[Federal Register Volume 63, Number 169 (Tuesday, September 1, 1998)]
[Rules and Regulations]
[Pages 46582-46593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23420]



[[Page 46581]]

_______________________________________________________________________

Part VIII





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 5, et al.



Uniform Financial Reporting Standards for HUD Housing Programs; Final 
Rule

  Federal Register / Vol. 63, No. 169 / Tuesday, September 1, 1998 / 
Rules and Regulations  

[[Page 46582]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 200, 236, 266, 880, 886, and 982

[Docket No. FR-4321-F-03]
RIN 2501-AC49


Uniform Financial Reporting Standards for HUD Housing Programs

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This rule makes final a June 30, 1998 proposed rule that 
proposed to establish for HUD's Public Housing, Section 8 housing, and 
multifamily insured housing programs uniform annual financial reporting 
standards. The rule requires public housing agencies and project owners 
of HUD-assisted housing, which already, under longstanding regulatory 
and contractual requirements, submit financial information on annual 
basis to HUD to submit this information electronically to HUD. The rule 
also requires that the annual financial information to be submitted to 
HUD must be prepared in accordance with generally accepted accounting 
principles (GAAP). Electronic submission is important in reducing the 
administrative burden that manual submission presents to housing 
authorities, project owners, mortgagees and HUD. It is also important 
in bringing HUD and its program partners up-to-date with modern 
technology. Reporting in GAAP is important because GAAP accounting is 
more widely accepted and allows for financial consistency among various 
entities.
    The objective of this rule is to standardize the annual financial 
information submission process and, through standardization, bring 
consistency and increased fairness to the evaluation of the financial 
condition of housing assisted under various HUD programs. This final 
rule takes into consideration public comments received on the June 30, 
1998 proposed rule.

EFFECTIVE DATE: October 1, 1998.

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) 755-7540, ext. 132 (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. The Proposed Rule

    On June 30, 1998 (63 FR 35662), HUD published a proposed rule that 
would establish for HUD's public housing, Section 8 housing, other 
assisted housing, and multifamily insured housing programs annual 
financial reporting standards. The rule proposed to require public 
housing agencies and project owners of HUD-assisted housing, which 
already, under longstanding regulatory and contractual requirements, 
submit financial information on annual basis to HUD to submit this 
information electronically to HUD in accordance with a standardized 
format to be established by HUD. The rule also proposed that the annual 
financial information to be submitted to HUD must be prepared in 
accordance with generally accepted accounting principles (GAAP).

Electronic Submission

    Electronic submission was determined important in reducing the 
administrative burden that manual submission presents to housing 
authorities, project owners, mortgagees and HUD. It is also important 
in bringing HUD and its program partners up-to-date with modern 
technology. With the dramatic growth of personal computer ownership, 
reports are compiled electronically and electronic reporting will allow 
for the rapid submission of the reports and enhances HUD's ability to 
analyze these reports quickly, which is of benefit to the reporting 
entities (or individuals).

GAAP Accounting

    The rule also proposed to 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 
Accounting Standards Board (GASB) for governmental entities, and by the 
Financial Accounting Standards Board (FASB) for nongovernmental 
entities. Reporting in GAAP was determined important because GAAP 
accounting is more widely accepted and allows for financial consistency 
among various entities. HUD's FHA multifamily program participants are 
already reporting in GAAP (and have been for sometime). The requirement 
for all financial reports to be prepared in accordance with GAAP would 
bring public housing agencies (PHAs) under similar accounting standards 
as FHA multifamily program participants, thereby increasing consistency 
and fairness in the reporting process, including the evaluation of 
these reports.

Report Submission Date

    The rule proposed that the annual submission date for the report 
would be sixty (60) days after the end of the covered entity's fiscal 
year. The proposed report due date was consistent with the reporting 
deadline established for multifamily program participants, and would 
have added an additional 15 days to the established annual reporting 
deadline for PHAs.

Standardized Format

    In the proposed rule, HUD explained that the format of the 
financial report would be substantially the same for all covered 
programs, although the format may vary in certain respects to reflect 
different types of reporting entities (e.g., owners of multifamily/FHA-
related housing vs. PHAs). However, the content of the annual financial 
report to be submitted to HUD would not have been materially altered by 
the proposed rule; the proposed rule would have continued to require 
much of the financial information that is now submitted to HUD. 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.

Covered Programs

    HUD proposed to apply the uniform financial reporting standards 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

[[Page 46583]]

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:
    (i) Section 202 Program of Supportive Housing for the Elderly;
    (ii) Section 811 Program of Supportive Housing for Persons with 
Disabilities; and
    (iii) 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:
    (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).
    Proposed Implementation Schedule. As described in the June 30, 1998 
proposed rule, 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 above), HUD proposed that the 
requirement of electronic submission of GAAP-based financial reports, 
in the manner and in the format prescribed by HUD, would begin with 
those PHAs with fiscal years ending September 30, 1999 and later. 
Unaudited financial statements would be required 60 days after the 
PHA's fiscal year end (i.e., November 30, 1999), and audited financial 
statements would then be required no later than 9 months after the 
PHA's fiscal year end, in accordance with the Single Audit Amendments 
Act of 1996 and revised OMB Circular A-133. For all other entities to 
which this rule would apply (``other covered entities''), HUD proposed 
that the requirement of electronic submission of GAAP-based audited 
financial reports, as provided in this rule, would begin with those 
other covered entities with fiscal years ending December 31, 1998 and 
later.

II. Changes at the Final Rule Stage

    The initial due date for the receipt of public comments on the 
proposed uniform financial reporting standards was July 30, 1998. HUD 
published a notice extending the deadline for public comments until 
August 13, 1998 (63 FR 41754). HUD received 73 comments on the proposed 
rule.
    As a result of the public comments, the following two changes were 
made to the rule at the final rule stage.

