Implementation of OMB Circular A-133 ``Audits of Institutions of Higher Education and Other Nonprofit Institutions''

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Parts 44, 45, 85, 92, 207, 213, 221, 232, 236, 242, 277,

280, 570, 572, 575, 576, 577, 578, 579, 880, 881, 883, 884, 885,

886, 889, and 890

[Docket No. R-94-1581; FR-2594-F-03]

RIN 2501-AB19

Implementation of OMB Circular A-133 ``Audits of Institutions of

Higher Education and Other Nonprofit Institutions''

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: OMB Circular A-133 provides policy guidance to Federal

agencies for establishing uniform requirements for audits of awards

provided to institutions of higher education and other nonprofit

organizations. This rule makes final the interim rule that HUD

promulgated in July 1992 to incorporate the provisions of the circular.

EFFECTIVE DATE: February 18, 1994.

FOR FURTHER INFORMATION CONTACT: Steven O. App, Deputy Chief Financial

Officer for Finance, room 10166, Department of Housing and Urban

Development, 451 Seventh Street, SW., Washington, DC 20410, telephone

(202) 708-0650. TDD: (202) 708-9300. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: OMB Circular A-133 establishes audit

requirements and defines Federal responsibilities for implementing and

monitoring such requirements for institutions of higher education and

other nonprofit institutions receiving Federal awards. It supersedes

Attachment F, subparagraph 2h, of Circular A-110, ``Uniform

Administrative Requirements for Grants and other Agreements with

Institutions of Higher Education, Hospitals, and Other Nonprofit

Organizations.''

The provisions of Circular A-133 apply to: a. Federal departments

and agencies responsible for administering programs that involve

grants, cost-type contracts and other agreements with institutions of

higher education and other nonprofit recipients.

b. Institutions of Higher Education and Other Nonprofit

Institutions whether they are recipients receiving awards directly from

Federal agencies, or are subrecipients receiving awards indirectly

through other recipients.

On July 27, 1992, the Department published an interim rule at 57 FR

33252 to adopt the provisions of the circular. The rule adopted the

provisions of Circular A-133 by adding to Title 24 of the Code of

Federal Regulations, a new PART 45--NON-FEDERAL AUDIT REQUIREMENTS FOR

INSTITUTIONS OF HIGHER EDUCATION AND OTHER NONPROFIT INSTITUTIONS. Part

45 incorporates the requirements set forth in Circular A-133.

The rule also made numerous technical changes throughout the parts

of Title 24 in order to make the cross-referencing and conforming

changes necessary for implementation of Circular A-133. Included in

these technical changes were a number of changes needed as a result of

the definition of ``Federal financial assistance,'' as set forth in the

circular. That definition now covers loans, loan guarantees, and

insurance. Therefore, programs that make, guarantee, or insure loans to

nonprofit mortgagors have been brought within the coverage of Circular

A-133, as it is implemented at part 45.

However, for HUD programs whose regulations are set forth in 24 CFR

parts 207, 213, 221, 232, 236, 242, 277, 880, 881, 883, 884, 885, 886,

889, and 890, a nonprofit institution is the nonprofit corporation

which owns the individual property receiving the HUD assistance. Each

project under the parts 200 series and many projects under the parts

800 series are required to complete project-specific audits because

they are deemed to be separate entities. The audits currently conducted

under applicable HUD audit guides for these programs will serve as the

organization-wide audits required by OMB Circular A-133 and this part.

In performing the compliance review required by paragraph 13.c. of OMB

Circular A-133, auditors should consider the compliance requirements

set forth in the OMB Compliance Supplement. In accordance with the

regulatory agreement incident to the insured mortgage, where HUD

provides federal funding, the audit reports pertaining to nonprofit

organizations subject to these regulations are to be submitted within

60 days after the end of the fiscal year audited. Each of the parts

listed in the first sentence of this paragraph is amended to cross-

reference to part 45. The details of coverage of entities receiving

assistance under these parts is contained in section 45.1(c).1

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\1\Parts 889 and 890 are programs regarding supportive housing

for the elderly and persons with disabilities, respectively. The

regulations for these programs were developed after the publication

of the interim rule. Nonetheless, the projects under these programs

are required to complete project-specific audits because they are

deemed to be separate entities.

