Independent Public Accountant Roster, 7170-7177 [E8-2097]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 73, Number 25 (Wednesday, February 6, 2008)]
[Proposed Rules]
[Pages 7170-7177]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-2097]



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Part III





Department of Housing and Urban Development





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24 CFR Part 5



Independent Public Accountant Roster; Proposed Rule

Federal Register / Vol. 73, No. 25 / Wednesday, February 6, 2008 / 
Proposed Rules

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 5

[Docket No. FR-5054-P-01]
RIN 2501-AD20


Independent Public Accountant Roster

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish a roster of approved 
independent public accountants and public accounting firms (IPAs) that 
would be permitted to perform audits or related services required by 
participants in certain HUD programs and submitted to HUD. The proposed 
rule would also establish eligibility, application, and removal 
procedures for IPAs listed on the IPA Roster. HUD believes this 
proposed rule would implement an additional protection to ensure the 
accuracy of financial data submitted to HUD by its program 
participants.

DATES: Comment Due Date: April 7, 2008.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule. There are two methods for comments to be submitted 
as public comments and to be included in the public comment docket for 
this rule. Additionally, all submissions must refer to the above docket 
number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, 
Washington, DC 20410-0001.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Commenters should follow the instructions provided on that 
site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available, without 
charge, for public inspection and copying between 8 a.m. and 5 p.m. 
weekdays at the above address. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the public 
comments must be scheduled by calling the Regulations Division at (202) 
708-3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Information Relay Service at (800) 877-8339. Copies of all 
comments submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: The Office of Public and Indian 
Housing, Real Estate Assessment Center (REAC), Attention: Elizabeth 
Hanson, Deputy Assistant Secretary, Department of Housing and Urban 
Development, Office of Public and Indian Housing Real Estate Assessment 
Center, 550 12th Street, SW., Suite 100, Washington, DC 20410; 
telephone number (888) 245-4860 (this is a toll-free number). Persons 
with hearing or speech impairments may access this number through TTY 
by calling the toll-free Federal Information Relay Service at (800) 
877-8339. Additional information is available from the PIH-REAC 
Internet site at https://www.hud.gov/reac/.

SUPPLEMENTARY INFORMATION:

I. Background

    HUD's regulations at 24 CFR part 5, subpart H (currently consisting 
of a single section, 24 CFR 5.801) establish uniform financial 
reporting standards for the Department's public housing, Section 8 
housing, and insured housing programs. The uniform financial reporting 
standards apply to those entities or individuals identified in 24 CFR 
5.801. They are: (1) Public housing agencies (PHAs); (2) owners of 
housing assisted under any Section 8 project-based housing assistance 
payments program; (3) owners of multifamily projects receiving HUD 
assistance or with mortgages insured, coinsured, or held by HUD; and 
(4) HUD-approved Title I and Title II nonsupervised lenders, 
nonsupervised mortgagees, and nonsupervised loan correspondents 
(collectively referred to as ``covered entities''). The uniform 
financial reporting standards require these entities or individuals to 
submit annual financial information electronically and in accordance 
with Generally Accepted Accounting Principles (GAAP). HUD relies on 
this audited financial information to ensure the integrity of financial 
data submitted to HUD.

II. This Proposed Rule

    For the financial information required of HUD program participants, 
as described in 24 CFR 5.801, HUD is proposing to establish an 
independent public accountant (IPA) roster (IPA Roster or Roster) and 
to provide eligibility, application, and removal procedures for the IPA 
Roster. The quality and accuracy of financial data submitted to HUD 
begins with selecting qualified IPAs who agree to comply with HUD's 
requirements with respect to the provision of audits or related 
services. The IPA Roster would list IPAs that have been approved to 
perform audits or related services for covered entities. IPAs include 
individuals employed by public accounting firms (including a solo 
practice) or a State Auditor's Office who are licensed by a regulatory 
authority of a State or other political subdivision of the United 
States both before and after December 31, 1970. IPAs also include 
certified public accountants. As proposed, covered entities or 
individuals would be required to select an IPA that is listed on the 
IPA Roster for their particular jurisdiction to perform the audits or 
related services required by HUD. Any IPA seeking to perform audits or 
related services for the entities or individuals noted above would be 
required to be a listed IPA sole practitioner, be a member or partner 
of a listed IPA, or be a full-time employee of a listed IPA.
    It is important to note, however, that while HUD is committed to 
improving the quality and accuracy of the financial information 
submitted to it, the inclusion of an IPA on the IPA Roster would not 
create or imply any warranty or endorsement by HUD of a listed IPA to 
the entities listed in 24 CFR 5.801, or to any other organization or 
individual user of the resulting audited financial statements. Nor 
would such inclusion represent a warranty of the specific audits or 
related services performed by a listed IPA. Such inclusion would mean 
only that the IPA has met the qualifications and conditions prescribed 
by the Secretary for placement on the IPA Roster.