1. Report Submission Deadline for Multifamily Housing Properties Is 
April 30, 1999 for First Year of Compliance

    The final rule provides that for the first year of implementation 
of the uniform financial reporting requirements, the annual report 
submission deadline for entities (or individuals) with fiscal years 
ending December 31, 1998 reporting on multifamily housing properties is 
April 30, 1998 for the first year of compliance only.

2. Clarification of Owner Responsibility for Submission of Financial 
Report

    The final rule clarifies that the owner is responsible for the 
submission of the financial report.

III. Discussion of Public Comments

    The majority of the public commenters on this rule supported the 
proposed changes in annual financial reporting announced in the June 
30, 1998 proposed rule. The commenters stated that accounting in 
accordance with GAAP and electronic submission reporting were steps in 
the right direction. They commented that: reporting in accordance with 
GAAP will bring more standardization and thus more comprehensive 
understanding of financial reports produced by housing authorities; a 
significant byproduct of the conversion to GAAP will be to make 
agencies much more conversant with the private industry; and use of 
electronic submission of annual statements via the internet would 
result in significant benefits to both HUD and program participants. 
The majority of the commenters supporting these changes, however, 
expressed reservations about certain components of the proposed rule, 
and particularly expressed reservations about the following three 
areas. First, the commenters expressed concern that the implementation 
date for financial reporting changes was too early, and would not allow 
sufficient time to make the conversion to GAAP and electronic 
submission. Second, the commenters expressed concern that there would 
be increased costs as a result of conversion to GAAP and electronic 
submission. Third, the commenters expressed concern about the annual 
report submission due date. The commenters thought a report due date of 
60 days after the end of the fiscal year was not reasonable, 
particularly during the first year of compliance with the reporting 
requirements.
    As already noted in section II of this preamble, the final rule 
provides for an extended report due date for the first

[[Page 46584]]

year of compliance for entities (or individuals) with fiscal years 
ending December 31, 1998 and reporting on multifamily housing 
properties. For PHAs, the final rule provides, as did the proposed 
rule, for compliance with the reporting requirements beginning with 
fiscal years ending September 30, 1999 and later. The longer 
implementation period for PHAs, and the changes made by this final rule 
with respect to multifamily housing properties, should address to a 
significant degree concerns about the implementation date, and should 
minimize costs concerns raised by the commenters as will be discussed 
further below. The following provides a more detailed discussion of 
these concerns as well as other issues raised by the public commenters 
on the June 30, 1998 proposed rule.

A. General Comments on the Proposed Rule

The Public Comment Period for the Rule Was Not Sufficient
    Several commenters responded that a 30-day comment period for the 
proposed rule was inadequate. The commenters stated that 30 days is not 
sufficient time for a rule that addresses such critically important 
responsibilities of housing providers.
    HUD notes that the public comment period for this rule was extended 
through August 13, 1998 in response to commenters' request. 
Additionally, HUD notes that although the financial reporting changes 
proposed in the June 30, 1998 rule address important responsibilities, 
the changes themselves are not dramatic. First, the rule does not 
impose a new annual financial reporting requirement. 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.
    Second, the financial information to be submitted is not changed 
significantly by this rule. As the proposed rule stated, much of the 
financial information that is now submitted to HUD would continue to be 
submitted to HUD. The changes in financial information that HUD has 
targeted for revision are those that result in a needed update to 
reflect existing requirements, the elimination of redundant 
information, or greater standardization. These changes are designed to 
reduce the administrative burden of preparing the annual financial 
information.
    Third, FHA multifamily program participants have been reporting in 
accordance with GAAP for a substantial period of time. There are some 
changes in GAAP reporting for the annual financial report to be 
submitted by multifamily program participants but these changes are 
those that primarily result from the issuance of an updated chart of 
accounts that captures accounting information that is already 
separately recorded by project owners. PHAs that have not yet converted 
to GAAP (and a number of PHAs already have) will not be disadvantaged 
by the new reporting requirements because again the final rule 
provides, as did the proposed rule, that reporting in accordance with 
the uniform financial reporting requirements will begin with PHAs with 
fiscal years ending September 30, 1999 and later.
    Fourth, electronic reporting should not create an undue 
administrative burden for entities covered by this rule. With the 
dramatic growth of personal computer ownership and the even more 
dramatic growth of internet access through personal computers, most 
entities, including small entities, have internet access. As discussed 
later in this rule, PHAs and FHA multifamily program participants are 
already submitting electronically to HUD data necessitated under other 
program requirements.
    Fifth, as the June 30, 1998 proposed rule discussed, in the 
development of the uniform financial reporting requirements, HUD 
created working groups involving HUD's program participants and others 
familiar with both FHA properties and public housing properties, GAAP 
reporting and electronic submission, to examine the annual financial 
information that is now submitted to HUD and how preparation and 
evaluation of that information could be made less burdensome while 
preserving the enforcement integrity of the information. HUD also 
posted this rule on HUD's web page to provide greater dissemination of 
notice of this proposed rulemaking, and the Federal Register also 
provides electronic posting of published rules. Given the pre-
publication discussions with program participants, the limitation on 
changes to financial reporting requirements proposed by the June 30, 
1998, and the benefits to be reaped through implementation of uniform 
financial reporting requirements, HUD believes that the comment period 
provided was adequate.
The Rule Needs to Provide Additional Information About the Financial 
Reporting Requirements
    Several commenters stated that the proposed rule failed to provide 
the specifics on the implementation of the reporting requirements and 
on the financial information to be provided. One commenter stated that 
the proposed rule failed to describe what information is to be 
submitted and by whom. Another commenter asked who will provide the 
necessary software and training that will be needed in complying with 
these requirements.
    HUD believes that the proposed rule was clear on the implementation 
schedule of the uniform financial reporting requirements, both in the 
preamble to the rule and the text of the rule. That schedule is also 
found later in Section IV of this preamble under the heading 
``Compliance Schedule for Uniform Financial Reporting Requirements.'' 
With respect to the details of the financial information to be 
reported, HUD's current regulations, and indeed other agency 
regulations, have not provided in regulatory text the details of the 
financial information to be submitted. This information can be lengthy 
and technical and not suitable for an authority (the Code of Federal 
Regulations) which is updated only once a year. The regulation provides 
the broad reporting requirements, but the specifics of the financial 
information is left to supplemental documents such as handbooks and 
guidebooks, which allow for a more detailed discussion of the financial 
information to be submitted (and therefore more helpful), allows for 
examples and model reports to be included, and can be corrected and 
updated easily, as a result of users' suggestions and recommendations, 
and as a result of experience in using the model reports and forms 
provided.
    HUD's approach to the uniform reporting requirements will follow 
this traditional practice. As changes have come about in reporting 
requirements, HUD developed the necessary guidance for its program 
participants. For example, when revisions were made to OMB Circular A-
133 (Audits of States, Local Governments, and Nonprofit Organizations) 
as a result of changes made by the Single Audit Amendments Act of 1996 
(Pub. L. 104-156, approved July 5, 1996), HUD developed and issued the 
necessary guidance to assist program participants in understanding and 
complying with the changes made by this statute and the revised 
circular. HUD revised and issued Handbook 2000.04 REV-2 on Consolidated 
Audit Guide for Audits of HUD Programs.