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Public Comments

The public was given 60 days in which to submit comments to the

interim rule published on July 27, 1992, at 57 FR 33252, and comments

were received from three commenters: One nonprofit organization, one

certified public accounting firm, and one national association of

certified public accountants. Below is a listing of the issues raised

by the commenters and the Department's response and resolution of those

issues.

Comment: The requirements for a compliance audit performed by an

independent accountant seem to be redundant, time-consuming, and

costly, especially where municipal and county requirements include

monthly financial and compliance reports, and both municipal and county

officials perform inspection of the records, programs and procedures.

Nonprofit organizations that are subrecipients should be allowed to

continue adherence to the guidelines in Circular A-110. [one nonprofit

organization and one certified public accounting firm]

Response: Accommodation of this comment is not feasible. OMB issued

Circular A-133 to supersede portions of Circular A-110 and clearly

included, under the A-133 coverage, funds received as a subrecipient.

The Department is implementing the provisions of the circular and has

no flexibility in this matter.

Comment: The rule should be effective for years beginning on or

after August 26, 1992, the effective date stated for the rule. However,

the revisions to paragraph 45.1(d) state that the requirements are

applicable to fiscal years beginning on or after January 1, 1990. An

effective date of January 1, 1990 requires institutions to

retroactively apply OMB Circular A-133, creating an undue hardship on

those institutions and their auditors. [one national association of

certified public accountants]

Response: The date in the summary of the interim rule (August 26,

1992) relates to when the audit is conducted, and the date in section

45.1 (fiscal years beginning on or after January 1, 1990) relates to

the period audited. Circular A-133 specifies that audits of periods

beginning on or after January 1, 1990 will be covered. The Department

is merely implementing OMB policy.

Comment: The revisions to paragraph 45.1(b) state that the

requirements apply to nonprofit institutions ``* * * as defined in OMB

Circular A-133 (including hospitals that are not affiliated with an

institution of higher education) * * *.'' However, section 1.k. of the

Attachment to Circular A-133 excludes hospitals that are not affiliated

with an institution of higher education. Clarification is needed. [one

national association of certified public accountants]

Response: The substitution of Circular A-133, Audits of

Institutions of Higher Education and Other Nonprofit Institutions, for

Circular A-110, Attachment F, subparagraph 2h (which covered grants to

universities, hospitals, and other nonprofit organizations) left open

the issue of coverage of hospitals. The explanation for this omission,

advanced by OMB, was that most hospitals receive reimbursement from the

federally funded Medicaid and Medicare programs, each of which has its

own statutory audit requirements. Albeit hospitals which are affiliated

with universities are covered by Circular A-133 by reason of that

affiliation and non-university affiliated hospitals, which receive

federal funds pursuant to research contracts, are subject to contract

closing audits, there still remained a policy decision of coverage of

non-university affiliated hospitals that may be receiving HUD

assistance. Therefore, under section 45.1(b) of the interim rule, the

coverage was continued under Circular A-133 for non-university

affiliated hospitals that receive HUD assistance. The decision to

extend coverage to this group of hospitals receiving HUD assistance was

made as a matter of policy. Any hospital receiving Federal funds

should, as a matter of sound fiscal management, receive audit reviews

of the use of those funds.

This Final Rule

This rule makes final the interim rule that is discussed above. The

following four programs are added to its coverage by this final rule,

since the regulations for these programs were developed after the

publication of the interim rule: PART 92--HOME INVESTMENT PARTNERSHIPS

PROGRAM, PART 572--HOPE FOR HOMEOWNERSHIP OF SINGLE FAMILY HOMES

PROGRAM (HOPE 3), PART 889--SUPPORTIVE HOUSING FOR THE ELDERLY, and

PART 890--SUPPORTIVE HOUSING FOR PERSONS WITH DISABILITIES. As

discussed earlier in this preamble, the projects under parts 889 and

890 are required to complete project-specific audits.

Other Matters

Executive Order 12866.

This rule was reviewed by the Office of Management and Budget (OMB)

under Executive Order 12866 on Regulatory Planning and Review, issued

by the President on September 30, 1993. Any changes made in the rule

subsequent to its submission to OMB are identified in the docket file,

which is available for public inspection in the Office of the Rules

Docket Clerk, room 10276, Department of Housing and Urban Development,

451 Seventh Street, SW., Washington, DC 20410.

Environmental Determination.