A. IPA Roster Placement Procedure

    This proposed rule would establish the requirements for listing on 
the IPA Roster. In order to be placed on the IPA Roster, each IPA would 
be required to submit an application to HUD identifying the specific 
state(s), territory(ies), Commonwealth(s), or District of the United 
States in which

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the IPA wishes to be considered for listing. HUD would review each 
IPA's application to ensure that each requirement for eligibility is 
met for each of the specific jurisdictions in which the IPA has 
requested to be considered for listing. If HUD's review of an IPA's 
application demonstrates that the IPA is eligible in a particular 
jurisdiction, the IPA's name would be placed on the IPA Roster for that 
jurisdiction. If HUD denies the IPA's application, the IPA can request 
reconsideration, and the IPA would have 30 days in which to demonstrate 
that it was in fact eligible as of the date of its initial application. 
Should the IPA not be able to demonstrate eligibility as of the date of 
the IPA's application, the IPA would not be listed, but could reapply 
at any time in the future.
    To be eligible for listing on the IPA Roster, an IPA would be 
required to:
    1. Be licensed or authorized to practice in each of the specific 
jurisdictions for which the IPA is to be listed;
    2. Not be, nor employ or contract with anyone for the performance 
of audits or related services who is, suspended, debarred, voluntarily 
excluded, subject to a limited denial of participation, or subject to 
any order of disbarment or other denial of right to practice before the 
Securities and Exchange Commission, or subject to a jurisdiction's 
disciplinary action that has resulted in the revocation, suspension, or 
surrender of a license or authorization to practice public accounting;
    3. Agree to accept only those engagements for audits or related 
services where it meets the minimum qualifications specified by the 
Generally Accepted Government Auditing Standards (GAGAS);
    4. Agree to accept engagements for only those entities listed in 24 
CFR 5.801 that are located in jurisdictions in which the IPA is listed;
    5. Agree to establish and implement quality control procedures 
sufficient to satisfy the quality control standards of GAGAS;
    6. Agree to comply with the professional standards applicable to 
any audit or related service performed;
    7. Agree to comply with any accountancy laws and rules of each 
jurisdiction for which the IPA is to be listed;
    8. Agree to comply with all applicable HUD rules and instructions 
relating to financial reporting, audits, and related services performed 
for the entities listed in 24 CFR 5.801;
    9. Agree to submit to and cooperate with reviews by HUD of the 
IPA's performance of audits or related services for those entities 
listed in 24 CFR 5.801;
    10. Agree to notify HUD if the IPA or any member or employee of the 
firm is, or has been, within the previous 5 years, indicted or 
otherwise charged with or convicted of any offense listed in 24 CFR 
24.800(a);
    11. Agree to notify HUD if the IPA or any member or employee of the 
firm is, or has been, within the previous 5 years, adjudged to be 
civilly liable for any of the offenses listed in 24 CFR 24.800(a); and
    12. Agree to comply with any requests for information made by HUD. 
The IPA would be required to comply with all agreements required to be 
listed on the IPA Roster immediately upon approval for such listing.

B. Responsibilities of Listed IPAs

    An IPA who is eligible to perform audits or related services, and 
who is engaged by a covered entity or entities, has a contractual 
responsibility to those entities. Furthermore, the IPA also has a 
responsibility to HUD, whenever a covered entity or entities for which 
the IPA provides audits or related services are required to submit 
those audits to HUD. Therefore, IPAs listed on the IPA roster will be 
responsible for: (1) Complying with any agreements with HUD immediately 
upon their approval for listing on the IPA Roster and continually 
thereafter, including, but not limited to, agreements required for 
listing on the IPA Roster; (2) maintaining compliance with any other 
eligibility requirements for listing on the IPA Roster for each 
jurisdiction in which they are listed; and (3) notifying HUD within 30 
days of any change in their continued compliance with eligibility 
requirements.

C. IPA Roster Removal Procedure

    In order to safeguard the continued quality and accuracy of the 
audits and related services performed by listed IPAs and, ultimately, 
the integrity of the financial data submitted to HUD, this proposed 
rule would establish a removal process by which the listed IPAs may be 
removed from the IPA Roster. Removal of an IPA from the IPA Roster 
would not preclude HUD or the federal government from also bringing a 
false claims action, taking action against an IPA under 24 CFR part 24 
(``Government Debarment and Suspension and Governmentwide Requirements 
for Drug-Free Workplace (Grants)''), or from seeking any other remedy 
against an IPA available to HUD or the federal government by statute or 
otherwise.
    This proposed rule would allow HUD to remove an IPA from the IPA 
Roster who fails to fulfill its responsibilities as a listed IPA, for 
cause at any time. Cause for removal would include, but would not be 
limited to: (1) Failing to comply with any agreements with HUD, 
including, but not limited to, agreements identified at proposed new 24 
CFR 5.810(a) as requirements for eligibility; (2) failing to maintain 
compliance with any other eligibility requirements for listing on the 
IPA Roster for each jurisdiction in which the IPA is listed; (3) 
failing to notify HUD within 30 days of any change in their continued 
compliance with eligibility requirements; or (4) making, or causing to 
be made, any false certification to HUD.
    In certain circumstances described below, the proposed rule would 
require the automatic removal of an IPA from the IPA Roster, while in 
other circumstances the proposed rule would provide the IPA with an 
opportunity to respond and attend a conference before the IPA's removal 
from the IPA Roster. The proposed rule would require the automatic 
removal of an IPA from the IPA Roster: (1) When the IPA fails to 
maintain compliance with eligibility requirements by being debarred, 
suspended, voluntarily excluded, subject to a limited denial of 
participation, or subject to any order of disbarment or other denial of 
right to practice before the Securities and Exchange Commission; or (2) 
when the IPA fails to maintain compliance with eligibility requirements 
by losing, whether by revocation, suspension, surrender, or other 
means, its license or authorization to practice in any particular 
jurisdiction. However, if the IPA's license or authorization to 
practice lapsed or expired for reasons other than disciplinary actions, 
the IPA would be removed from the IPA Roster only for that specific 
jurisdiction. Under any of these automatic removal circumstances, the 
procedures for contestable removal set forth in 24 CFR 5.814(d) would 
not be applicable.
    Except in the above cases of automatic removals, the removal 
procedures proposed by this rule would require HUD to give an IPA 
written notice of the proposed removal from the IPA Roster. Such notice 
would include the reasons for the proposed removal. The IPA would then 
be given 30 calendar days from the date of the removal notice to submit 
a written response opposing the removal. During this period, the IPA 
would also have the ability to submit a written request for a 
conference to discuss the proposed removal. If the IPA does not submit 
a response opposing the