[[Page 46585]]

HUD also issued a notice to all multifamily project mortgagors on the 
new audit requirements resulting from the statute and legislation 
(Notice H-98-25, issued April 24, 1998). Another example of detailed 
assistance is the guidance that HUD prepared and issued on the Annual 
Financial Data Submission Requirements. This guidance, issued December 
9, 1997, details the requirements for electronic submission of annual 
financial data to HUD by multifamily housing project owners, or their 
authorized employees or agents. For PHAs, HUD has developed and made 
available a HUD-GAAP Conversion Guide for PHAs. This guidance document 
is in the final development stage.
    As has been the case in the past, HUD will provide the necessary 
additional details and documentation, and guidance and technical 
assistance that entities covered by this rule will need to comply with 
the uniform financial reporting requirements.
Implementation of the Uniform Financial Reporting Requirements Should 
Be Delayed for One Year
    Several commenters stated that compliance with the uniform 
financial reporting requirements, which will entail conversion to GAAP 
and electronic submission, constitute major changes and the start-up 
dates in the rule are not reasonable. Other commenters suggested that 
these requirements first be instituted as a pilot or test program 
before national implementation.
    HUD has carefully considered the comments and suggestions regarding 
the rule's implementation dates and has concluded that, except for the 
changes made by this final rule, the dates provided in the June 30, 
1998 proposed rule should remain applicable. Again, HUD's multifamily 
housing program participants already report in accordance with GAAP and 
have been reporting in GAAP for a considerable period of time. HUD 
acknowledges that the implementation schedule for entities (or 
individuals) reporting on multifamily housing properties and that have 
fiscal years ending December 31, 1998, will require conversion to HUD's 
uniform financial reporting requirements in the middle of an accounting 
cycle. This conversion, however, is not anticipated to be a difficult 
transition to make because the changes to be addressed for multifamily 
property annual financial reports (that are already prepared in 
accordance with GAAP) are those that primarily result from the issuance 
of an updated chart of accounts that captures accounting information 
that is already separately recorded by multifamily housing project 
owners. Although the conversion changes for entities and individuals 
are not anticipated to be difficult, HUD has provided in the final 
rule, as already discussed in this preamble, an extended report 
submission date for the first year of compliance for those entities (or 
individuals) that have fiscal years ending December 31, 1998 and are 
reporting on multifamily housing properties.
    With respect to electronic submission, many FHA multifamily program 
participants already submit reports electronically to HUD. For example, 
24 CFR part 208 provides for the electronic transmission of certain 
required data pertaining to certification and recertification of 
tenant's eligibility for multifamily subsidized projects. This rule was 
promulgated in 1993. More recently, HUD published a proposed rule that 
would require mortgagees that hold or service multifamily mortgages 
insured by HUD to submit to HUD electronically data on mortgage 
delinquencies, defaults, and defaults, among other things. This rule 
published on May 13, 1998 (63 FR 26702) provided a 60-day public 
comment period, and no public comments were received on the rule.
    In the case of PHAs, the rule allows a full fiscal year to convert 
accounting systems and records to provide the few new or changed 
accounts and entries necessary to convert to GASB/GAAP and HUD's 
revised annual reporting requirements. While the lead time is not long 
for affected PHAs with fiscal years beginning October 1, 1998, HUD's 
guidelines show that the nature of the changes will not require an 
extensive break-out or reconstruction of transaction detail, even if 
the changes are made in the middle of an annual accounting cycle. With 
respect to electronic submission, PHAs also already submit various 
reports electronically to HUD. For example, 24 CFR part 908 provides 
for the electronic transmission of certain required family data for 
PHAs operating public housing, Indian housing or Section 8 Rental 
Certificate or Voucher programs.
    HUD also reminds entities subject to compliance with the uniform 
financial reporting requirements that the final rule provides, as did 
the proposed rule, that HUD may approve transmission of the financial 
data by tape or diskette if HUD determines that the cost of electronic 
transmission via the internet would be excessive.
    HUD wants the uniform financial reporting requirements to succeed, 
to assist and benefit HUD's program participants, as well as HUD. HUD 
will provide the necessary guidance and technical assistance, and as 
the process gets underway, HUD will carefully consider any 
circumstances that may arise and may make compliance with these 
reporting requirements difficult or necessitate additional time in a 
given situation.
The Content and Format of the Financial Report Should Be Published for 
Comment
    Five commenters requested that the content and format of the 
financial report be published for advance notice and comment.
    HUD will make the content and format of the report available. 
Again, however, as HUD noted in the proposed rule, the uniform 
financial reporting requirements do not substantively change the 
existing annual financial reporting requirements of HUD's housing 
program participants, or the format in which the information is to be 
submitted. The rule will result in some changes to the chart of 
accounts used in financial reporting to HUD, including changes to: 
streamline or eliminate unnecessary account detail; add some additional 
accounts required to comply with new GASB/GAAP requirements for PHAs; 
and update the multifamily housing chart of accounts to more fully 
capture existing program requirements.
    Currently, HUD guidelines on the specific nature of these changes 
is available from the HUD/REAC web site (http://www.hud.gov/reac/
reafin.html). As the HUD/REAC system development effort nears 
completion, further guidance on specific procedures for reporting 
formats and electronic submission will be provided.
Uniform Financial Reporting Will Not Assure Comparative Analysis of 
Performance.
    A few commenters stated that HUD's assumption that uniform 
financial reporting of financial data will facilitate more effective 
analysis of project operating data is not necessarily correct. The 
commenters stated that the financial conditions of the projects under 
review (public housing and multifamily properties) are so different and 
so any variations are involved in each of these categories, that 
uniform financial reporting will not achieve the comparative analysis 
HUD desires.
    The rule's primary purpose is to provide for greater uniformity in 
the accounting principles, account structure, and financial and 
compliance reporting formats applicable to HUD's housing programs. HUD 
acknowledges the basic differences between its PHA

