Uniform Financial Reporting Standards for HUD Housing Programs

SUMMARY: This rule would establish for HUD's Public Housing, Section 8

housing, and multifamily insured housing programs uniform annual

financial reporting standards. The rule would require public housing

agencies and project owners of HUD-assisted housing to submit

electronically to HUD, on an annual basis, certain financial

information in a standardized format. Electronic submission is

necessary because the manual submission of annual financial information

to HUD has become a significant administrative burden to housing

authorities, project owners, and mortgagees, as well as to HUD. This

rule also would require that the annual financial information to be

submitted to HUD must be prepared in accordance with generally accepted

accounting principles. HUD is developing the format and the content of

the financial information to be reported to HUD annually.

The objective of this rule is to standardize the annual financial

information submission process and, through standardization, bring

consistency to the evaluation of the financial condition of housing

assisted under HUD programs.

DATES: Comment due date: Comments must be submitted on or before July

30, 1998.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Regulations Division, Office of General

Counsel, Room 10276, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410. Communications should refer

to the above docket number and title. Facsimile (FAX) comments are not

acceptable. A copy of each communication submitted will be available

for public inspection and copying between 7:30 a.m. and 5:30 p.m.

weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: For further information contact the

Real Estate Assessment Center, Attention Paul Maxwell, Department of

Housing and Urban Development, 490 L'Enfant Plaza East, SW, Room 8204,

Washington, DC 20410; telephone (202) 755-2082 (this is not a toll-free

number). Persons with hearing or speech impairments may access that

number via TTY by calling the Federal Information Relay Service at

(800) 877-8399.

SUPPLEMENTARY INFORMATION:

I. Background

HUD 2020 Management Reforms

The HUD 2020 Management Reform Plan announced in June 1997, and

published in the Federal Register on August 12, 1997 (62 FR 43204)

presents significant changes to HUD's structure, processes and systems.

These changes are directed to improving the efficiency and

effectiveness of HUD's programs, operations and the provision of its

services. One of the major reforms announced in the HUD 2020 Management

Reform Plan is the establishment of a Real Estate Assessment Center

(REAC) to be a separate organization within HUD apart from the

traditional program functional areas. The REAC is responsible for

evaluating the performance of entities managing or owning housing for

which HUD has a financial interest or statutory obligation to monitor.

Specifically, REAC is responsible for monitoring the following

areas: (1) the physical conditions of HUD properties; (2) the financial

conditions of the properties; (3) the management capabilities of the

property owners of this housing; and (4) general resident satisfaction.

The objective of REAC is to protect HUD's interest (as well as the

interest of taxpayers) by identifying and mitigating the risks of

financial loss due to: (1) physical deterioration from neglected/

inadequate maintenance or modernization; (2) financial insolvency of

the owner that impacts the availability of funds to meet HUD program

obligations; or (3) intentional fraud, waste and abuse. The resident

satisfaction process will allow REAC to hear of conditions directly

from tenants and to take or require action when survey results

significantly differ from other analysis results.

For REAC to properly evaluate and monitor the financial condition

of HUD properties, certain financial information must be provided to

HUD on an annual basis. The statutes, regulations, and contracts

governing HUD housing programs currently provide for the annual

submission of financial information to HUD, as well as such other

information that HUD may require to monitor compliance with program

statutory, regulatory, and contractual requirements. However, the

financial reporting standards vary to some degree from program to

program.

As part of HUD's management reform, HUD created working groups

familiar with both FHA properties and public housing properties to

examine the annual financial information that now is submitted to HUD

under its various housing programs. The working groups discussed what

financial information needs to be submitted to HUD on an annual basis,

and how preparation and submission of this information, and the

evaluation by HUD, could be made less burdensome while preserving the

enforcement integrity of the information. The conclusion of the working

groups was that the annual financial information required of PHAs and

project owners should be made uniform to the extent possible across the

various HUD housing programs, and that the information should be

submitted to HUD in a standardized format. Additionally, there was

agreement that the information should be prepared by the entities in

accordance with generally accepted accounting principles (GAAP), and

the information should be submitted to HUD electronically.

II. Uniform Financial Reporting Standards

Highlights of the Rule

This rule would establish for HUD's public housing, Section 8

housing, other assisted housing, and multifamily insured housing

programs annual financial reporting standards. The rule would require

public housing agencies and project owners to submit electronically to

HUD, on an annual basis, certain financial information, as determined

by HUD, and in accordance with a standardized format to be established

by HUD. Electronic submission is necessary because the manual

submission of HUD financial information has become a significant

administrative burden to housing agencies and project owners as well as

to HUD. This rule would also require that the annual financial

information to be reported to HUD must be prepared in accordance with

generally accepted accounting principles (GAAP). ``Generally accepted

accounting principles'' has the meaning specified in generally accepted

auditing standards issued by the American Institute of Certified Public

Accountants (AICPA). Under GAAP, the accounting principles and

financial reporting standards are established by the Governmental

[[Page 35663]]

Accounting Standards Board (GASB) for governmental entities, and by the

Financial Accounting Standards Board (FASB) for nongovernmental

entities.

