech 
disabilities and you wish to file either an EEO or program complaint 
please contact USDA through the Federal Relay Service at (800) 877-8339 
or (800) 845-6136 (in Spanish).
    Persons with disabilities who wish to file a program complaint, 
please see information above on how to contact us by mail directly or 
by email. If you require alternative means of communication for program 
information (e.g., Braille, large print, audiotape, etc.) please 
contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

Background

    Section 515(z)(1) of the Housing Act of 1949, as amended states 
that the Secretary shall require that borrowers in programs authorized 
by this section maintain accounting records in accordance with 
generally accepted accounting principles for all projects that receive 
funds from loans made or guaranteed by the Secretary. Since RHS 
considers 514 loans to have similar risks as 515 loans, the regulatory 
accounting requirements apply to both types of loans. See 7 CFR 
3560.578.
    RHS published an interim rule on November 26, 2004, (69 FR 69032-
69176) to implement the consolidation of MFH's previous 14 separate 
regulations, with an effective date of February 24, 2005. As part of 
the interim rule, RHS required that engagement reports be submitted 
with the annual financial reports for borrowers with 16 or more units. 
Borrowers with less than 16 units in their housing project are required 
to submit annual financial reports using a limited scope engagement. 
Engagement is currently defined at 7 CFR 3560.11.
    RHS proposes to remove engagement requirements as well as unit-
based requirements from 7 CFR 3560.11, 3560.301, 3560.302, 3560.303 and 
3560.308 and replace it with risk-based requirements for audits 
utilizing a modified version of the HUD Office of Inspector General's 
(OIG's) Consolidated Audit Guide standard.
    This proposed change is a result of RHS's participation in the 
White House's Domestic Policy Council's Rental Policy Working Group 
(RPWG) on an initiative to reduce duplications of requirements on 
customers, eliminate conflicting administrative requirements, and align 
program requirements in the affordable rental housing industry. The 
RPWG believes high-risk properties, which consists of properties that 
have combined federal financial assistance of $500,000 or greater, 
should receive more stringent evaluation of financial performance. RHS 
agrees, and plans to implement a risk-based threshold to set the 
standard for audit guidelines. This will reduce the burden on project 
budgets, as multiple reports become unnecessary. Instead it will 
require financial reporting to include audits based on a modified 
version of the HUD OIG Consolidated Audit Guide, which are also 
acceptable to HUD.
    Combined Federal financial assistance is defined as a combination 
of any or all of the sources identified below:
     The outstanding principal balance of a USDA Mortgage, a 
mortgage insured by the Federal Housing Administration (FHA) or HUD-
held mortgages or loans (including flexible subsidy loans);
     Any USDA Rental Assistance or Project-based Section 8 
assistance received during the fiscal year;
     Interest reduction payments received during the year 
(interest subsidy) and/or;
     Federal grant funds received during the year.
    The Agency believes standardizing audit requirements is an 
important first step in aligning the financial reporting standards 
among various Federal and State agencies. The new policy eliminates a 
financial reporting burden by allowing owners who receive less than 
$500,000 in combined Federal assistance to submit owner certified 
financial statements instead of audited financial statements.
    Although the Agency is removing engagement requirements as it 
relates to the borrower's annual financial reporting requirements, 
Section 514 and 515 proposals for new construction are still subject to 
the agreed upon cost certification procedures set forth in 7 CFR 
3560.72(b).
    In addition to the changes in the annual reporting requirements 
outlined herein, the Agency is proposing two

[[Page 46855]]

additional certifications to the Performance Standards required under 7 
CFR 3560.308(c). The borrower will be asked to certify there have been 
no changes in project ownership other than those approved by the Agency 
and identified in the certification; and that, real estate taxes are 
paid in accordance with state and/or local requirements and are 
current.

List of Subjects in 7 CFR Part 3560

    Aged loan programs--Agriculture, Loan programs--Housing and 
Community Development, Low- and moderate-income housing, Public 
housing, Rent subsidies.

    For the reasons set forth in the preamble, chapter XXXV, Title 7 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 3560--DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS

0
1. The authority citation for Part 3560 continues to read as follows:

    Authority:  42 U.S.C. 1480.