[[Page 46586]]

and FHA multifamily housing, but believes that the uniform financial 
report procedures, coupled with new electronic submission requirements, 
the rule's uniform standards will greatly enhance HUD's ability to 
perform timely, meaningful comparative analyses of the financial 
performance and compliance of its housing program participants and 
portfolio.
The Rule Adversely Impacts Small Entities
    Several commenters stated that the changes in reporting 
requirements proposed by the June 30, 1998 rule would adversely impact 
small entities.
    HUD disagrees with the commenters that the uniform financial 
reporting requirements will have a significant economic impact on a 
substantial number of small entities for several reasons. First, for 
small entities reporting on multifamily properties, these entities are 
already familiar and reporting in accordance with GAAP accounting. 
Multifamily chart of account changes primarily pertain to needed 
updates to better reflect existing rather than new requirements. For 
small PHAs, HUD has provided a year before reporting in GAAP is 
required. Second, HUD notes that the Single Audit Act Amendments of 
1996 raised significantly the monetary threshold for when an entity 
that receives Federal assistance is required to have an audit. The 
threshold was raised from $25,000 to $300,000. This change 
significantly reduces reporting costs for small entities. Therefore, 
although small entities must continue to submit an annual financial 
report to HUD, an audited report is not required. Third, the June 30, 
1998 proposed rule although clearly expressing a preference for 
internet submission of financial reports provides that HUD will approve 
transmission of financial data by tape or diskette if HUD determined 
that the cost of electronic internet transmission would be excessive. 
Fourth, the change made at this final rule stage (the extended report 
due date for certain entities reporting on multifamily housing 
properties) also will contribute to reducing any possible 
disproportionate administrative burden that this rule may have had on 
small entities. Additionally, to further ease any administrative burden 
on small entities, and all entities subject to these requirements, HUD 
will provide submission software, supplemental guidance, training and 
other technical assistance.

