Policy on Audits of RUS Awardees, 7557-7566 [2023-01496]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Utilities Service

[Federal Register Volume 88, Number 24 (Monday, February 6, 2023)]
[Rules and Regulations]
[Pages 7557-7566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01496]



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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 88 , No. 24 / Monday, February 6, 2023 / 
Rules and Regulations

[[Page 7557]]



DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Parts 1709, 1719, 1734, 1738, 1739, 1770 and 1773

[Docket No. RUS-22-AGENCY-0053]
RIN 0572-AC61


Policy on Audits of RUS Awardees

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule; request for comment.

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SUMMARY: The Rural Utilities Service (RUS or Agency), a Rural 
Development agency of the United States Department of Agriculture 
(USDA), is issuing a final rule with request for comment. The intent of 
this rule is to revise its Policy on Audits to change the title, remove 
an unnecessary report, update terminology, clarify Agency contacts and 
filing requirements and update or remove any outdated references. This 
document will also make conforming changes to other regulations. These 
changes will provide uniformity and consistency for all RUS awardees.

DATES: 
    Effective date: This final rule is effective May 8, 2023.
    Comment date: Comments are due on or before April 7, 2023.

ADDRESSES: You may submit comments, identified by docket number RUS-22-
AGENCY-0053 and Regulatory Information Number (RIN) number 0572-AC61 
through https://www.regulations.gov.
    Instructions: All submissions received must include the Agency name 
and docket number or RIN for this rulemaking. All comments received 
will be posted without change to https://www.regulations.gov, including 
any personal information provided.
    Docket: For access to the docket to read background documents or 
comments received, go to https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: 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: 
usda.gov">[email protected]usda.gov.

SUPPLEMENTARY INFORMATION: 

I. Background

    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 May 7, 2018 (83 FR 19905), to 
incorporate 2011 revisions to the Generally Accepted Government 
Auditing Standards issued by the Government Accountability Office, the 
clarified audit standards issued by the American Institute of Certified 
Public Accountants in 2011, and Uniform Administrative Requirements, 
Cost Principles, and Audit Requirements for Federal Awards, in 2 CFR 
part 200, subpart F, Audit Requirements, issued by the Office of 
Management and Budget on December 26, 2013, and adopted by USDA on 
December 26, 2014. The update also expanded and clarified its 
regulations to include grant recipients, amend its peer review 
requirements, amend its reporting requirements, expand the options for 
the electronic filing of audits, and clarify several existing audit 
requirements.
    The present rulemaking will update regulations, clarify audit 
policy, and streamline procedures. The uniformity and consistency for 
all awardees should benefit both the awardees and Agency. Professional 
standards and guidance provide a framework for conducting high quality 
audits. To implement these changes, the Agency will publish this as a 
final rule with comment.
    The Administrative Procedure Act exempts from prior notice rules, 
any actions, ``relating to agency management or personnel or to public 
property, loans, grants, benefits, or contracts'' (5 U.S.C. 553(a)(2)).

II. Summary of Changes to the Rule

    The changes made to 7 CFR parts 1709, 1719, 1734, 1738, 1739 and 
1770 are conforming changes to address the amended heading of part 1773 
as addressed in paragraph 1 below and to clarify when entities must 
follow RUS' own audit regulations or 2 CFR part 200.
    The changes made to 7 CFR part 1773 include:
    1. The heading to the part was changed from ``Policy on Audits of 
RUS Borrowers and Grantees'' to ``Policy on Audits of RUS Awardees.'' 
Using the term ``Awardee'' is more comprehensive as some awardees will 
receive grants, loans or a combination of both.
    2. Section 1773.1(a), (c), and (d) were updated to replace outdated 
terminology and to make references to specific sections of the 
regulation.
    3. Section 1773.2 was updated as follows and conforming changes 
made throughout the part as a result of these additions and deletions:
    (i) ``AA-PARA,'' Program Accounting and Regulatory Analysis 
Division, was deleted due to the Agency's restructuring of the 
division. Throughout the regulation, corresponding changes will be made 
to replace AA-PARA with RUS. This change will keep the regulation from 
requiring amendments due to any future Agency restructuring.
    (ii) It is anticipated that multiple changes will take place 
surrounding Agency reporting systems. The generic term ``Agency 
Designated System'' was added so each program can work with their 
awardees and instruct them on the correct system to use. The 
definitions for ``Borrower Collection and Analysis System (BCAS)'' and 
``Data Collection System (DCS)'' were removed to