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proposed removal within 30 calendar days, the removal would become 
effective 30 calendar days after the date of HUD's initial removal 
notice.
    If the IPA opposes the proposed removal, the Deputy Assistant 
Secretary of the Real Estate Assessment Center (REAC), or a designee 
(``Reviewing Official''), would: (1) Review the proposed removal notice 
along with any supporting information and the response to the notice; 
and (2) conduct the conference with the IPA, if requested, before 
making a determination as to whether the IPA should be removed from the 
IPA Roster. When a request for a conference is received, the Reviewing 
Official would schedule the conference within 30 calendar days of the 
date the request is received. The Reviewing Official would be required 
to issue a determination within 30 calendar days of receiving the IPA's 
written response, or, if a conference is requested, within 30 calendar 
days of the closing of the conference. The Reviewing Official may 
affirm or deny the IPA's proposed removal from the IPA Roster, or the 
Reviewing Official may find cause for removal but order the removal 
held in abeyance. In no instance would the Reviewing Official be the 
individual who made the initial determination to propose the IPA's 
removal from the IPA Roster.
    The removal of the IPA would become effective on the date of HUD's 
notice affirming its initial removal decision. When the IPA's removal 
is held in abeyance, the effective date of the IPA's removal would be 
set for a date specified in the future to allow the IPA to demonstrate 
that all causes for removal have been eliminated. If the IPA 
successfully demonstrates that all causes for removal have been 
eliminated, the order of termination would be withdrawn; however, if 
the IPA fails to demonstrate that all causes for removal have been 
eliminated, the IPA would be removed from the IPA Roster as of the 
effective date listed in the order of abeyance.
    Where HUD is considering the removal of an IPA who has, during the 
previous 3 years, performed audits or related services for covered 
entities covered by this rule, HUD will endeavor to ascertain whether 
those covered entities receive funds from other federal agencies. Where 
HUD determines that the IPA has performed audits or related services 
for covered entities receiving federal funds from other agencies, HUD 
will notify the agencies providing such funding prior to taking any 
removal action.

D. Effect of Removal From IPA Roster

    An IPA who has been removed from the IPA Roster would not be 
permitted to enter into any contract or engagement for audits or 
related services with covered entities. While the IPA would be 
permitted to continue performance under any contract or engagement in 
effect at the time of the removal, the IPA would not be permitted to 
extend or renew any contract or engagement, with the exception of no-
cost time extensions, unless the Reviewing Official were to grant an 
exception. The granting of any such exception would be within the sole 
discretion of the Reviewing Official and would be granted only when 
determined to be in the interest of HUD. Additionally, nothing in this 
rule would affect an entity's discretion to terminate an existing 
contract or engagement as a result of the IPA's removal, or due to the 
circumstances precipitating such removal.