The specific compliance dates for covered entities to meet the

reporting requirements in this rule are discussed in more detail later

in this preamble under the heading ``Compliance with New Uniform

Financial Reporting Requirements.'' Generally, however, this rule

proposes that the annual submission date for the report would be no

later than sixty (60) days after the end of the covered entity's fiscal

year. Public housing agencies are currently required to report the

results of operations based on HUD accounting requirements within 45

days following the close of their fiscal year. Accordingly, this rule

amends the time period for public housing agencies by establishing this

60-day time period in part 5, subpart H. HUD is currently developing

the content and the format in which the annual financial information is

to be submitted. The format will be substantially the same for all

covered programs, but the format may vary in certain respects to

reflect different types of reporting entities (e.g., owners of

multifamily/FHA-related housing vs. PHAs). HUD's objective is to

standardize the financial information submission process and through

standardization bring consistency to the assessment of the financial

condition of the housing.

Standardized Financial Information

All HUD housing programs currently require the submission of

financial information at least annually to HUD. Much of the financial

information that is now submitted to HUD would continue to be submitted

to HUD. The content of the annual financial report to be submitted to

HUD would not be materially altered by this rule. It is HUD's

intention, however, to remove from this report redundant information

wherever it is identified. Therefore, with respect to information to be

reported, this rule would not represent a significant departure from

current reporting practice. The manner in which the financial

information is prepared and the format in which it is submitted would

be altered by the requirements to comply with GAAP and to submit the

report electronically and in a standardized format. A standardized

format is anticipated to bring uniformity and consistency to the

evaluation of the financial data. Electronic submission is anticipated

to bring efficiency to the process and reduce administrative burden.

Generally Accepted Accounting Principles (GAAP)

Accounting and reporting in accordance with GAAP, as prescribed by

GASB and FASB, would bring much needed consistency to HUD program

evaluation. Conversion to GAAP would require the covered HUD program

participant to manage its accounting and reporting in accordance with a

standard set of rules published by auditing and accounting

professionals and recognized both within and outside of government. The

use of GAAP, therefore, would enable HUD and program participants to

account for transactions and report results of operations using widely

accepted protocols. Financial reports based on GAAP are widely accepted

by industry and government and are, therefore, widely understood. The

relative consistency of GAAP would allow HUD to perform analysis on its

large housing portfolio in ways that would assure the overall

reliability and validity of the results. As noted earlier in this

preamble, HUD has contacted industry leaders and participants in HUD's

public housing and insured and subsidized housing programs, and has

discussed GAAP and financial reporting, generally, with these parties.

From these discussions, HUD has learned that GAAP accounting and

reporting is more meaningful than present HUD accounting, and that

these entities seek the benefits of the change. By and large the

multifamily housing industry already adheres to GAAP tenets.

With respect to public housing, many PHAs are also already adhering

to GAAP tenets. At least two States (Louisiana and Tennessee) require

that all PHAs in those States convert their HUD basis of accounting

financial statements to a GAAP basis for State reporting purposes.

Therefore, PHAs, as well as the accountants and auditors in those two

States have experience with the GAAP conversion process. Additionally,

several large PHAs (New York, Chicago, Denver, Seattle, and Baltimore,

for example) have already converted to GAAP. It is expected that many

PHAs have quantified the effect of the differences between GAAP and the

HUD basis of accounting because of the guidance given in the Public and

Indian Housing Low Rent Accounting Guide and because of other business

and operating needs (e.g., the liability for sick and vacation leave).

Further, many PHAs have expressed to HUD their interest in GAAP

reporting for the purpose of ease of understanding by their board

members and for acceptance by lenders for private funding and for other

non-HUD reporting purposes.

For those PHAs that may not be familiar with GAAP or that have not

had occasion to prepare GAAP financial reports for other submissions

(for example, reports that may be required to be submitted to State or

local governments), accounting support services are an eligible expense

under the performance funding system (PFS). To ease the conversion, the

current public housing agency accounting guide and chart of accounts

will not be modified except to add those additional accounts needed to

record new transactions in accordance with GAAP or to enhance the

existing chart of accounts to address current business operation

requirements. Some illustrative examples of these new accounts are: (1)

An allowance for uncollectible receivables and the related bad debt

expense; (2) an allowance for depreciation of buildings, structures,

and equipment and the related depreciation expense; and (3) liability

and expense accounts for probable losses expected from litigation,

claims and other contingencies. While a PHA's accounting staff will

have to quantify the amounts to be recorded in these new accounts, the

PHA's independent public accountants can provide guidance on GAAP. HUD

also will offer guidance for purposes of standardizing the conversion

results.

Electronic Submission

Both HUD and the various entities that participate in HUD programs

are making more extensive use of automated systems. Vice President

Gore's Report of the National Performance Review has, as a stated

objective, the expanded use of new technologies and telecommunications

to create an electronic government. (September 7, 1993, Report of the

Vice President's National Performance Review, pp. 113-117, Ref. 2).

Requiring the electronic submission of financial data in HUD housing

programs is another step in implementing the Vice President's

objective. The electronic submission of information results in

significant benefits, such as increasing the speed of information

preparation and exchange, cost savings from reduced need for storage

space, improved product because electronic preparation generally

results in reduced errors, and faster HUD review and analysis.

The manner of electronic submission of financial reports

contemplated by HUD is via the Internet, rather than through tape,

diskette, or paper. HUD, however, may approve transmission of

[[Page 35664]]

the data by tape or diskette if HUD determines that the cost of

electronic Internet transmission would be excessive. In this day and

age of increased automation in communications and business

transactions, including the reporting of information, HUD anticipates

that the instances in which covered entities will not be able to comply

with submission of financial data electronically via Internet will be

very few. Implementation of this electronic standardized financial

reporting system would help to bring HUD up to speed with its program

partners in terms of modern technology.