[[Page 7558]]

eliminate the need for policy updates as changes to these systems 
occur.
    (iii) The definition of ``Audit'' was updated to remove the 
reference to loan or grant and have it read ``provisions of contracts 
or grant agreements'' to streamline terminology.
    (iv) The definitions for ``Borrower'' and ``Grantee'' were deleted 
and replaced with ``Awardee'' to be inclusive of all Agency recipients 
whether loan, grant or a combination of each. This change will help 
awardees understand the expenditure threshold for audit requirements 
could be from any or all Federal funding sources.
    (v) Definitions for ``financial statements'' and ``peer review'' 
were added for clarity.
    (vi) The definition for ``regulatory liability'' was updated to add 
``prescribed in ASC 980, entitled Regulated Operations'' in place of 
``defined by FASB (Financial Accounting Standards Board)'' for more 
clarity.
    (vii) The definition for ``related party'' was updated to show that 
the FASB and GASB (Governmental Accounting Standards Board) agree on 
how the term is defined.
    (viii) The definition for ``report package'' was updated to remove 
the requirement for the report on compliance with aspects of 
contractual agreements and regulatory requirements to be included. The 
addition of a complete set of financial statements has been added to 
ensure awardees understand these must be included with audit reports. 
See paragraph 4(i) below.
    (ix) The definition of ``RUS'' was updated to include a website 
where contact information for the Agency could be obtained. This change 
will keep the regulation from needing to be updated for any future 
Agency restructuring.
    (x) The definition of ``RUS Bulletin 1773-1'' was removed due to 
this bulletin being no longer relevant. The bulletin will be officially 
rescinded.
    (xi) The definition of ``RUS security agreement'' was updated to 
change the term loan ``agreement'' to ``contract.''
    (xii) The definition of ``Uniform System of Accounts'' was updated 
to replace borrowers with awardees and to include references to 
specific regulatory sections.
    4. Section 1773.3 was updated as follows:
    (i) Paragraph (a) was updated to provide clarity for those auditees 
under the Single Audit Act. This section was also updated to reflect 
that financial statements should be prepared in accordance with 
Generally Accepted Accounting Principles (GAAP) or if using a special 
purpose framework that reconciling schedules should be provided. This 
clarification should assist awardees in providing all necessary 
information to appropriately analyze financial data.
    (ii) Paragraph (b) was updated to replace AA-PARA with RUS.
    (ii) The third sentence of paragraph (c) was updated to add ``with 
grant funding only'' after ``Auditees'' to provide clarity.
    (iv) Paragraphs (d) introductory text and (d)(1) and (2) were 
updated to correspond with the correct section of 2 CFR part 200. 
Paragraph (d)(3) was updated to reference 2 CFR part 200 and to replace 
AA-PARA with RUS. Paragraph (d)(3)(i) was updated to reference 
reporting under 7 CFR part 1773.
    (v) Paragraph (e) was updated to change borrower(s) to awardee(s).
    5. Section 1773.4 was updated as follows:
    (i) Paragraph (a)(3) was updated to clarify the auditee's 
responsibility in selecting the audit firm.
    (ii) Paragraphs (c) introductory text and (c)(1) and (2) were 
updated to replace AA-PARA with RUS and to reference specific 
regulatory sections.
    (iii) Paragraph (e) was updated to indicate that auditees must 
obtain debarment certifications in accordance with 2 CFR 180.300 or 2 
CFR part 417. Directing the awardee to relevant CFR parts will help 
clarify the available methods of debarment certification available to 
the awardee.
    (iv) Paragraph (f) was updated to clarify that auditee must obtain 
a copy of the auditor's most recently accepted peer review report which 
should be dated within 36 months of the engagement letter. This 
clarification is in accordance with the current American Institute of 
Certified Public Accountants (AICPA) guidelines.
    (v) Paragraph (g) was updated to clarify that auditees must provide 
reconciliation schedules if a method other than GAAP is used. The 
reconciliation schedules are necessary to adequately analyze the 
financial performance of the awardee and determine the awardee's 
ability to meet short- and long-term obligations.
    (vi) Paragraph (h) was updated to replace the term unqualified with 
unmodified. The change in terminology is in accordance with the current 
Generally Accepted Government Auditing Standards (GAGAS) guidelines.
    (vii) Paragraphs (i) introductory text and (i)(1), (2), and (3) 
were updated to clarify that communication and submission requirements 
are electronic to ensure awardees understands paper mail in any form 
will not be acceptable. This clarification is to emphasis the 
requirement for electronic communication from previous revision. 
Paragraph (i)(3) was also updated to reference Sec.  1773.1(d).
    (viii) Paragraph (j) was updated to indicate that written responses 
are due via email.
    6. The introductory text of Sec.  1773.5 and paragraph (c) were 
updated to provide clarity on auditors being enrolled in and complying 
with the requirements of an approved peer review program. As part of 
the update, paragraph (c)(2) was deleted and paragraph (c)(1) was 
redesignated as paragraph (d).
    7. Section 1773.6 was updated as follows:
    (i) Paragraphs (a) introductory text and (a)(7) were updated to 
clarify that the auditor and management should agree on the terms of 
the engagement and that the terms should be documented in the 
engagement letter or other suitable agreement. This clarification is in 
accordance with AICPA and GAGAS requirements. Paragraph (a)(4) was 
updated to replace AA-PARA with RUS and paragraph (a)(9) was updated to 
indicate that imaging should be permitted in addition to photocopying.
    (ii) Paragraph (b) was updated to indicate that the auditor and 
auditee are expected to retain the engagement letter and have it 
available for inspection by the Agency.
    8. Section 1773.7 was updated as follows:
    (i) Paragraph (a) was updated to indicate that RUS would respond in 
writing via email.
    (ii) Paragraph (b) was updated to remove unnecessary language.
    (iii) Paragraph (c) was updated to include the introductory text 
``Audit scope limitations are as follows''. Paragraph (c)(1) was 
updated to reference Sec.  1773.4(h). Paragraphs (c)(1) and (3) were 
updated to replace AA-PARA with RUS and paragraph (c)(2) was updated to 
change unqualified to unmodified.
    9. Section 1773.8 was updated to make paragraph (a) the 
introductory text since there was not a paragraph (b) and paragraphs 
(a)(1) through (3) were redesignated as paragraphs (a) through (c). In 
addition, changes to the section were made to show that RUS would 
respond in writing via email and to replace AA-PARA with RUS.
    10. Section 1773.9 was updated as follows:
    (i) The heading of the section was updated from ``Disclosure of 
fraud, and