III. Implementation of This Rule and Cost Benefits of the Rule

    To ensure that IPAs affected by this rule have adequate time to 
register with HUD, HUD plans to delay, at the final rule stage, the 
implementation date of this rule for a period of 12 months following 
publication of the final rule. During this phase-in period, HUD plans 
to undertake outreach to covered entities and IPAs that have registered 
for a unique IPA identifier (UII) under the existing Uniform Financial 
Reporting Standards (UFRS) regulation of the transition to the new 
requirements that provide for listing on the IPA Roster. HUD intends to 
undertake such outreach utilizing email notifications, website 
postings, mailings, system messages, presentations at industry 
conferences and seminars, press releases, and, to the extent necessary, 
targeted phone calls, to ensure that all IPAs registered under existing 
regulations, and other interested IPAs, are aware of this new rule. HUD 
intends to begin its outreach efforts by ensuring that IPAs and covered 
entities are notified of this proposed rule, when published. HUD plans 
to increase these efforts following the publication of the final rule, 
continuing through the one-year phase-in period following publication 
of the final rule. Thirty days prior to the expiration of the phase-in 
period, HUD plans to contact all IPAs registered with HUD under the 
current UFRS regulation and all covered entities notifying them of the 
expiration of the phase-in period and reminding them of the approaching 
implementation date of the IPA Roster regulation. HUD has set a goal of 
receiving applications from 90 percent of currently registered IPAs 
during the phase-in period.
    Upon the implementation date of the final IPA Roster rule, the UIIs 
of IPAs registered under the existing UFRS regulation that have failed 
to seek and obtain approval for listing on the IPA Roster will be 
deactivated. Any IPA whose UII has been deactivated remains able to 
apply for placement on the IPA Roster, in accordance with the 
procedures of any final IPA Roster rule.
    HUD recognizes the costs, in terms of time and resources, that will 
be committed to the implementation of an IPA Roster rule. However, the 
Department believes that the benefits to both the Department and the 
entities covered by this rule far outweigh any costs associated with an 
IPA Roster rule. Specifically, if adopted, the IPA Roster rule would 
provide the Department a significant measure of confidence that the 
audits being submitted to it have been performed by licensed IPAs in 
accordance with professional standards. Audits are a critical 
management tool for both the federal government and the recipients of 
federal funding, and it is essential to the effective oversight and 
monitoring of billions of federal dollars that these audits be 
performed properly.
    At this time, the Department does not have the ability to verify 
that IPAs are licensed or competent before an IPA is engaged to perform 
a covered service. Once implemented, the IPA Roster rule would provide 
the Department with a tool to ensure that those auditors being engaged 
to perform work for covered entities are, at a minimum, licensed in the 
jurisdictions in which they are performing those covered services and 
are willing to perform the covered services in accordance with 
professional standards.
    Additionally, the remedies currently available to the Department to 
address unlicensed or unprofessional auditors are the costly and very 
time-consuming actions for debarment or suspension. In the Department's 
experience, such actions are generally complex and technical, and 
require an excessive amount of time and resources to prosecute. Once 
implemented, the IPA Roster rule would result in significant savings of 
departmental enforcement resources by enabling the Department to take 
action in a timely and efficient manner if it identifies an IPA that is 
not performing in accordance with established auditing standards or the 
provisions of the IPA Roster rule. Thus, the Department believes that 
the improved oversight of federal funds and program performance 
resulting from this rule, along with the time and monetary

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savings associated with enforcement actions against IPAs, justify the 
establishment of this roster.
    HUD recognizes that this proposed rule, which would establish a 
roster of approved independent public accountants and public accounting 
firms, is an innovative method to attempt to improve the quality of the 
audits submitted to HUD and improve HUD's oversight of federal funds 
and program performance. Establishing such a roster would also be 
unique to the federal government. For these reasons, HUD encourages the 
public to submit comments on the potential effectiveness of the rule 
and on the general concept of establishing a roster of approved 
independent public accountants and public accounting firms as a means 
to improve the quality of the audit of federal funds and program 
performance.

IV. Small Business Concerns Related to Independent Public Accountant 
Roster

    In creating and maintaining the IPA Roster, or in taking action to 
remove a listed IPA, HUD is cognizant that section 222 of the Small 
Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) 
(SBREFA) requires the Small Business and Agriculture Regulatory 
Enforcement Ombudsman to ``work with each agency with regulatory 
authority over small businesses to ensure that small business concerns 
that receive or are subject to an audit, on-site inspection, compliance 
assistance effort or other enforcement-related communication or contact 
by agency personnel are provided with a means to comment on the 
enforcement activity conducted by this personnel.'' To implement this 
statutory provision, the Small Business Administration has requested 
that agencies include the following language on agency publications and 
notices that are provided to small business concerns at the time the 
enforcement action is undertaken. The language is as follows:

Your Comments Are Important

    The Small Business and Agriculture Regulatory Enforcement 
Ombudsman and 10 Regional Fairness Boards were established to 
receive comments from small businesses about federal agency 
enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to 
small business. If you wish to comment on the enforcement actions of 
[insert agency name], you will find the necessary comment forms at 
www.sba.gov.ombudsman or call 1-888-REG-FAIR (1-888-734-3247).

    As HUD stated in its notice describing HUD's actions on the 
implementation of SBREFA, which was published on May 21, 1998 (63 FR 
28214), HUD will work with the Small Business Administration to provide 
small entities with information on the Fairness Boards and National 
Ombudsman program, at the time enforcement actions are taken, to ensure 
that small entities have the full means to comment on the enforcement 
activity conducted by HUD.

V. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``Regulatory Planning and Review''). 
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). The docket 
file is available for public inspection between the hours of 8 a.m. and 
5 p.m. weekdays in the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Room 10276, Washington, DC 20410-0500. Due to security measures at the 
HUD Headquarters building, an advance appointment to review the docket 
file must be scheduled by calling the Regulations Division at (202) 
708-3055.