Financial Report Submission Date

The rule provides that the annual submission date for the report

will be sixty (60) days after the end of the covered entity's fiscal

year. The 60-day requirement appears in existing regulations,

regulatory agreements, and/or subsidy contracts for most of the housing

covered by this rule (see, e.g., the Section 8 project-based assistance

programs). Since HUD has determined that the 60-day requirement has

provided a reasonable amount of time to compile and submit the required

information, and since a majority of the covered entities are familiar

with this time period, HUD has determined that there is no compelling

reason to change the 60-day requirement. Since under existing practice,

public housing agencies generally report the results of operations to

HUD within 45 days following the end of their fiscal years, this rule

would allow PHAs 15 extra days during which to submit their financial

reports. The dates on which HUD intends to make these reporting

requirements effective and mandatory are discussed later in this

preamble, under the heading ``Compliance with New Uniform Financial

Reporting Requirements.''

HUD Programs Covered

The uniform financial reporting standards would apply to owners

and/or administrators of housing under the following HUD programs:

1. Public Housing

The reporting requirements would apply to PHAs receiving assistance

under sections 5, 9, or 14 of the U.S. Housing Act of 1937 (42 U.S.C.

1437c, 1437g, and 1437l) (the 1937 Act).

2. PHAs Administering Section 8 Housing Assistance Payments Programs

The reporting requirements would apply to PHAs as contract

administrators for any Section 8 project-based or tenant-based housing

assistance payments program, which includes assistance under the

following programs:

(i) Section 8 project-based housing assistance payments programs,

including, but not limited to, the Section 8 New Construction,

Substantial Rehabilitation, Loan Management Set-Aside, Property

Disposition, and Moderate Rehabilitation (including the Single Room

Occupancy program for homeless individuals);

(ii) Section 8 Project-Based Certificate programs;

(iii) Any program providing Section 8 project-based renewal

contracts; and

(iv) Section 8 tenant-based assistance under the Section 8

Certificate and Voucher program.

3. Owners of Housing Receiving Section 8 Project-Based Housing

Assistance

The reporting requirements would apply to owners of housing

assisted under any Section 8 project-based housing assistance payments

program:

(i) Including, but not limited to, the Section 8 New Construction,

Substantial Rehabilitation, Loan Management Set-Aside, and Property

Disposition programs;

(ii) Excluding the Section 8 Moderate Rehabilitation Program (which

includes the Single Room Occupancy program for homeless individuals)

and the Section 8 Project-Based Certificate Program.

4. Multifamily Housing

The reporting requirements would apply to owners of housing

receiving assistance or loans under the following HUD programs:

--Section 202 Program of Supportive Housing for the Elderly;

--Section 811 Program of Supportive Housing for Persons with

Disabilities; and

--Section 202 loan program for projects for the elderly and handicapped

(including 202/8 projects and 202/162 projects).

The reporting requirements would also apply to owners of all

housing with mortgages insured, coinsured, or held by HUD, or housing

that is receiving assistance from HUD. Such housing would include, but

may not be limited to, housing under the following authorities:

--Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701 et

seq.) (Rental Housing Insurance);

--Section 213 of the NHA (Cooperative Housing Insurance);

--Section 220 of the NHA (Rehabilitation and Neighborhood Conservation

Housing Insurance);

--Section 221(d)(3) and (5) of the NHA (Housing for Moderate Income and

Displaced Families);

--Section 221(d)(4) of the NHA (Housing for Moderate Income and

Displaced Families);

--Section 231 of the NHA (Housing for Elderly Persons);

--Section 232 of the NHA (Mortgage Insurance for Nursing Homes,

Intermediate Care Facilities, Board and Care Homes);

--Section 234(d) of the NHA (Rental) (Mortgage Insurance for

Condominiums);

--Section 236 of the NHA (Rental and Cooperative Housing for Lower

Income Families);

--Section 241 of the NHA (Supplemental Loans for Multifamily Projects);

and

--Section 542(c) of the Housing and Community Development Act of 1992

(12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing Program).

Section 5.801(a)(4) of this proposed rule lists those sections of

the National Housing Act that specifically give the Secretary authority

to insure mortgages. Sections of the NHA that give the Secretary

authority to insure mortgages ``pursuant to'' another section of the

NHA are not listed in the coverage of Sec. 5.801 of this proposed rule,

because HUD ultimately has insured the mortgages under one of the

listed statutory sections (e.g., a coinsured mortgage may be insured

under section 207 of the NHA, pursuant to section 244 of the NHA).

Compliance With New Uniform Financial Reporting Requirements

For PHAs, as recipients of assistance under sections 5, 9, or 14,

or as contract administrators of the various Section 8 assisted housing

programs listed in section 2, above, HUD intends that the requirement

of electronic submission of GAAP-based financial reports, in the manner

and in the format prescribed by HUD, will begin with those PHAs with

fiscal years ending September 30, 1999 and later. This compliance

schedule will allow sufficient conversion time for PHAs that are not

currently using GAAP. Unaudited financial statements will be required

60 days after the PHA's fiscal year end (i.e., November 30, 1999), and

audited financial statements will then be required no later than 9

months after the PHA's fiscal year end, in accordance with the Single

Audit Act and OMB Circular A-133. A PHA with a fiscal year ending

September 30, 1999 that elects to submit its unaudited financial report

earlier than the due date of November 30, 1999 must submit its

[[Page 35665]]

report electronically and prepared in accordance with GAAP, in the

manner and in the format prescribed by HUD, as provided by this rule.

