Policy on Audits of RUS Awardees

<RULE> DEPARTMENT OF AGRICULTURE <SUBAGY>Rural Utilities Service</SUBAGY> <CFR>7 CFR Part 1773</CFR> <DEPDOC>[Docket No. RUS-24-AGENCY-0033]</DEPDOC> <RIN>RIN 0572-AC67</RIN> <SUBJECT>Policy on Audits of RUS Awardees</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Rural Utilities Service, USDA. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Rural Utilities Service (RUS or Agency), a Rural Development agency of the United States Department of Agriculture (USDA), is issuing a final rule. The intent of this final rule is to revise the Policy on Audits to remove an unnecessary report, update terminology, clarify Agency contacts and filing requirements, and update or remove any outdated references. These changes will provide uniformity and consistency for all RUS awardees. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective December 9, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Jurleme Grey, Chief, Technical Accounting Review Branch, External Compliance Division, Rural Development, U.S. Department of Agriculture, 1400 Independence Avenue SW, Washington, DC 20250, Telephone: (202) 540-9200, Email: <E T="03">compliance.tarb@usda.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> Rural Development is a mission area within the USDA comprising RUS, Rural Housing Service, and Rural Business-Cooperative Service. Rural Development's mission is to increase economic opportunity and improve the quality of life for all rural Americans. The mission is met by providing loans, loan guarantees, grants, and technical assistance through numerous programs aimed at creating and improving housing, business, and infrastructure throughout rural America. The RUS loan, loan guarantee, and grant programs act as a catalyst for economic and community development. By financing improvements to rural electric, water and waste, and telecommunications and broadband infrastructure, RUS also plays a significant role in improving other measures of quality of life in rural America, including public health and safety, environmental protection and cultural and historic preservation. An update to this policy occurred on February 2, 2023 (88 FR 7557), to incorporate changes made to 7 CFR parts 1709, 1719, 1734, 1738, 1739 and 1770. These changes addressed the streamlined procedures, and clarified when entities must follow RUS' own audit regulations or 2 CFR part 200. Since publication, RUS has continued to evaluate and obtain input from stakeholders. There appears to still be areas that are prone to misinterpretation and confusion. RUS has determined that the proposed changes will provide more clarity to awardees and auditors and conform with Generally Accepted Government Auditing Standards (GAGAS) and American Institute of Certified Public Accountants (AICPA) guidelines. To implement these changes, RUS will publish this action as a final rule. The Administrative Procedures Act exempts from prior notice rules any action “relating to agency management or personnel or to public property, loans, grants, benefits, or contracts” (5 U.S.C. 553(a)(2)). As the proposed changes came from the previous comment period, it would be unnecessary to solicit more comments from the public. <HD SOURCE="HD1">II. Summary of Changes to the Final Rule</HD> The changes made to 7 CFR part 1773 include: 1. Section 1773.1(d), “an audit” will be updated to “audited financial statements.” This change is recommended because “audited financial statements” is a more accurate term for the information to be provided and to conform with American Institute of Certified Public Accountants (AICPA) suggested changes. 2. Section 1773.2, Definitions, will be updated as follows: a. <E T="03">Audit</E> means an examination of financial statements by an independent auditor or audit firm for the purpose of expressing an opinion on the fairness with which the financial statements present the financial position, results of operations, and changes in cash flows in accordance with U.S. generally accepted accounting principles (GAAP) and for determining whether the auditee has complied with provisions of laws, regulations, contracts, or grant agreements that could have a material effect on the financial statements. This change is recommended because adding “or audit firm” after “an independent auditor” is more accurate and a clear use of an audit firm was implied or inferred with the prior language. Also changing “applicable laws, regulations, and provisions of” to “provisions of laws, regulations,” conforms with current language in GAGAS and AICPA guidelines. b. <E T="03">Peer review</E> means an external review of one or more aspects of the accounting and auditing practice, not subject to Public Company Accounting Oversight Board permanent inspection, performed once every three years by a CPA firm that is not affiliated with the auditor. This change