Paperwork Reduction Act

    The information collection requirements contained in this rule have 
been submitted to OMB under the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501-3520). In accordance with the Paperwork Reduction Act, HUD 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information, unless the collection displays a currently 
valid OMB control number. Interested persons are invited to submit 
comments regarding the information collection requirements in this 
rule. Comments must be received within 60 days from the date of this 
rule. The burden of the information collections in this proposed rule 
is estimated as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                   Estimated
                                                 Number of        Number of       average time      Estimated
              Section reference                   parties       responses per   for requirement   annual burden
                                                                  respondent       (in hours)       (in hours)
----------------------------------------------------------------------------------------------------------------
24 CFR 5.812................................           7,137                1                1            7,137
----------------------------------------------------------------------------------------------------------------

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Under the provisions of 5 CFR part 1320, OMB is required to make a 
decision concerning this collection of information between 30 and 60 
days after today's publication date. Therefore, a comment on the 
information collection requirements is best assured of having its full 
effect if OMB receives the comment within 30 days of today's 
publication. This time frame does not affect the deadline for comments 
to the agency on the proposed rule, however. Comments must refer to the 
proposal by name and docket number FR-5054-P-01 and must be sent to: 
HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503, Fax: (202) 395-6974, and Directives 
Management Officer, Office of Public and Indian Housing, U.S. 
Department of Housing and Urban Development, 451 Seventh

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Street, SW., Room 4116, Washington, DC 20410-8000.

Environmental Impact

    This proposed rule establishes placement and removal procedures for 
HUD's IPA Roster. This proposed rule does not direct, provide for 
assistance or loan and mortgage insurance for, or otherwise govern or 
regulate, real property acquisition, disposition, leasing, 
rehabilitation, alteration, demolition, or new construction, or 
establish, revise, or provide for standards for construction or 
construction materials, manufactured housing, or occupancy. 
Accordingly, under 24 CFR 50.19(c)(1), this proposed rule is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321, et seq.).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601, et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule establishes the procedure by which an IPA who has 
violated professional auditing or other HUD requirements may be removed 
from HUD's IPA Roster. Accordingly, to the extent that this proposed 
rule impacts small entities, it is as a result of actions taken by 
small entities themselves; that is, violation of professional auditing, 
HUD, or other requirements. The proposed rule provides several 
procedural safeguards designed to minimize any potential impact on 
small entities. For example, the rule grants IPAs selected for removal 
from the IPA Roster with the opportunity to provide a written response 
and to request a conference regarding a proposed removal. The rule also 
specifies that the official designated by HUD to review an appeal may 
not be the same HUD official involved in the initial removal decision.
    Notwithstanding HUD's determination that this rule does not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites comments from all entities, including small 
entities, regarding less burdensome alternatives to this rule that will 
meet HUD's objectives as described in this preamble.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) requires federal agencies to assess the effects of 
their regulatory actions on state, local, and tribal governments, and 
on the private sector. This proposed rule does not impose any federal 
mandate on any state, local, or tribal governments, or on the private 
sector within the meaning of UMRA.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from publishing any 
rule that has federalism implications and either imposes substantial 
direct compliance costs on state and local governments and is not 
required by statute, or that preempts state law, unless the agency 
meets the consultation and funding requirements of section 6 of the 
Executive Order. This rule does not have federalism implications and 
does not impose substantial direct compliance costs on state and local 
governments or preempt state law within the meaning of the Executive 
Order.

List of Subjects in 24 CFR Part 5

    Administrative practice and procedure; Aged; Claims; Crime; 
Government contracts; Grant programs--housing and community 
development; Individuals with disabilities; Intergovernmental 
relations; Loan programs--housing and community development; Low and 
moderate income housing; Mortgage insurance; Penalties; Pets; Public 
housing; Rent subsidies; Reporting and recordkeeping requirements; 
Social security; Unemployment compensation; Wages.

    Accordingly, for the reasons stated in the preamble, HUD proposes 
to amend 24 CFR part 5 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. Add new Sec. Sec.  5.802, 5.804, 5.806, 5.808, 5.810, 5.812, 
5.814, 5.816, 5.818, and 5.820 to read as follows:


Sec.  5.802  Definitions.

    The following definitions apply to this subpart:
    Audit(s) or related service(s). Any audit, attestation, 
compilation, review, or other service that an IPA is required to 
perform in accordance with those financial reporting standards 
described in Sec.  5.801.
    Covered entity(ies). Public housing agencies; contract 
administrators; owners; and Title I and Title II nonsupervised lenders, 
nonsupervised mortgagees, and loan correspondents that are subject to 
the requirements of 24 CFR 5.801, for which HUD is the cognizant or 
oversight agency under the Single Audit Act Amendments of 1996.
    Independent Public Accountant (IPA). An accountant is an individual 
employed by a public accounting firm (including a solo practice) or a 
State Auditor's Office, and licensed by a regulatory authority of a 
State or other political subdivision of the United States both before 
and after December 31, 1970. All certified public accountants are 
considered to be independent public accountants.
    Jurisdiction. Any State, territory, Commonwealth, or District of 
the United States.
    Professional standards. (1) Accounting principles that are:
    (i) Established by the Government Accounting Standards Board or 
Generally Accepted Accounting Principles (GAAP), as applicable;
    (ii) Established by the Office of Management and Budget (OMB);
    (iii) Established by HUD; or
    (iv) Applicable to audit reports for particular covered entities or 
covered by the quality control system of a particular IPA listed on the 
IPA Roster.
    (2) Auditing standards. Standards for attestation engagements, 
quality control policies and procedures, ethical and competency 
standards, and independence standards that are issued or adopted by:
    (i) The American Institute of Certified Public Accountants 
(Generally Accepted Auditing Standards (GAAS));
    (ii) The Government Accountability Office (Generally Accepted 
Government Auditing Standards (GAGAS));
    (iii) The Office of Management and Budget (OMB Circular A-133); or
    (iv) HUD.