On or after September 30, 1998 but prior to November 30, 1999 (except

for a PHA with its fiscal year ending September 30, 1999), PHAs may

submit their financial reports in accordance with the financial

reporting requirements of this rule, but would not be required to do

so.

For all other entities to which this rule would apply (``other

covered entities''), HUD intends that the requirement of electronic

submission of GAAP-based audited financial reports, as provided in this

rule, will begin with those other covered entities with fiscal years

ending December 31, 1998 and later. The earlier starting date reflects

the widespread use of GAAP by other covered entities. Beginning on

January 1, 1999 and thereafter, all financial reports submitted to HUD

by other covered entities would be required to be submitted in

accordance with the requirements of this rule. Other covered entities

with fiscal years ending December 31, 1998 are required to submit

electronic, GAAP-based, audited financial reports by no later than

March 1, 1999 (60 days after the close of the fiscal year). Covered

entities with fiscal years ending December 31, 1998 that elect to

submit their audited reports earlier than the due date of March 1, 1999

must submit their audited financial reports electronically and prepared

in accordance with GAAP, in the manner and format prescribed by HUD, as

provided by this rule. On or after September 30, 1998 but prior to

January 1, 1999, other covered entities may submit their financial

reports in accordance with this rule, but they would not be required to

do so.

The reporting requirements in this rule are not intended to alter

the applicability or timing of the audit requirements in the Single

Audit Act (as discussed below). HUD intends to issue notices and other

guidance on the details relating to the implementation of this rule.

Additionally, to allow for a period of consistent assessment of the

financial reports submitted to HUD under this rule for the purpose of

making any refinements or necessary adjustments, PHAs covered by this

rule will not be allowed to change their fiscal years for their first

three full fiscal years following the effective date of this rule.

III. Cross-Cutting Financial Reporting and Recordkeeping

Requirements

While the statutory authorities for the individual HUD housing

programs (e.g., the U.S. Housing Act of 1937 or the National Housing

Act) provide for the submission of financial information to HUD, in

such form and at such times as prescribed by HUD, there are also

certain statutory financial reporting and recordkeeping requirements

that cut across several HUD programs. This rule would not supersede the

requirements. These cross-cutting requirements are as follows:

The Byrd Amendment

Section 814 of the Housing Act of 1954 (42 U.S.C. 1434) (the Byrd

Amendment) provides that every contract between HUD and any person or

local body for a loan, advance, grant or contribution must provide that

the person or local body must keep such records as HUD prescribes. The

records must permit a speedy and effective audit and fully disclose the

amount and disposition of the proceeds by the person or local body. The

Byrd Amendment also provides that no mortgage covering new or

rehabilitated multifamily housing shall be insured unless the mortgagor

certifies that the mortgagor will keep the records as are prescribed by

HUD in such form as to permit a speedy and effective audit. Finally,

the Byrd Amendment provides that HUD and the Comptroller General of the

United States shall have access to and the right to examine and audit

the records.

The Single Audit Act

The Single Audit Act of 1984 (31 U.S.C. 7501 et seq.) (the Act), as

amended by the Single Audit Act Amendments of 1996 (Pub. L. 104-156;

approved July 5, 1996) (Single Audit Act of 1996), sets audit

requirements for State and local governments and nonprofit

organizations that receive Federal awards, including loan guarantees.

The Single Audit Act of 1996 raised the monetary threshold for

expenditures--from $25,000 to $300,000--over which it requires an

entity to have an audit. The Act now provides that each entity that

expends $300,000 or more shall have either a single audit or a program-

specific audit annually. The Single Audit Act of 1996 also shortened

the financial report submission date from 13 months to 9 months, and it

included a report submission process that includes a data collection

form and streamlined filing requirements.

OMB Circular A-128 implemented the Act for State and local

governments, and a separate OMB Circular A-133 implemented audit

requirements for nonprofits. Similarly, the regulations in 24 CFR part

44 implemented OMB Circular A-128 audit requirements for State and

local governments, and the regulations in 24 CFR part 45 set forth the

audit requirements for nonprofits under OMB Circular A-133. The program

regulations for many of the housing programs addressed in this rule

refer to the audit requirements in parts 44 and/or 45 (e.g., 24 CFR

200.11, 236.901, 266.510, 880.211, 886.131, 891.160).

On June 30, 1997 (62 FR 35278), OMB published in the Federal

Register the final revisions to OMB Circular A-133. The revisions were

undertaken to reflect the changes made to the Act by the Single Audit

Act of 1996. Revised OMB Circular A-133 consolidated the requirements

for States and local governments with the requirements for nonprofits,

and therefore rescinded OMB Circular A-128. By interim rule published

on November 18, 1997 (62 FR 61616), HUD adopted the requirements of

revised OMB Circular A-133. Through the November 18, 1997 interim rule,

HUD removed and reserved 24 CFR parts 44 and 45, since these parts are

no longer applicable (upon issuance of revised OMB Circular A-133). HUD

is currently developing a rule that will correct all references in

HUD's regulations to those obsolete regulations. The financial

reporting submission requirements in this proposed rule would be

consistent with the provisions of the Act and OMB Circular A-133.