B. Comments on Reporting in Accordance with GAAP

Conversion to GAAP Will Take Longer and Be More Costly than HUD 
Estimates and Will Not Bring Consistency
    Several PHA commenters stated that the conversion to GAAP will take 
longer and be more costly than HUD estimates. These commenters stated 
that the conversion of PHA financial statements from the current HUD 
reporting to a GAAP basis may not be as simplistic as HUD staff 
foresees; could require significant effort for the auditor and the 
organizations; and could result in major differences in the financial 
statement amounts if PHAs are treated as business-type activities 
rather than governmental entities.
    HUD understands PHA concerns about the conversion to GAAP, but 
believes that these concerns are based on misunderstanding or 
misconceptions about GAAP. First GAAP standards take into account 
governmental entities. As noted in the proposed rule, there is 
``governmental GAAP''--that is, financial reporting standards 
established by the Governmental Accounting Standards Board (GASB). 
These standards are sometimes referred to as GASB GAAP. Second, GAAP 
standards are not as rigid as some of the commenters may believe. GAAP 
permits choices among acceptable options for certain accounting 
transactions. For PHAs, GAAP permits two types of reporting mechanisms, 
the governmental method and the enterprise methods. The use of either 
method is acceptable to HUD. Each PHA has the discretion to determine 
its own method. The guiding criteria should be the type of activities 
performed by the PHA.
    Because the purpose of converting to GAAP is to achieve uniform and 
consistent financial data from all reporting entities, HUD has selected 
preferred options for those transactions within the two types of 
methods (governmental and enterprise) where GAAP allows an entity to 
choose from more than one method. HUD's PHA GAAP Conversion Guide 
identifies HUD's preference on the allowable treatment of select 
accounting issues to provide desired standardization across the HUD-
supported portfolio. For example, HUD will prefer that PHA's: accrue 
all expenses, expense inventory as consumed, report depreciation on 
fixed assets, and report the accrual of compensated absences. These 
preferences are all allowable under GASB/GAAP, and under both a 
governmental or enterprise fund model. Additionally, HUD points out 
that conversion to GAAP does not require change of recordkeeping.
    HUD notes that for PHAs the GAAP conversion process entails only 
year-end adjustments to convert a PHA's recordkeeping so that 
information may be reported under GAAP. Compliance with GAAP does not 
require the whole-sale conversion of PHA accounting software in order 
to meet the rule's implementation date for PHAs, nor does it require 
PHAs to change their current accounting and recordkeeping systems. PHAs 
are only required to report this information using GAAP as the 
accounting basis. Reporting financial information in accordance with 
GAAP allows for financial consistency among PHAs. It also provides a 
common mechanism for HUD to fairly and accurately assess the financial 
condition of each PHA as compared to its peers. Additionally, GAAP 
reporting presents a more accurate picture of PHA financial condition 
by accounting and accruing for all liabilities that may exist.
    Another commenter stated that the proposed rule mentioned two 
different standard setting bodies in the proposed rule--FASB and GASB. 
The commenter noted that FASB exercises jurisdiction over private 
enterprises and nonprofits while GASB exercises jurisdiction over 
government. The commenter asked how HUD proposes to maintain 
consistency in accounting and financial reporting when there is no 
consistency in the underlying accounting standards.
    HUD acknowledges the distinctions between housing entities covered 
by FASB/GAAP versus GASB/GAAP, but notes that FASB and GASB have been 
established to be as consistent with each other as feasible given the 
types of entities each covers. To maintain that consistency, HUD will 
not be advocating any deviation from the appropriate standards 
applicable to each housing entity. As noted earlier in this preamble, 
there are various fund types and reporting options available to 
entities governed under GASB/GAAP. There are options within those 
variable bases of accounting which can realize consistency of treatment 
of the many specific types of transactions or accounting issues.
GAAP Requires the Calculation of Depreciation, Which Is Not Currently 
Done by PHAs and Benefit of This Information Unclear
    Several PHA commenters expressed concern about the introduction of 
depreciation (a GAAP requirement) into the public housing financial 
system. The commenters stated that depreciation calculations will 
increase expenses, and therefore, have an impact

[[Page 46587]]

on the balance sheet and income statement.
    HUD believes that the reporting of the accumulated depreciation of 
PHAs assets will better enable HUD to assess a PHA's performance and 
funding needs. The availability of such information will enable the PHA 
to operate in a more business-like manner. Recording of depreciation 
provides each PHA with a systematic allocation method showing the cost 
of an asset over its useful life. The recording of deprecation permits 
each PHA to show the directly related consumption of the asset over the 
periods in which the asset is used. The HUD-GAAP Conversion Guide for 
PHAs provides guidance and training on a straightforward, simplistic 
approach to establishing the current depreciated value of fixed assets 
during the conversion process.
HUD Circular Letter LM-85 Provides an Exception to GAAP Filings
    Three commenters stated that under HUD Circular Letter LM-85, 
accrual based financial statements prepared on the same basis of 
accounting as a project's tax return are acceptable to HUD provided 
that the only two differences are the write off (rather than 
capitalization) of certain interest and taxes incurred during the 
construction period and the methods and lives of depreciating fixed 
assets. The commenters stated that this, therefore, provides an 
exception to the GAAP rule in that it avoids the need for owners and 
property managers to duplicate certain GAAP and income tax basis 
records for many projects.
    HUD Circular Letter LM-85 was superseded by HUD Handbook changes 
requiring GAAP-based financial reporting by all multifamily housing 
program participants. While individual HUD field offices may have 
inconsistently enforced the existing requirement for GAAP-based 
financial reporting, one of the objectives of this rule is to ensure 
compliance with the uniform financial reporting requirements.
Changes to Existing Chart of Accounts Will Create Problems
    A few commenters expressed concerns about change to the chart of 
accounts. The commenters stated that the existing chart of accounts 
includes surplus accounts that are unique to HUD, and these should not 
be changed. The commenters also stated that the existing chart of 
accounts provides for tracking subsidies on a cash basis, and confusion 
would result if HUD grants and cumulative grants were no longer tracked 
on a cash basis. One commenter stated that the chart of account will 
not accommodate recording of transactions under both FASB and GASB. 
Some commenters expressed concern that the changes to the chart of 
accounts will be occurring after 1998 transactions already have been 
recorded. These commenters stated that to meet the implementation 
deadlines of the proposed rule, they would have to reclassify 
transactions already recorded. The commenters also stated that there 
would have to be changes in the computer programs now administered by 
the private management companies but also in other forms and procedures 
established by HUD.
    HUD does not intend to eliminate the HUD surplus accounts that are 
currently within the chart of accounts. Additional accounts required to 
permit conformity with GAAP are being added to the chart of accounts. 
With respect to subsidies, these can be tracked under GAAP. In fact, 
reporting of subsidies under GAAP will provide a clearer picture of 
cumulative HUD grants and will not compromise the integrity of the 
operating reserve and cash analysis system. HUD also has expanded the 
chart of accounts for both public and multifamily housing programs, and 
the respective charts for these programs now contain the accounts 
needed to fulfill HUD's needs in accordance with the appropriate FASB 
or GASB requirements. The new accounts needed for PHAs to convert to 
GASB/GAAP are described in HUD's ``PHA GAAP Conversion Guide.'' With 
respect to concerns about changes to the chart of accounts after the 
1998 reporting year is underway, HUD notes that the revisions to the 
old chart of accounts for multifamily housing projects were only those 
necessary to update the chart to reflect already existing requirements. 
Some of the new accounts capture data previously reported on 
supplemental compliance data schedules that are being eliminated under 
HUD's new financial assessment process. Therefore, the changes to the 
chart of accounts are not anticipated to require any extensive 
reconstruction or break-out of accounting transactions to implement. 
HUD has recently developed guidance that describes the specific nature 
of the new chart of accounts and the basis and preferred treatment of 
any additions, deletions or other changes. This guidance is available 
through the HUD REAC web site. On the matter of changes to existing 
handbooks and forms, HUD Handbook 4370.2 is being revised to introduce 
the new chart of accounts and new HUD budget worksheets. Other 
handbooks and forms will be updated as necessary.
Conversion to GAAP Will Be Burdensome to Small Entities
    With respect to concerns about the administrative burden of 
conversion to GAAP, and particularly that such burden that may fall on 
small entities, these concerns addressed earlier in the preamble under 
Section III.A. As noted earlier, HUD is allowing a full year before 
reporting in GAAP will be required (again FHA multifamily program 
participants are already reporting in accordance with GAAP). Also, 
given that GAAP takes into account the financial distinctions of 
governmental entities, and given that GAAP is not as rigid as some 
commenters may believe, HUD does not believe that the conversion 
process will be as burdensome as the commenters believe. HUD already 
has developed, and provided to PHAs as well as posted on the HUD 
website at www://hud.gov the HUD-GAAP Conversion Guide for PHAs.