Sec.  5.804  The Independent Public Accountant Roster (IPA Roster).

    (a) Independent Public Accountant Roster. HUD maintains a roster of 
independent public accountants and public accounting firms (IPAs) who 
are approved to perform audits or related services in specified 
jurisdictions for those entities that are required to submit audited 
financial statements to HUD under this subpart, and for which HUD is 
the cognizant or oversight agency under the Single Audit Act Amendments 
of 1996.
    (b) Disclaimer. The inclusion of an IPA on the IPA Roster does not 
create or imply any warranty or endorsement to any organization or 
individual, including any other potential user of the

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audited financial statements, by HUD of a listed IPA, nor does it 
represent a warranty of any audits or related services performed by the 
listed IPA. The inclusion of an IPA on the IPA Roster means only that 
the IPA has met the qualifications and conditions, prescribed in this 
part, for inclusion on the IPA Roster.


Sec.  5.806  Responsibilities of an IPA listed on the IPA Roster.

    An IPA listed on the IPA Roster is responsible for:
    (a) Complying with any agreements with HUD, including, but not 
limited to, agreements identified at Sec.  5.810(a);
    (b) Maintaining any other eligibility requirements and compliance 
for each state or jurisdiction in which the IPA is listed;
    (c) Notifying HUD within 30 days of any change in the continued 
compliance of the IPA with eligibility requirements; and
    (d) Not making, or causing to be made, any false certifications to 
HUD.


Sec.  5.808  Applicability of IPA Roster.

    (a) Any IPA that seeks to perform audits or related services in a 
particular jurisdiction for covered entities must be listed on the IPA 
Roster for that state or jurisdiction.
    (b) When the IPA wishes to perform audits or related services for 
covered entities with offices in numerous jurisdictions, the IPA need 
only be listed in the jurisdiction in which the covered entity 
maintains its headquarters.
    (c) Every IPA that is engaged to perform audits or related 
services, or who contracts with an IPA to perform any portion of audits 
or related services, must be listed on the IPA Roster individually or 
be an employee or member of an auditing firm listed on the IPA Roster.


Sec.  5.810  Eligibility requirements for placement on the IPA Roster.

    To be eligible for placement on the IPA Roster:
    (a) Public accounting firms and State Auditor's Offices must:
    (1) Be licensed or authorized to practice in each of the specific 
jurisdiction(s) for which the IPA is to be listed;
    (2) Not be, or employ or contract with anyone for the performance 
of audits or related services who is: suspended, debarred, voluntarily 
excluded, subject to a limited denial of participation, or subject to 
any order of disbarment or other denial of right to practice before the 
Securities and Exchange Commission, or subject to a jurisdiction's 
disciplinary action that has resulted in the revocation, suspension, or 
surrender of a license or authorization to practice public accounting;
    (3) Agree upon approval for placement on the IPA Roster, to comply 
with the following to maintain placement on the IPA Roster:
    (i) Accept only those engagements for audits or related services 
that meet the minimum qualifications specified by the Generally 
Accepted Government Auditing Standards (GAGAS);
    (ii) In servicing covered entities, accept only those engagements 
for audits or related services for covered entities located in 
jurisdictions in which the IPA is listed on the IPA Roster;
    (iii) Establish and implement quality control procedures sufficient 
to satisfy the quality control standards of GAGAS;
    (iv) Comply with the professional standards applicable to any 
audits or related services performed for covered entities;
    (v) Comply with any accountancy laws and rules of each jurisdiction 
for which the IPA is to be listed;
    (vi) Comply with all applicable HUD rules and instructions relating 
to financial reporting, audits, or related services;
    (vii) Submit to and cooperate with reviews by HUD of the IPA's 
performance of audits or related services for covered entities;
    (viii) Notify HUD if the IPA or any member or employee of the firm 
is, or has been within the previous 5 years, indicted or otherwise 
charged with or convicted of any offense listed in 24 CFR 24.800(a);
    (ix) Notify HUD if the IPA or any member or employee of the firm 
is, or has been within the previous 5 years, adjudged to be civilly 
liable for any of the offenses listed in 24 CFR 24.800(a); and
    (x) Comply with any requests for information made by HUD.
    (b) Individual public accountants that wish to be listed on the IPA 
Roster must either:
    (1) Meet the eligibility requirements specified in Sec.  5.810(a); 
or
    (2) Be a partner or member of a public accounting firm listed on 
the IPA Roster, or be a full-time employee of such a firm.


Sec.  5.812  IPA Roster Placement Procedures.