The content of this rule does not constitute a development, nor

affect the physical condition of project areas or building sites, but

relates only to auditing and fiscal functions. Thus, the authorities

and standards of Sec. 50.4 of 24 CFR part 50 (the regulations

implementing Section 102(2)(C) of the National Environmental Policy Act

of 1969) are inapplicable to this rule; therefore, it is categorically

excluded from the NEPA requirements pursuant to Sec. 50.20(k).

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this rule before publication and by

approving it certifies that this rule does not have a significant

economic impact on a substantial number of small entities, because the

rule does not impose additional audit requirements, but merely makes

uniform the procedures that will be followed.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that this rule

does not have ``federalism implications'' because it does not have

substantial direct effects on the States (including their political

subdivisions), or on the distribution of power and responsibilities

among the various levels of government.

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 significant impact on family formation, maintenance, and

general well-being.

Semiannual Agenda of Regulations

This rule was listed as item 1467 in the Department's Semiannual

Agenda of Regulations published on October 25, 1993 (58 FR 56402,

56415), in accordance with Executive Order 12866 and the Regulatory

Flexibility Act.

List of Subjects

24 CFR Part 44

Accounting, Grant programs, Grant programs--housing and community

development, Intergovernmental relations, Loan programs--housing and

community development, Reporting and recordkeeping requirements.

24 CFR Part 45

Audit requirements-nonprofits, universities; Reporting and

recordkeeping requirements.

24 CFR Part 85

Accounting, Grant programs, Intergovernmental relations, Reporting

and recordkeeping requirements.

24 CFR Part 92

Administrative practice and procedure, Grant programs--housing and

community development, Grant programs--Indians, Low and moderate income

housing, Manufactured homes, Rent subsidies, reporting and

recordkeeping requirements.

24 CFR Part 207

Manufactured homes, Mortgage insurance, Reporting and recordkeeping

requirements, Solar energy.

24 CFR Part 213

Cooperatives, Mortgage insurance, Reporting and recordkeeping

requirements.

24 CFR Part 221

Low and moderate income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

24 CFR Part 232

Fire prevention, Health facilities, Loan programs--health, Loan

programs--housing and community development, Mortgage insurance,

Nursing homes, Reporting and recordkeeping requirements.

24 CFR Part 236

Grant programs--housing and community development, Low and moderate

income housing, Mortgage insurance, Rent subsidies, Reporting and

recordkeeping requirements.

24 CFR Part 242

Hospitals, Mortgage insurance, Reporting and recordkeeping

requirements.

24 CFR Part 277

Aged, Handicapped, Loan programs--housing and community

development, Low and moderate income housing.

24 CFR Part 280

Community development, Grant programs--housing and community

development, Loan programs--housing and community development, Low and

moderate income housing, Nonprofit organizations, Reporting and

recordkeeping requirements.

24 CFR Part 570

Administrative practice and procedure, American Samoa, Community

development block grants, Grant programs--housing and community

development, Grant programs--education, Guam, Lead poisoning, Loan

programs--housing and community development, Low and moderate income

housing, Northern Mariana Islands, Pacific Islands Trust Territory,

Puerto Rico, Reporting and recordkeeping requirements, Virgin Islands,

Student aid.

24 CFR Part 572

Condominiums, Cooperatives, Fair housing, Government property,

Grant programs--housing and community development, Low and moderate

income housing, Nonprofit organizations, reporting and recordkeeping

requirements.

24 CFR Part 575

Civil rights, Community facilities, Grant programs--housing and

community development, Grant programs--social programs, Homeless,

Reporting and recordkeeping requirements.

24 CFR Part 576

Community facilities, Grant programs--housing and community

development, Emergency shelter grants, Homeless, Reporting and

recordkeeping requirements.

24 CFR Part 577

Grant programs--housing and community development, Homeless,

Community facilities, Employment, Grant programs--social programs,

Handicapped, Mental health programs, Nonprofit organizations, Reporting

and recordkeeping.

24 CFR Part 578

Community facilities, Grant programs--housing and community

development, Grant programs--social programs, Handicapped, Homeless,

Reporting and recordkeeping requirements, Mental health programs,

Nonprofit organizations, Technical assistance.

24 CFR Part 579

Grant programs--housing and community development, Homeless,

Reporting and recordkeeping requirements, Community facilities, Grant

programs--social programs.

24 CFR Part 880

Grant programs--housing and community development, Rent subsidies,

Reporting and recordkeeping requirements.

24 CFR Part 881

Grant programs--housing and community development, Rent subsidies,

Reporting and recordkeeping requirements.