C. Comments on Electronic Submission

Electronic Submission Is Administratively Burdensome and Costly
    Several commenters, including those who already have converted to 
GAAP, expressed concern about electronic submission of the financial 
report via the internet. The commenters stated that although they 
realize that electronic submission results in significant 
administrative efficiencies, electronic submission via the internet 
creates administrative burdens that they believe exceed the burdens of 
manual submission requirements. A few commenters stated that electronic 
submission adversely impacts small entities since systems of many small 
property owners are not electronic and their ability to complete 
electronic submissions is limited and in some instances non-existent. 
Other commenters stated that electronic submission will not replace a 
hard copy report and therefore the benefits for the reporting entities 
are not that significant. Several commenters also raised concerns that 
audit costs would increase as a result of electronic submissions 
because housing authorities and agencies would ask their accountants to 
handle the electronic submission.
    With respect to internet transmission, HUD acknowledges that until 
recently on-line transmission and on-line use of information was 
generally limited to large entities. The dramatic growth in

[[Page 46588]]

personal computer ownership, however, has enabled smaller entities to 
access on-line information just as readily as large entities. For those 
entities without internet capability at their place of business, access 
is readily available at other business or public locations for 
reasonable usage fees. Many Federal, State, and local government 
agencies are a possible source of internet access for those in need of 
internet capability, including local HUD offices.
    There are significant benefits to internet capability for 
information delivery. Internet capability by allowing for rapid 
transmission of the data from the reporting entity to HUD, increasing 
the ability of HUD to analyze the information, and facilitating HUD's 
response to the reporting entity about the financial information 
provided. Additionally, use of the internet eliminates the time-
consuming paperwork required to manually transmit the financial reports 
to HUD.
    HUD is aware that for some entities, perhaps small entities, there 
may be an initial administrative burden and cost associated with the 
new requirement for electronic submission of financial statements. 
However, as discussed above, the widespread use of personal computers 
and internet services, should make the administrative burden and cost 
minimal, and this burden and cost will be offset by the increased 
efficiency that electronic submission provides for the reporting entity 
for HUD's overall financial oversight process.
    To simplify the electronic submission process, HUD will provide 
submission software to reporting entities, at no cost, that can be 
downloaded from the internet. The software provides a template to more 
easily enable reporting entities to submit their financial report 
information, and better assures the quality of the data. This user 
friendly software reduces the electronic submission process to more of 
a clerical process, as opposed to the time consuming professional 
accounting services effort envisioned in many of the comments. HUD will 
provide training with this software and the REAC Customer Service 
Center will further assist entities in understanding and fulfilling 
these new requirements. Additionally, the extended report due date for 
multifamily project owners with fiscal years ending December 31, 1998 
should significantly ease the initial administrative burden that occurs 
in the first year of compliance with the new requirements. The 
software, the training, the extended report due date are steps that HUD 
is taking to alleviate concerns over the degree of difficulty and cost 
associated with the required electronic submission process. While it is 
true that the electronic submission to HUD may not replace the need to 
provide a hard copy report to other agencies or organizations for other 
purposes, more and more organizations are requiring electronic 
submissions of reporting. As noted earlier, HUD's program participants 
are already submitting reports electronically to HUD in several areas.
    With respect to the impact on small entities, in addition to the 
reasons just discussed that will minimize any burden or cost associated 
with internet transmission, HUD reminds the commenters that the rule 
provides that HUD may consider electronic submission other than through 
the internet if the cost of electronic submission via the internet 
would be significant.
How Will Electronically Submitted Information Be Verified and Be Made 
Secure
    A few commenters asked how independent auditors would verify the 
electronic information.
    HUD's Financial Assessment Subsystem will contain internal edit 
checks to preclude the submission of incomplete or mathematically 
inaccurate information. Auditors will be able to access the financial 
audit information submitted to HUD by their clients. Auditors should 
check the validity of last year's report submissions as part of the 
current year audit. Furthermore, HUD's REAC will have a quality 
assurance program to validate audit quality and PHA and multifamily 
owner data submissions. Suspected occurrences of false submissions will 
be referred to HUD's Enforcement Center for the pursuit of possible 
criminal, civil and/or administrative sanctions.