    (a) Application. An IPA seeking to be listed on the IPA Roster must 
submit an application to HUD. The application must specifically 
identify each jurisdiction in which the IPA seeks to be listed, and 
must demonstrate that the IPA meets the eligibility requirements 
described in Sec.  5.810 for listing in each such jurisdiction. The 
application must be in a form, and delivered in a manner, prescribed by 
HUD.
    (b) Approval for listing on the IPA Roster. Once received by HUD, 
the application will be reviewed and a decision issued within 45 days 
of HUD's receipt of the application, unless HUD extends this time by 
providing notice to the IPA.
    (1) Approval. If HUD determines that the IPA meets the eligibility 
requirements described in Sec.  5.810 for listing in a particular 
jurisdiction, the IPA will be listed on the IPA Roster for that 
particular jurisdiction.
    (2) Denial. If the IPA fails to demonstrate that it meets all the 
eligibility requirements described in Sec.  5.810, the application will 
be denied.
    (i) If a denial of the application is issued, the IPA will be 
notified of the reasons for the denial and will be given 30 days from 
the date of the denial to request reconsideration and demonstrate that 
the IPA did meet all eligibility requirements for listing in a 
particular jurisdiction at the time of the initial application.
    (ii) If the IPA demonstrates that it did meet all eligibility 
requirements for listing in a particular jurisdiction at the time of 
the initial application, the IPA will be listed on the IPA Roster for 
that particular jurisdiction.
    (iii) If the IPA fails to demonstrate that it met all eligibility 
requirements, the denial of the application is final and the IPA will 
be required to submit a new application to be considered for future 
placement on the IPA Roster.


Sec.  5.814  IPA Roster Removal Procedures.

    (a) Removal from the IPA Roster.
    (1) An IPA may be voluntarily removed from the IPA Roster by 
notifying the Department in writing, and specifying from which 
jurisdiction(s) the IPA wishes to be removed.
    (2) An IPA that fails to fulfill its responsibilities as a listed 
IPA is subject to involuntary removal from the IPA Roster.
    (b) Involuntary automatic removal. HUD may automatically remove an 
IPA from the IPA Roster for all applicable jurisdictions, without the 
benefit of a conference or other opportunity to respond, if the IPA:
    (1) Fails to maintain compliance with eligibility requirements by 
being debarred, suspended, voluntarily excluded, subject to a limited 
denial of participation, or subject to any order of disbarment or other 
denial of right to practice before the Securities and Exchange 
Commission;

[[Page 7176]]

    (2) Fails to maintain compliance with eligibility requirements by 
incurring a jurisdiction's disciplinary action that results in the 
revocation, suspension, or surrender of a license or authorization to 
practice; or
    (3) Fails to maintain compliance with eligibility requirements by 
allowing licensing or authorization to practice to expire, not due to 
jurisdiction disciplinary action in any jurisdiction for which the IPA 
is listed on the IPA Roster.
    (4) Automatic removal of an IPA from the IPA Roster for any 
jurisdiction will constitute automatic removal from the IPA Rosters for 
all jurisdictions. However, automatic removal under paragraph (b)(3) of 
this section for failure to maintain licensing or authorization 
constitutes removal for only the jurisdictions in which the IPA has 
allowed its licensing or authorization to practice to lapse, and does 
not affect the listing of the IPA on the IPA Roster for any other 
jurisdiction in which the IPA remains eligible.
    (c) Causes for contestable removal. Causes for contestable removal 
include, but are not limited to:
    (1) Failing to comply with any agreements with HUD, including, but 
not limited to, agreements identified at Sec.  5.810(a);
    (2) Failing to maintain compliance with any other eligibility 
requirements for listing on the IPA Roster for each jurisdiction in 
which the IPA is listed;
    (3) Failing to notify HUD within 30 days of any change in the 
continued compliance of the IPA with eligibility requirements; or
    (4) Making, or causing to be made, any false certification to HUD.
    (d) Procedure for contestable removal. Unless an IPA is subject to 
automatic removal from the IPA Roster under paragraph (b) of this 
section, the following procedures apply:
    (1) HUD will provide the IPA with written notice of the proposed 
removal from the IPA Roster. The notice of proposed removal will 
include the reasons for the proposed removal of the IPA from the IPA 
Roster.
    (2) The IPA has 30 calendar days from the date of the notice of 
proposed removal to submit a written response objecting to the proposed 
removal and/or requesting a conference. If an IPA submits a timely 
written objection to the proposed removal, the Deputy Assistant 
Secretary of the Departmental Real Estate Assessment Center (REAC) or a 
designee (``Reviewing Official''), will review the proposed removal and 
the IPA objection, and conduct a conference with the IPA, if requested. 
When a request for a conference is received, the Reviewing Official 
will schedule the conference within 30 calendar days of the date the 
request is received. In no instance will the Reviewing Official be the 
same individual who made the initial determination to propose removal 
of the IPA from the IPA Roster.
    (3) The Reviewing Official will issue a determination within 30 
days of receiving the IPA's written response, or, if a conference is 
requested, within 30 days of the closing of the conference. The 
Reviewing Official may extend the time for issuance of a final decision 
by providing the IPA with notice.
    (4) The Reviewing Official may affirm or deny the proposed removal 
from the IPA Roster, or the Reviewing Official may, in his or her sole 
discretion, find cause for the removal but order that the removal be 
held in abeyance pending further action.
    (e) Removal held in abeyance. (1) When the Reviewing Official has 
determined that cause for removal exists, the Reviewing Official may, 
instead, in his or her sole discretion, issue an order of abeyance, 
deferring the removal of the IPA from the IPA Roster until a future 
date specified in the order of abeyance.
    (2) The order of abeyance provides the IPA with the opportunity to 
demonstrate to the satisfaction of the Reviewing Official that all 
causes for the removal have been addressed prior to the effective date 
for removal specified in the order of abeyance.
    (3) The Reviewing Official shall consider any relevant evidence 
submitted by an IPA as of the date specified in the order of abeyance, 
to determine whether all causes for removal have been addressed. Upon 
request by the IPA, the Reviewing Official, in his or her discretion, 
may review such evidence at any time prior to the date specified in the 
order of abeyance.
    (f) Other action. Nothing in this subpart prohibits HUD or the 
federal government from taking such other action against an IPA as 
provided under 24 CFR part 24, or from seeking any other remedy against 
an IPA available to HUD or the federal government by statute or 
otherwise.
    (g) Effective dates of removal from the IPA Roster. (1) Unless an 
IPA is subject to automatic removal from the IPA Roster under paragraph 
(b) of this section, the following effective dates apply.
    (i) If the IPA does not submit a written response within 30 
calendar days of the date of the notice of proposed removal, the 
removal becomes effective 30 calendar days after the date of HUD's 
removal notice.
    (ii) If the IPA submits a written response within 30 calendar days 
of the date of the notice of proposed removal, and the removal decision 
is affirmed, the effective date of the removal is the date of HUD's 
notice affirming its initial removal decision.
    (2) If the IPA is subject to automatic removal, the removal is 
effective as of the date the IPA receives notice of the removal.
    (3) If the removal is held in abeyance, the order of abeyance will 
specify the effective date of the removal, which will be effective 
should the IPA fail to demonstrate to the satisfaction of the Reviewing 
Official that all causes for the removal have been eliminated by the 
effective date.
    (h) Notification of other federal agencies. Where HUD is 
considering the removal of an IPA who has, during the previous 3 years, 
performed audits or related services for a covered entity, HUD will 
endeavor to ascertain whether any audited covered entity receives funds 
from any other federal agency. Where HUD determines that the IPA has 
performed audits or related services for a covered entity receiving 
federal funds from another agency, HUD will notify that agency prior to 
taking any removal action against the IPA.