24 CFR Part 883

Grant programs--housing and community development, Rent subsidies,

Reporting and recordkeeping requirements.

24 CFR Part 884

Grant programs--housing and community development, Rent subsidies,

Reporting and recordkeeping requirements, Rural areas.

24 CFR Part 885

Aged, Handicapped, Loan programs--housing and community

development, Low and moderate income housing, Reporting and

recordkeeping requirements.

24 CFR Part 886

Grant programs--housing and community development, Lead poisoning,

Rent subsidies, Reporting and recordkeeping requirements.

24 CFR Part 889

Aged, Capital advance programs, Grant programs--housing and

community development, Loan programs--housing and community

development, Low and moderate income housing, Rent subsidies, Reporting

and recordkeeping requirements.

24 CFR Part 890

Civil rights, Grant programs--housing and community development,

Individuals with disabilities, Loan programs--housing and community

development, Low and moderate income housing, Mental health programs,

Reporting and recordkeeping requirements.

Accordingly, title 24 of the Code of Federal Regulations, parts 44,

45, 85, 207, 213, 221, 232, 236, 242, 277, 280, 570, 575, 576, 577,

578, 579, 880, 881, 883, 884, 885, and 886, Implementation of OMB

Circular A-133 ``Audits of Institutions of Higher Education and Other

Nonprofit Institutions'', is amended by adopting as final the interim

rule, published in the Federal Register on July 27, 1992 at 57 FR

33252, and is further amended with the following revisions to parts 92,

572, 881, 889, and 890, to read as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

1. The authority for part 92 continues to read as follows:

Authority: 42 U.S.C. 3535(d) and 12701-12839.

2. Section 92.506 is revised to read as follows:

Sec. 92.506 Audit.

Audits of the participating jurisdiction and subrecipients must be

conducted in accordance with 24 CFR parts 44 and 45, as applicable.

3. Section 92.646 is revised to read as follows:

Sec. 92.646 Audit.

Audits of the Indian tribe and subrecipients must be conducted in

accordance with 24 CFR parts 44 and 45, as applicable.

PART 572--HOPE FOR HOMEOWNERSHIP OF SINGLE FAMILY HOMES PROGRAM

(HOPE 3)

4. The authority for part 572 continues to read as follows:

Authority: 42 U.S.C. 3535(d) and 12891.

5. In Sec. 572.420, the last sentence of paragraph (a)(1) is

revised to read as follows:

Sec. 572.420 Miscellaneous requirements.

(a) * * *

(1) * * *Recipients are also subject to the audit requirements of

OMB Circular A-128 (Audits of State and Local Governments) implemented

at 24 CFR part 44, and OMB Circular A-133 (Audits of Institutions of

Higher Learning and Other Nonprofit Institutions), implemented at 24

CFR part 45, as applicable.

* * * * *

PART 881--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR

SUBSTANTIAL REHABILITATION

6. The authority for part 881 is revised to read as follows:

Authority: 42 U.S.C. 1437a, 1437c, 1437f, and 3535(d).

7. In Sec. 881.211, paragraph (b) is revised to read as follows:

Sec. 881.211 Audit.

* * * * *

(b) Where a nonprofit organization is the eligible owner of a

project, receiving financial assistance under this part, the audit

requirements in 24 CFR part 45 shall apply.

PART 889--SUPPORTIVE HOUSING FOR THE ELDERLY

8. The authority for part 889 continues to read as follows:

Authority: 12 U.S.C. 1701q; 42 U.S.C. 3535(d).

9. Part 889 is amended to add a new Sec. 889.280 to subpart B, to

read as follows:

Sec. 889.280 Audit requirements.

Nonprofits receiving assistance under this part are subject to the

audit requirements in 24 CFR part 45.

PART 890--SUPPORTIVE HOUSING FOR PERSONS WITH DISABILITIES

10. The authority for part 890 continues to read as follows:

Authority: 42 U.S.C. 3535(d) and 8013.

11. Part 890 is amended to add a new Sec. 890.275 to subpart B to

read as follows:

Sec. 890.275 Audit requirements.

Nonprofits receiving assistance under this part are subject to the

audit requirements in 24 CFR part 45.

Dated: December 21, 1993.

Henry G. Cisneros,

Secretary.

[FR Doc. 94-1258 Filed 1-18-94; 8:45 am]

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