IV. Objective of the Rule

The purpose of this rule is to bring uniformity and consistency to

the financial reporting component of HUD housing programs, which

otherwise varies from program to program, in most cases solely on the

basis that the program is not administered by the same HUD office. This

rule will improve the efficiency of the financial reporting process,

and reduce the administrative burden for covered entities and for HUD.

V. Regulatory Amendments

New Subpart for Uniform Financial Reporting Standards

This rule creates a new subpart H in 24 CFR part 5. The regulations

in part 5 represent HUD's general program requirements, as well as

requirements that cut across one or more HUD programs. This new subpart

H consists of one section. Section 5.801(a) describes the entities to

which the uniform financial reporting standards will apply. Paragraph

(b) of Sec. 5.801 provides that entities covered by subpart H must

submit electronically to HUD certain annual financial

[[Page 35666]]

information, prepared in accordance with generally accepted accounting

principles, and in the format prescribed by HUD. In accordance with

paragraph (c) of Sec. 5.801, the information must be submitted to HUD

annually, no later than 60 days after the end of the fiscal year of the

reporting entity.

Conforming Amendments in Program Regulations

In accordance with the uniform financial reporting standards, this

rule also makes several conforming amendments to HUD's program

regulations to reference compliance with the uniform financial

reporting standards in 24 CFR part 5, subpart H. HUD is developing a

separate proposal regarding the overall assessment of public housing,

in which HUD will further address the applicability of the uniform

financial reporting standards in 24 CFR part 5, subpart H, to the

public housing programs.

One of the conforming amendments proposed in this rule would be to

add a new Sec. 200.36, which would refer to the uniform financial

reporting requirements in subpart H of part 5. Section 200.36 would

apply the new financial reporting requirements to all HUD's multifamily

mortgage insurance programs, since many of the various program

regulations (e.g., 24 CFR parts 207, 213, 220, 221, 231, 232, 234, 241)

refer to the cross-cutting requirements in part 200. This rule proposes

to amend the heading for subpart A of part 200 to clarify that the

financial reporting requirement would be a continuing eligibility

requirement.

HUD may make additional conforming amendments at the final rule

stage of this rule to remove any outdated or inconsistent regulatory

provisions.

VI. Justification for Shortened Comment Period

In general, it is HUD's policy that notices of proposed rulemaking

are to afford the public not less than 60 days for submission of

comments, in accordance with its regulations on rulemaking in 24 CFR

part 10. However, HUD has determined that there is good cause to reduce

the public comment period for this proposed rule to 30 days. As

discussed in more detail earlier in this preamble, the announcement,

through this rule, of HUD's proposal to require standardized financial

information, to be prepared in accordance with GAAP and electronically

submitted, has been developed with the participation of HUD's program

participants, industry leaders and experts in the financial and

accounting industries. As also discussed in the preamble, the change to

GAAP and the requirement of the submission of annual financial reports

in electronic and standardized format will not be a significant change

for many HUD program participants. In HUD's multifamily programs, the

multifamily program participants already largely adhere to GAAP tenets.

In HUD's public housing programs, several public housing agencies

already adhere to GAAP tenets. These PHAs can serve as resources to

other PHAs for assistance in the conversion process.

GAAP requires that financial statements prepared on another

comprehensive basis of accounting (the basis prescribed by HUD

accounting, for example) include in the accompanying notes, a summary

of significant accounting policies that would include the basis of

presentation and describe how that basis differs from generally

accepted accounting principles. PHAs, therefore, under current non-GAAP

reporting are already aware, or should be aware, of the differences

between the basis of accounting prescribed by HUD and that prescribed

by GAAP. Additionally, the timetable for this rule recognizes the time

allowed by the Single Audit Act for the preparation and submission of

the final audited statements. This period of time allows HUD to work

with PHAs and private owners not currently using GAAP to assist them in

the conversion process.

The changes to the financial reporting requirements, proposed by

this rule, will bring consistency to the evaluation of the financial

condition of housing assisted under various HUD programs, which

benefits the entities covered by this rule. The standardization of and

electronic submission of the annual financial information due to HUD

will not only bring consistency for all program participants, it will

reduce the administrative burden on program participants. Electronic

submission of financial information results in cost savings from

reduced need for storage space, improved product because electronic

preparation generally results in reduced errors as well as other

benefits such as increased speed in the preparation and exchange of

information preparation and exchange, and faster HUD review and

analysis.

Given these reasons, HUD has determined that the 30-day comment

period for this proposed rule should provide sufficient notice and

opportunity for interested entities to comment. In order to provide the

fullest and most expedient access to the provisions of this proposed

rule, HUD will make it available on the HUD Home Page on the World Wide

Web at http://www.hud.gov, on the date of publication in the Federal

Register. HUD will also directly notify entities that have expressed a

significant interest to HUD by sending such entities a copy of this

proposed rule.

VII. Findings and Certifications

Paperwork Reduction Act

The information collection requirements in this proposed rule have

been submitted to the Office of Management and Budget (OMB) for review,

under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.

Chapter 35).