Subpart A--General Provisions and Definitions

0
2. Amend Sec.  3560.11 by removing the definition of ``Engagement''.

Subpart G--Financial Management

0
3. Section 3560.301 is revised to read as follows:


Sec.  3560.301  General.

    This subpart contains requirements for the financial management of 
Agency-financed multi-family housing (MFH) projects, including 
accounts, budgets, and reports. Financial management systems and 
procedures must cover all housing operations and provide adequate 
documentation to ensure that program objectives are met.
0
4. Amend Sec.  3560.302 by revising paragraphs (a), (b)(1) and (2), and 
(e)(1) to read as follows:


Sec.  3560.302  Accounting, bookkeeping, budgeting, and financial 
management systems.

    (a) General. Borrowers must establish the accounting, bookkeeping, 
budgeting and financial management procedures necessary to conduct 
housing project operations in a financially safe and sound manner. 
Borrowers must maintain records in a manner suitable for an audit, and 
must be able to report accurate operational results to the Agency from 
these accounts and records.
    (b) * * *
    (1) Borrowers may use a cash, accrual, or modified accrual method 
of accounting, bookkeeping, and budget preparations as long as they are 
prepared in accordance with the standards identified in Sec.  3560.308.
    (2) Borrowers must describe their accounting, bookkeeping, budget 
preparation, and financial reporting procedures in their management 
plan.
* * * * *
    (e) * * *
    (1) Borrowers must retain all housing project financial records, 
books, and supporting material for at least three years after the 
issuance of their financial reports. Upon request, these materials will 
immediately be made available to the Agency, its representatives, the 
USDA Office of the Inspector General (OIG), or the General 
Accountability Office (GAO).
* * * * *
0
5. Amend Sec.  3560.303 by revising paragraph (b)(1)(vi)(Q) to read as 
follows:


Sec.  3560.303  Housing project budgets.

* * * * *
    (b) * * *
    (1) * * *
    (vi) * * *
    (Q) Professional service contracts (audits, owner-certified 
submissions in accordance with Sec.  3560.302(a)(2), tax returns, 
energy audits, utility allowances, architectural, construction, 
rehabilitation and inspection contracts, etc.)
* * * * *
0
6. Amend Sec.  3560.308 by:
0
a. Revising paragraphs (a)(1) and (2).
0
b. Removing paragraph (b).
0
c. Redesignating paragraphs (c) and (d) as (b) and (c) respectively.
0
d. Revising the newly designated (b) introductory text.
0
e. Adding paragraphs (b)(8) and (b)(9).
0
f. Revising the newly designated (c)(1).
    The revisions and additions read as follows:


Sec.  3560.308  Annual financial reports.

    (a) General. (1) Borrowers that receive $500,000 or more in 
combined Federal financial assistance must include an independent 
auditor's report, financial statements and notes to the financial 
statements, supplemental information containing Agency approved forms 
for project budgets and borrower balance sheets, report on internal 
controls and compliance, and a schedule of current and prior year 
finding and corrective actions (if applicable). Borrowers must include 
the audit with their annual financial reports submitted to the Agency. 
Federal Financial Assistance is defined in accordance with 2 CFR 
200.40.
    (2) Borrowers that receive less than $500,000 in combined Federal 
financial assistance must submit annual owner certified financial 
statements presented in accordance with Generally Accepted Accounting 
Principles (GAAP). Owner-certified submissions will not include an 
auditor's opinion or auditor's report on compliance or internal 
controls. Borrowers may use a CPA to prepare this report.
* * * * *
    (b) Performance standards. All Borrowers must certify that the 
housing meets the performance standards below:
* * * * *
    (8) There have been no changes in project ownership other than 
those approved by the Agency and Identified in the certification.
    (9) Real estate taxes are paid in accordance with state and/or 
local requirements and are current.
    (c) * * *
    (1) Non-profit and public borrower entities subject to OMB Circular 
A-133 requirements must submit audits in accordance with 2 CFR part 
200.
* * * * *

    Dated: July 9, 2015.
Tony Hernandez,
Administrator, Rural Housing Service.
[FR Doc. 2015-19342 Filed 8-5-15; 8:45 am]
 BILLING CODE 3410-XV-P