D. Comments on the Financial Report Due Date

    Several commenters requested that the report submission date be 
extended to 90 days or longer. The commenters stated that the report 
due date that provides for 60-days after the end of the entity's fiscal 
year is not sufficient. Other commenters stated that the report due 
date is burdensome for entities who must file under OMB Circular A-133 
standards.
    HUD believes that the submission due date of 60 days from the end 
of an entity's fiscal year is a reasonable amount of time. For entities 
and individuals reporting on multifamily housing properties, this is 
the standard annual financial report due date found in existing 
regulatory and contractual agreements governing multifamily housing 
programs. Since HUD is not substantially changing the multifamily 
report requirements, additional time is not believed to be warranted, 
beyond the initial compliance year, as discussed earlier in this 
preamble. In the case of PHAs, the 60-day submission date gives PHAs an 
additional 15 days beyond the previous 45-day submission requirement. 
Additionally, for PHAs, the first year of compliance begins for fiscal 
years ending September 1999. In all cases, HUD will consider extensions 
of the report due date for entities submitting their first reports 
under the uniform financial reporting requirements. Apart from the 
first reporting year under the uniform financial reporting 
requirements, requests for extensions of time can be submitted to REAC, 
but these extensions only will be approved for unusual circumstances 
beyond an entity's control.
    With respect to entities who must file reports under A-133 
standards, HUD is not requiring non-profit entities who must comply 
with A-133 standards to provide all the schedules which are normally 
prepared and forwarded as a part of these entities' audited financial 
statements to HUD within 60 days. In accordance with A-133 standards, 
the audited financial statement itself is not due to HUD until 9 months 
after the end of an entity's fiscal year. In those cases, owners would 
still have to submit the required unaudited financial reports within 
the 60-day period, in accordance with the existing requirements of 
their HUD regulatory agreement or contract.

E. Other Comments on the Proposed Rule

Compensation for the Costs of Conversion Is Necessary
    Several commenters especially non-public housing agencies were 
concerned that they would not be compensated for the increased costs of 
conversion to GAAP and in submitting reports electronically.
    As discussed earlier in this preamble, the costs of implementing 
the accounting and electronic submission changes resulting from this 
rule are not expected to be significant. HUD believes that any 
additional cost incurred will be offset by corresponding decreases in 
program participant burdens through greater efficiencies in HUD's 
overall assessment of the financial condition of HUD public housing and 
other HUD assisted properties. Costs associated with implementing the 
new requirements are eligible project expenses under existing program 
requirements.

[[Page 46589]]

The Uniform Financial Reporting Requirements Constitute an Unfunded 
Mandate
    Several commenters stated that the electronic submission 
requirements constitute an unfunded mandate under the Unfunded Mandates 
Reform Act (UMRA).
    Section 201 of the UMRA requires agencies to assess the effects of 
Federal regulatory actions on State, local, and tribal governments, and 
the private sector. HUD has assessed the effects of this rule on 
housing authorities and other owners and managers of HUD housing. While 
this rule provides uniform financial reporting requirements for HUD 
housing, these requirements are not dramatically different from the 
reporting requirements with which HUD program participants already 
comply. HUD has determined that the uniform financial reporting 
requirements will reduce burden after the initial transition year, and 
this preamble discusses the many ways in which HUD reduced the 
potential for administrative burden during the first year of 
compliance. Additionally, the UMRA provides an exemption for entities 
participating in voluntary Federal programs. Since HUD has assessed the 
effects of this rule on State, local, and tribal governments, and on 
the private sector, and since this rule does not include a Federal 
mandate, HUD has complied with the Unfunded Mandates Reform Act of 
1995.
Education and Training by HUD of the New Requirements Are Critical
    Several commenters stressed that they wanted HUD to ensure that it 
would take responsibility in providing education and training of the 
uniform financial reporting requirements.
    HUD acknowledges that it has this responsibility, and already has 
begun providing guidance on the uniform financial reporting 
requirements. Initial guidance is already available through the HUD 
REAC web site or Customer Service Center, and plans are being made by 
REAC for additional guidance and training of PHAs, project owners, 
mortgagees, housing industry groups and CPAs.
Information Collection Burden is Understated in Rule
    Four commenters stated that they thought that the information 
collection burden of .75 hours reported in the Paperwork Reduction Act 
Statement section of the rule was understated.
    HUD appreciates the comments in this area, and is reexamining 
whether the burden is greater than the .75 reported at the proposed 
rule stage. HUD's decision to develop electronic submission software, 
which will provide an easy to use submission template, at no cost to 
housing entities, will have an impact on reducing the reporting burden 
of electronic submission.
HUD Handbook 4370.2 REV Restricts Business Relationships Between 
Independent Accountants and Mortgagor
    One commenter stated that existing HUD policy in HUD Handbook 
4370.2 REV restricts business relationships between the independent 
accountants and mortgagor, except for the performance of audit, 
accounting systems work and tax preparation. The commenter stated that 
HUD should therefore issue a formal interpretation relative to the 
definition of ``fee accountant'' which is currently defined by HUD or 
an individual who performs manual or automated bookkeeping services 
and/or maintains the official accounting records. HUD currently 
prohibits accountants from performing the audit of the mortgage.
    The term ``fee accountant'' is defined in HUD's Consolidated Audit 
Guide for Audits of HUD Programs (IG 2000.04, REV-2. It is also 
important to note that an accountant who keeps the books for a specific 
project is prohibited from performing the audit of a project.
Why Is Reporting Responsibility Imposed on Auditor and Not Owner
    One commenter asked why the responsibility is being placed on the 
auditor to submit the report to HUD.
    Since only one commenter asked this question, HUD believes that the 
proposed rule was clear that the responsibility for the submission of 
the report is with the owner. Nevertheless, the final rule clarifies 
that the owner has responsibility for submission of the report to HUD.
HUD Should Reexamine the Applicability of the Uniform Financial 
Reporting Requirements to Certain Programs
    There were several comments suggesting that certain HUD programs 
should be excluded from the applicability of the uniform financial 
reporting requirements. One commenter stated that pre-1980 Section 8 
projects are outside of the financial reporting requirements. Another 
commenter stated that audited financial report requirements should not 
be applied to Section 8 and other HUD housing subsidy programs. One 
commenter stated that FHA-Insured Properties should be exempt from 
audited financial report requirements, and another commenter stated 
that these reporting requirements should not be applied to non-profit 
sponsored projects.
    HUD firmly believes that the uniform financial reporting 
requirements should apply to as many HUD programs as legal authority 
provides. As has been stated throughout this preamble, the uniform 
financial reporting requirements established by this rule do not 
present a dramatic change from the reporting requirements to which 
HUD's program participants have been subject to date. Where changes 
require some time for implementation (conversion to GAAP, electronic 
submission), HUD is providing the necessary time and technical guidance 
to assist these entities in making the conversion to GAAP and 
electronic reporting.
    HUD believes that the uniform financial reporting requirements will 
improve the efficiency and effectiveness of financial reporting by HUD 
program participants, improve the efficiency and fairness of HUD's 
evaluation of these reports, and reduce the administrative burden for 
HUD and covered entities that manual reporting presents.