In accordance with 5 CFR 1320.5(a)(1)(iv), HUD estimates the total

reporting and recordkeeping burden that will result from the proposed

collection of information as follows:

Reporting Burden

----------------------------------------------------------------------------------------------------------------

Estimated Average

Number of Frequency time response

respondents of response (hours) (hours)

----------------------------------------------------------------------------------------------------------------

PHAs........................................................ 3,300 1 .75 2,475

Multifamily Housing Owners.................................. 30,000 1 .75 22,500

---------------------------------------------------

Total Reporting Burden................................ ........... ........... ........... 24,975

----------------------------------------------------------------------------------------------------------------

In accordance with 5 CFR 1320.8(d)(1), the Department is soliciting

comments from members of the public and affected agencies concerning

the proposed collection of information to:

[[Page 35667]]

(1) Evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility;

(2) Evaluate the accuracy of the agency's estimate of the burden of

the proposed collection of information;

(3) Enhance the quality, utility, and clarity of the information to

be collected; and

(4) Minimize the burden of the collection of information on those

who are to respond; including through the use of appropriate automated

collection techniques or other forms of information technology, e.g.,

permitting electronic submission of responses.

Interested persons are invited to submit comments regarding the

information collection requirements in this proposal. Under the

provisions of 5 CFR part 1320, OMB is required to make a decision

concerning this collection of information between 30 and 60 days after

today's publication date. Therefore, a comment on the information

collection requirements is best assured of having its full effect if

OMB receives the comment within 30 days of today's publication. This

time frame does not affect the deadline for comments to the agency on

the proposed rule, however. Comments must refer to the proposal by name

and docket number (FR-4321) and must be sent to:

Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and

Budget, New Executive Office Building, Washington, DC 20503.

and

Paul Maxwell, Reports Liaison Officer, Department of Housing & Urban

Development, 4900 L'Enfant Plaza East, SW, Room 8204, Washington, DC

20410.

Executive Order 12866

The Office of Management and Budget (OMB) reviewed this proposed

rule under Executive Order 12866, Regulatory Planning and Review,

issued by the President on September 30, 1993. OMB determined that this

rule is a ``significant regulatory action,'' as defined in section 3(f)

of the Order (although not economically significant, as provided in

section 3(f)(1) of the Order). Any changes made in this rule subsequent

to its submission to OMB are identified in the docket file, which is

available for public inspection between 7:30 a.m. and 5:30 p.m.

weekdays in the Office of the Rules Docket Clerk, Office of General

Counsel, Room 10276, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC.

Environmental Impact

This proposed rule involves external administrative requirements

and does not constitute a development decision affecting the physical

condition of specific project areas or building sites. Accordingly,

under 24 CFR 50.19(c)(6) and (where this rule would amend existing

provisions) 50.19(c)(2), this rule is categorically excluded from

environmental review under the National Environmental Policy Act of

1969 (42 U.S.C. 4321).

Regulatory Flexibility Act

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

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

by approving it certifies that this rule is not anticipated to have a

significant economic impact on a substantial number of small entities.

The financial reporting requirements proposed to be established by this

rule are anticipated to reduce administrative burden for all entities

covered by this rule, including small entities. As noted in the

preamble, this rule does not propose a new reporting requirement. The

annual reporting of certain financial information is already a HUD

program requirement. What this rule proposes is to standardize, to the

extent possible, the content of the information and the preparation of

the information (in accordance with GAAP), and to provide for

electronic submission. These proposed changes to financial reporting to

HUD are anticipated to bring consistency, simplicity, and reduced

administrative burden to the reporting process. For those entities

unfamiliar with GAAP, and particularly for any small entities that may

be unfamiliar with GAAP, HUD intends to conduct training seminars in

order to assist small entities in their conversion to GAAP. With

respect to costs, the audit costs assumed by PHAs and multifamily

project owners are a recognized part of operating and administrative

expenses, and accordingly, it is anticipated that there will be no (or

very little) monetary costs incurred. As noted in the preamble, the

Federal Housing Commissioner has required GAAP-based accounting for a

number of years, and the vast majority of owners already adhere to its

tenets. Therefore, any burden involved in conversion to GAAP in FHA

programs is anticipated to be minimal. Further, in developing its

electronic filing requirements, FHA has involved all stakeholders in

the development effort, including owners and agent organizations and

the accounting profession.

In addition to the issues of training and costs, entities will have

up to 9 months to prepare statements in accordance with GAAP (the

period of time allowed under the Single Audit Act). Notwithstanding

HUD's determination that this rule would not have a significant

economic impact on small entities, HUD specifically invites comments

regarding alternatives to this rule that would meet HUD's objectives as

described in this preamble.

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 proposed rule would not have substantial direct

effects on States or their political subdivisions, on the relationship

between the Federal Government and the States, or on the distribution

of power and responsibilities among the various levels of government.

As a result, this rule is not subject to review under the Order.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-

4; approved March 22, 1995) (UMBRA) establishes requirements for

Federal agencies to assess the effects of their regulatory actions on

State, local, and tribal governments, and the private sector. This

proposed rule would not impose any Federal mandates on any State,

local, or tribal governments, or on the private sector, within the

meaning of the UMRA.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance numbers for the programs

that would be affected by this proposed rule are:

14.126--Mortgage Insurance--Cooperative Projects (Section 213)

14.129--Mortgage Insurance--Nursing Homes, Intermediate Care

Facilities, Board and Care Homes and Assisted Living Facilities

(Section 232)

14.134--Mortgage Insurance--Rental Housing (Section 207)

14.135--Mortgage Insurance--Rental and Cooperative Housing for Moderate

Income Families and Elderly, Market Rate Interest (Sections 221(d)(3)

and (4))