is recommended because replacing “approved study, appraisal, or” with “external” conforms with changes suggested by AICPA. c. <E T="03">Regulatory asset</E> means an asset resulting from an action of a regulator as defined by Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB). This change is recommended because adding GASB to the definition acknowledges GASB is the regulatory body for accounting by Government entities. d. <E T="03">Regulatory liability</E> means a liability imposed on a regulated enterprise when there is an enforceable present obligation to deduct an amount in determining the regulated rate to be charged to customers in future periods, as defined by FASB and GASB. This change is recommended because adding “as defined by FASB and GASB” to the definition, acknowledges both as the regulatory bodies for accounting for Government and non-government entities. 3. Section 1773.3(c), was updated to include “not subject to 2 CFR part 200, subpart F” in the first sentence for clarification. This change is recommended because adding “not subject to 2 CFR part 200, subpart F” provides clarity regarding entities subject to this regulation and conforms with AICPA suggested changes. 4. Section 1773.3(d)(1), update the citation to “2 CFR 200.503 (b) and (c).” This change is recommended to better align with the current language in 2 CFR 200.503. 5. Section 1773.4(c)(1), “as identified” will be updated to “based on criteria described”. This change is recommended because replacing “as identified” with “based on criteria described” is more accurate language and conforms with changes suggested by AICPA. 6. Section 1773.9(b) will be updated to, “If specific information comes to the auditor's attention that provides evidence concerning the existence of possible violations of provisions of laws, regulations, contracts, or grant agreements that could have a material indirect effect on the financial statements, the auditor should apply audit procedures specifically directed to obtain sufficient, appropriate audit evidence regarding those possible violations of provisions of laws, regulations, contracts, or grant agreements.” This change is recommended because replacing “ascertaining whether a violation” with “obtain sufficient appropriate audit evidence regarding those possible violations” is more accurate language for the goal of the audit procedure and conforms with changes suggested by AICPA. 7. Section 1773.9(c) will be updated to, “Pursuant to the terms of its audit engagement letter with the auditee, the auditor must, as soon as practical, report through the methods indicated below, all instances of fraud, illegal acts, and all indications or instances of noncompliance with laws, whether material or not, to: a. The president of the auditee's governance board via the auditor's preferred method; b. RUS via email; c. OC-ECD via email; and d. OIG, as follows: i. For all audits performed in accordance with § 1773.3(d) (audits conducted in accordance with 2 CFR part 200), report to the USDA-OIG-Audit, National Single Audit Coordinator for USDA, 1400 Independence Ave. SW, Ste. 419, Washington, DC 20250, email: <E T="03">OIG-USDAsingleaudit@oig.usda.gov,</E> or online at: <E T="03">http://usdaoig.oversight.gov.</E> ii. For all other audits conducted in accordance with § 1773.3 report to the USDA Office of Inspector General online at: <E T="03">usdaoig.oversight.gov.</E> This change is recommended because replacing “immediately report, in writing via email” with “as soon as practical, through the methods indicated below,” provides more realistic timing for notification, and enables the auditor to determine the method of notification to the auditee's governance board, specifies the notification method for RUS and OC-ECD, and conforms with changes suggested by AICPA. The methods of notification below will be added for clarity. 8. Section 1773.21(d) will be updated to, “The auditee must include a complete reporting package as defined in § 1773.2.” This change is to clarify requirements, remove redundant language, and conform with changes suggested by AICPA. 9. Section 1773.32(a) “that the tests” will be updated to “state whether the tests” and remove “digital” in reference to the signature options. This change is recommended because replacing “that” with “state whether” conforms with changes suggested by AICPA. 10. Section 1773.32(a) paragraphs (1) through (4) will be updated to more accurate language and to conform to GAGAS. The additional language also presents a more accurate description. Changes include: 1. Significant deficiencies and material weaknesses in internal control; 2. Identified or suspected instances of noncompliance with provisions of laws, regulations, contracts and grant agreements that have a material ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 33k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━