Non-Federal Audit Report Submission Requirements

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]

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