14.138--Mortgage Insurance--Rental Housing for Elderly (Section 231)

14.139--Mortgage Insurance--Rental Housing in Urban Areas (Section 220

Multifamily)

[[Page 35668]]

14.157--Supportive Housing for the Elderly (Section 202)

14.181--Supportive Housing for Persons with Disabilities (Section 811)

14.188--Housing Finance Agency (HFA) Risk Sharing Pilot Program

(Section 542(c))

14.856--Lower Income Housing Assistance Program--Section 8 Moderate

Rehabilitation

List of Subjects

24 CFR Part 5

Administrative practice and procedure, Aged, Claims, Drug abuse,

Drug traffic control, Grant programs--housing and community

development, Grant programs--Indians, Individuals with disabilities,

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

income housing, Mortgage insurance, Pets, Public housing, Rent

subsidies, Reporting and recordkeeping requirements.

24 CFR Part 200

Administrative practice and procedure, Claims, Equal employment

opportunity, Fair Housing, Home improvement, Housing standards,

Incorporation by reference, Lead poisoning, Loan programs--housing and

community development, Minimum property standards, Mortgage insurance,

Organization and functions (Government agencies) Penalties, Reporting

and recordkeeping requirements, Social security, Unemployment

compensation, Wages.

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 266

Aged, Fair housing, Intergovernmental relations, Mortgage

insurance, Low and moderate income housing, Reporting and recordkeeping

requirements.

24 CFR Part 880

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

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 982

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

subsidies, Reporting and recordkeeping requirements.

Accordingly, for the reasons stated in the preamble, title 24 of

the CFR is amended as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

1. The authority citation for 24 CFR part 5 continues to read as

follows:

Authority: 42 U.S.C. 3535(d), unless otherwise noted.

2. A new subpart H, consisting of Sec. 5.801, is added to part 5 to

read as follows:

Subpart H--Uniform Financial Reporting Standards

Sec. 5.801 Uniform financial reporting standards.

(a) Applicability. This subpart H implements uniform financial

reporting standards for:

(1) Public housing agencies (PHAs) receiving assistance under

sections 5, 9, or 14 of the 1937 Act (42 U.S.C. 1437c, 1437g, and

1437l) (Public Housing);

(2) PHAs as contract administrators for any Section 8 project-based

or tenant-based housing assistance payments program, which includes

assistance under the following programs:

(i) Section 8 project-based housing assistance payments programs,

including, but not limited to, the Section 8 New Construction,

Substantial Rehabilitation, Loan Management Set-Aside, Property

Disposition, and Moderate Rehabilitation (including the Single Room

Occupancy program for homeless individuals);

(ii) Section 8 Project-Based Certificate programs;

(iii) Any program providing Section 8 project-based renewal

contracts; and

(iv) Section 8 tenant-based assistance under the Section 8

Certificate and Voucher program;

(3) Owners of housing assisted under any Section 8 project-based

housing assistance payments program:

(i) Including, but not limited to, the Section 8 New Construction,

Substantial Rehabilitation, Loan Management Set-Aside, and Property

Disposition programs;

(ii) Excluding the Section 8 Moderate Rehabilitation Program (which

includes the Single Room Occupancy program for homeless individuals)

and the Section 8 Project-Based Certificate Program;

(4) Owners of multifamily projects receiving direct or indirect

assistance from HUD, or with mortgages insured, coinsured, or held by

HUD, including but not limited to housing under the following HUD

programs:

(i) Section 202 Program of Supportive Housing for the Elderly;

(ii) Section 811 Program of Supportive Housing for Persons with

Disabilities;

(iii) Section 202 loan program for projects for the elderly and

handicapped (including 202/8 projects and 202/162 projects);

(iv) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701

et seq.) (Rental Housing Insurance);

(v) Section 213 of the NHA (Cooperative Housing Insurance);

(vi) Section 220 of the NHA (Rehabilitation and Neighborhood

Conservation Housing Insurance);

(vii) Section 221(d)(3) and (5) of the NHA (Housing for Moderate

Income and Displaced Families);

(viii) Section 221(d)(4) of the NHA (Housing for Moderate Income

and Displaced Families);

(ix) Section 231 of the NHA (Housing for Elderly Persons);

(x) Section 232 of the NHA (Mortgage Insurance for Nursing Homes,

Intermediate Care Facilities, Board and Care Homes);

(xi) Section 234(d) of the NHA (Rental) (Mortgage Insurance for

Condominiums);

(xii) Section 236 of the NHA (Rental and Cooperative Housing for

Lower Income Families);

(xiii) Section 241 of the NHA (Supplemental Loans for Multifamily

Projects); and

(xiv) Section 542(c) of the Housing and Community Development Act

of 1992 (12 U.S.C. 1707 note) (Housing Finance Agency Risk-Sharing

Program).

(b) Submission of financial information. Entities (or individuals)

to which this subpart is applicable must provide to HUD, on an annual

basis, such financial information as required by HUD. This financial

information must be:

(1) Prepared in accordance with Generally Accepted Accounting

Principles as further defined by HUD in supplementary guidance;

(2) Submitted electronically in the electronic format designated by

HUD; and

(3) Submitted in such form and substance as prescribed by HUD.

(c) Annual financial report filing dates. The financial information

to be submitted to HUD in accordance with paragraph (b) of this

section, must be submitted to HUD annually, no later than 60 days after

the end of the fiscal year of the reporting period, and as otherwise

provided by law.