IV. 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 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 issuing a 
separate rule regarding

[[Page 46590]]

the overall assessment of public housing, in which HUD further 
addresses 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 in this rule is to add a new 
Sec. 200.36, which refers to the uniform financial reporting 
requirements in subpart H of part 5. Section 200.36 applies 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 amends the 
heading for subpart A of part 200 to clarify that the financial 
reporting requirement is a continuing eligibility requirement.

Compliance Schedule for 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 Sec. 5.801(a) (1) and (2) of the rule, the 
requirement of electronic submission of GAAP-based financial reports 
will begin with those PHAs with fiscal years ending September 30, 1999 
and later. Again, HUD believes that 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 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''), the requirement of electronic submission of GAAP-
based audited financial reports 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. For the first year of compliance with the uniform reporting 
requirements, other covered entities with fiscal years ending December 
31, 1998 are required to submit electronic, GAAP-based, audited 
financial reports by no later than April 30, 1999 (120 days after the 
close of the fiscal year). This extended due date is only for the first 
year of compliance, and only for those other covered entities with 
fiscal years ending December 31, 1998. Covered entities with fiscal 
years ending December 31, 1998 that elect to submit their audited 
reports earlier than the April 30, 1999 must submit their audited 
financial reports electronically and prepared in accordance with GAAP, 
in the manner and format prescribed by HUD. 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.

V. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements in this rule have been 
approved by the Office of Management and Budget (OMB) in accordance 
with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and 
assigned OMB approval number by 2535-0107. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a valid control number.

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this 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 to 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 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 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. 
As discussed in detail in the preamble to the final rule, there are 
several factors present that reduce the possibility of any significant 
economic impact on a substantial number of small entities.
    As noted in the preamble, this rule does not create a new reporting 
requirement. The annual reporting of certain financial information is a 
preexisting HUD program requirement. This rule standardizes, to the 
extent possible, the content of the information and the preparation of 
the information (in accordance with GAAP), and requires electronic 
submission. HUD anticipates that these changes will 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 them 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, HUD anticipates that

[[Page 46591]]

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. For 
PHAs, the rule provides a year for before compliance with these 
reporting requirements must begin.
    With respect to electronic submission, although electronic 
submission via the internet is preferred, the rule provides that HUD 
will consider submission through tape, diskette or paper if HUD 
determines that the costs of electronic submission via the internet 
would be excessive.
    In addition to the issues of training and costs, many entities will 
have up to 9 months to submit audited financial statements in 
accordance with GAAP (the period of time allowed under the Single Audit 
Act).

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, 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. As was 
discussed earlier in the preamble to this final rule, this rule would 
not impose a Federal mandate within the definitions provide in section 
101 of the UMRA because this rule merely provides for uniform financial 
reporting requirements that arise from participation in a voluntary 
Federal program, for which funds are provided through budget authority 
that is not entitlement authority.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for the programs 
that would be affected by this 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)
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))
14.850--Public Housing
14.851--Low Income Housing--Homeownership Opportunities for Low 
Income Families (Turnkey III)
14.852--Public Housing--Comprehensive Improvement Assistance Program
14.855--Section 8 Rental Voucher Program
14.856--Lower Income Housing Assistance Program--Section 8 Moderate 
Rehabilitation
14.857--Section 8 Rental Certificate Program
14.859--Public Housing--Comprehensive Grant Program

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-

[[Page 46592]]

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 to HUD through the internet, or in 
such other electronic format designated by HUD, or in such non-
electronic format as HUD may allow if the burden or cost of electronic 
reporting is determined by HUD to be excessive; 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. For entities listed in paragraphs (a)(3) and (a)(4) of 
this section and that have fiscal years ending December 31, 1998, the 
report shall be due April 30, 1999. This extended report due date is 
only for entities listed in paragraphs (a)(3) and (a)(4) of this 
section, and only for the first report due under this section.
    (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:
    (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 (a)(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 October 1, 1998.
    (f) Responsibility for submission of financial report. The 
responsibility for submission of the financial report due to HUD under 
this section rests with the individuals and entities listed in 
paragraph (a) of this section.

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:

[[Page 46593]]

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: August 26, 1998.
Andrew Cuomo,
Secretary.
[FR Doc. 98-23420 Filed 8-31-98; 8:45 am]
BILLING CODE 4210-32-P