Sec.  5.816  Consequences of removal from the IPA Roster.

    (a) If an IPA is removed from the IPA Roster, the IPA can no longer 
be engaged to perform audits or related services for covered entities.
    (b) If the IPA is currently engaged to perform audits or related 
services for covered entities, the IPA is not prohibited from 
completing those contracts or engagements. However, the IPA may not 
renew or extend (other than no-cost time extensions) any contract or 
engagement, unless the Reviewing Official grants an exception. The 
granting of any such exception lies within the sole discretion of the 
Reviewing Official and will be granted only when the Reviewing Official 
determines that an exception is in the interest of HUD.
    (c) HUD's action to remove an IPA from the IPA Roster does not 
affect the ability of covered entities to, in their discretion, 
terminate an existing contract or engagement as a result of the removal 
of the IPA from the IPA Roster or the circumstances precipitating the 
removal of the IPA.


Sec.  5.818  Consequences of a removal action that is held in abeyance.

    (a) If the IPA demonstrates, to the satisfaction of the Reviewing 
Official, that all causes for removal have been

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eliminated within the specified time period before the effective date 
of the removal, the removal action against the IPA will be terminated 
and the IPA will remain listed on the IPA Roster, subject to continued 
eligibility.
    (b) If the IPA fails to demonstrate elimination of all causes for 
removal, to the satisfaction of the Reviewing Official, before the 
effective date, the IPA will be removed from the IPA Roster as of the 
effective date.


Sec.  5.820  Reinstatement to the IPA Roster.

    (a) Reinstatement. Except as specified in paragraph (b) of this 
section, an IPA may request reinstatement of its listing on the IPA 
Roster no earlier than one year following the effective date of the 
removal from the IPA Roster.
    (1) The request for reinstatement must contain all the information 
and comply with all the requirements for initial application for 
placement on the IPA Roster.
    (2) The IPA must submit a written explanation of the circumstances 
surrounding the removal from the IPA Roster.
    (3) The IPA must submit documentation demonstrating that all causes 
resulting in the removal from the IPA Roster have been eliminated.
    (b) Reinstatement following automatic removal due to expiration of 
license or authorization to practice. If the IPA has been automatically 
removed due to the expiration of licensing or authorization to practice 
in a jurisdiction, not due to disciplinary action, the IPA may request 
reinstatement and be reinstated at any time by submitting evidence 
demonstrating the renewal of licensing or authorization to practice in 
that particular jurisdiction.

    Dated: January 7, 2008.
Roy A. Bernardi,
Deputy Secretary.
 [FR Doc. E8-2097 Filed 2-5-08; 8:45 am]
BILLING CODE 4210-67-P