(d) Reporting compliance dates. Entities (or individuals) that are

subject to the reporting requirements in this section must commence

compliance with these requirements as follows:

[[Page 35669]]

(1) For PHAs listed in paragraphs (a)(1) and (a)(2) of this

section, the requirements of this section will begin with those PHAs

with fiscal years ending September 30, 1999 and later. Unaudited

financial statements will be required 60 days after the PHA's fiscal

year end, and audited financial statements will then be required no

later than 9 months after the PHA's fiscal year end, in accordance with

the Single Audit Act and OMB Circular A-133 (See 24 CFR 84.26). A PHA

with a fiscal year ending September 30, 1999 that elects to submit its

unaudited financial report earlier than the due date of November 30,

1999 must submit its report as required in this section. On or after

September 30, 1998, but prior to November 30, 1999 (except for a PHA

with its fiscal year ending September 30, 1999), PHAs may submit their

financial reports in accordance with this section.

(2) For entities listed in paragraphs (a)(3) and (4) of this

section, the requirements of this section will begin with those

entities with fiscal years ending December 31, 1998 and later. Entities

listed in paragraphs (a)(3) and (a)(4) of this section with fiscal

years ending December 31, 1998 that elect to submit their reports

earlier than the due date must submit their financial reports as

required in this section. On or after September 30, 1998 but prior to

January 1, 1999, these entities may submit their financial reports in

accordance with this section.

(e) Limitation on changing fiscal years. To allow for a period of

consistent assessment of the financial reports submitted to HUD under

this subpart part, PHAs listed in paragraphs (a)(1) and (a)(2) of this

section will not be allowed to change their fiscal years for their

first three full fiscal years following [the effective date of the

final rule to be inserted at the final rule stage].

PART 200--INTRODUCTION TO FHA PROGRAMS

3. The authority citation for 24 CFR part 200 continues to read as

follows:

Authority: 12 U.S.C. 1701-1715z-18; 42 U.S.C. 3535(d).

4. The heading of Subpart A is revised to read as follows:

Subpart A--Requirements for Application, Commitment, and

Endorsement Generally Applicable to Multifamily and Health Care

Facility Mortgage Insurance Programs; and Continuing Eligibility

Requirements for Existing Projects

5. A new Sec. 200.36 is added immediately after Sec. 200.35 to read

as follows:

Sec. 200.36 Financial reporting requirements.

The mortgagor must comply with the financial reporting requirements

in 24 CFR part 5, subpart H.

PART 236--MORTGAGE INSURANCE AND INTEREST REDUCTION PAYMENT FOR

RENTAL PROJECTS

6. The authority citation for 24 CFR part 236 continues to read as

follows:

Authority: 12 U.S.C. 1715b and 1715z-1; 42 U.S.C. 3535(d).

7. Section 236.1 is amended by revising the heading, by

redesignating paragraph (b) as paragraph (c), and by adding a new

paragraph (b), to read as follows:

Sec. 236.1 Applicability, cross-reference, and savings clause.

* * * * *

(b) The mortgagor must comply with the financial reporting

requirements in 24 CFR part 5, subpart H.

* * * * *

PART 266--HOUSING FINANCE AGENCY RISK-SHARING PROGRAM FOR INSURED

AFFORDABLE MULTIFAMILY PROJECT LOANS

8. The authority citation for 24 CFR part 266 continues to read as

follows:

Authority: 12 U.S.C. 1707; 42 U.S.C. 3535(d).

9. In Sec. 266.505, paragraph (b)(7) is revised to read as follows:

Sec. 266.505 Regulatory agreement requirements.

* * * * *

(b) * * *

(7) Maintain complete books and records established solely for the

project and comply with the financial reporting requirements in 24 CFR

part 5, subpart H.

* * * * *

PART 880--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR NEW

CONSTRUCTION

10. The authority citation for 24 CFR part 880 continues to read as

follows:

Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and

13611-13619.

11. In Sec. 880.601, paragraph (d)(1) is revised to read as

follows:

Sec. 880.601 Responsibilities of owner.

* * * * *

(d) * * *

(1) Financial information in accordance with 24 CFR part 5, subpart

H; and

* * * * *

PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL

ALLOCATIONS

12. The authority citation for 24 CFR part 886 continues to read as

follows:

Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-

13619.

13. In Sec. 886.318, paragraph (d)(1) is revised to read as

follows:

Sec. 886.318 Responsibilities of the owner.

* * * * *

(d) * * *

(1) Financial information in accordance with 24 CFR part 5, subpart

H; and

* * * * *

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: UNIFIED RULE FOR

TENANT-BASED ASSISTANCE UNDER THE SECTION 8 RENTAL CERTIFICATE

PROGRAM AND THE SECTION 8 RENTAL VOUCHER PROGRAM

14. The authority citation for 24 CFR part 982 continues to read as

follows:

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

15. In Sec. 982.158, paragraph (a) is amended by adding a sentence

at the end, to read as follows:

Sec. 982.158 Program accounts and records.

(a) * * * The HA must comply with the financial reporting

requirements in 24 CFR part 5, subpart H.

* * * * *

Dated: June 5, 1998.

Andrew Cuomo,

Secretary.

[FR Doc. 98-17270 Filed 6-29-98; 8:45 am]

BILLING CODE 4210-32-P