Government Accounting Advisor: USDA Rural Development Changes Reporting Requirements

The United States Department of Agriculture (USDA) Rural Housing Service (the Agency) recently issued a final rule on revised audit requirements. The Agency’s goal was to establish risk thresholds, bring their requirements in line with the United States Department of Housing and Urban Development (HUD) requirements, and reduce the overall operating costs of Rural Development programs. The new rule is effective for fiscal years beginning on or after January 1, 2018, so the changes will begin with December 31, 2018, year ends.

Elimination of a Requirement

Prior to these reporting requirement changes, the Agency required certain multifamily programs (projects with more than 15 units by for-profit and limited-profit entities and state and local governments, Indian tribes and nonprofit organizations with less than $750,000 in Federal financial assistance) to provide a report from an engagement that examines records using agreed upon procedures that are part of the Agency’s annual financial reporting requirements. The final rule eliminates the agreed-upon procedure requirement.

For 2017 fiscal years, the Agency allows borrowers not to submit an agreed-upon procedures report if they submit a statement (that is similar to the below). The statement was provided in the January 24, 2018, Unnumbered Letter from the USDA, “Multi-Family Housing Reporting Requirements for Fiscal Year 2017,” along with other information that clarified the new reporting requirements.

Pursuant to the Final Rule 7 CFR Part 3560 to reduce MFH program financial reporting requirements, an engagement that examines records using agreed-upon procedures has been eliminated. Accept this as our request to eliminate this engagement for year-end financial reporting of FY 2017 per 7 CFR Part 3560.308.

The statement is for a single project regarding its 2017 annual report cycle and is to be submitted to the servicing official. This statement may be made by email or written correspondence prior to or with its year-end reports.

New Requirements for Major Programs

The Agency already required state and local governments, Indian tribes and nonprofit organizations with projects receiving $750,000 or more in Federal financial assistance to have a Single Audit in accordance with 2 CFR part 200, subpart F and Appendix XI Compliance Supplement. This requirement continues with the new rule, based on combined Federal financial assistance.

Combined Federal financial assistance includes one or any combination of the following sources:

  • The outstanding principal balance at the beginning of the fiscal year of a USDA mortgage, a mortgage insured by the Federal Housing Administration, or a HUD-held mortgage or loan, including flexible subsidy loans.
  • The outstanding principal balance at the beginning of the fiscal year of a USDA Section 538 mortgage.
  • Any Agency Rental Assistance or project-based Section 8 assistance received during the fiscal year.
  • Interest reduction payments (e.g., interest subsidy) received during the year.
  • Federal grant funds received during the year.

As stated in the January 24, 2018, Unnumbered Letter from the Agency, the reporting change will be optional in the 2018 fiscal year and will be mandatory starting in the 2019 fiscal year.

Practical Consideration

The Final Rule from the USDA Rural Development and the January 24, 2018, USDA Unnumbered Letter