[[Page 7559]]

noncompliance with provisions of laws, regulations, contracts, and loan 
and grant agreements'' to ``Disclosure of fraud, and noncompliance with 
provisions of law, regulations, contracts, and grant agreements.''
    (ii) Paragraphs (a) and (b) were updated to remove the terms ``loan 
and'' which corresponds to the revised title of the section.
    (iii) Paragraph (c) was updated to indicate RUS would reply in 
writing via email. Paragraph (c)(2) was updated to replace AA-PARA with 
RUS. Paragraphs (c)(3)(i) and (ii) were updated to the current Office 
of Inspector General (OIG) offices and corresponding contact 
information.
    11. Section 1773.10 was updated to show that auditors must make 
documentation available and permit the Agency to photocopy or image all 
documentation. Adding permission for imaging documentation is 
imperative with electronic communications between the Agency and both 
auditee and auditors.
    12. Section 1773.20 was updated to remove paragraph (b) on 
communication with the governance board. Paragraph (b) has been removed 
because this section is a reiteration of the information in paragraph 
(a).
    13. Section 1773.21 was updated as follows:
    (i) Paragraphs (b) and (e) were updated to clarify audit submission 
requirements regarding format and system.
    (ii) Paragraph (c) was updated to replace AA-PARA with RUS.
    (ii) Paragraph (d) was updated to clarify what should be included 
in the reporting package.
    The above changes will help ensure audit submissions are unlocked 
or unencrypted before uploading through the Agency designated system 
and should improve efficiency of Agency staff and reduce burden on 
awardees by reducing audit rejections and resubmissions.
    14. Section 1773.31 was updated to clarify that auditors should 
form an opinion on the comparative financial statements and issue a 
written report that meets AICPA professional auditing standards and 
GAGAS requirements. The language in this section was restated to adhere 
more strictly with AICPA professional audit standards and GAGAS 
requirements.
    15. Section 1773.32 was updated as follows:
    (i) The heading of the section was updated from ``Report on 
internal control over financial reporting and on compliance and other 
matters'' to ``Reports on internal control; compliance with provisions 
of laws, regulations, contracts, and grant agreements; and instances of 
fraud.'' The report title has been updated to conform with the most 
current Government Auditing Standards as issued by the Government 
Accountability Office. In addition, the use of a single report is at 
the discretion of the auditor. Should the auditor determine individual 
reports are warranted, separate reports could be issued.
    (ii) Paragraph (a) was updated to remove ``and loan'' from two 
locations in the first sentence as a corresponding change. In addition, 
the last sentence was updated to include digital as an acceptable 
signature option.
    (iii) In paragraphs (b) and (c), the statement ``the report on 
internal controls over financial reporting and on compliance and other 
matters'' was replaced with ``the reports on internal control; 
compliance with provisions of laws, regulations, contracts, and grant 
agreements; and instances of fraud.'' These are conforming changes to 
the updated heading of the section.
    16. Section 1773.33 was amended by removing all requirements of 
this section and reserving the section. The Report of Compliance of 
Contractual Agreements and Regulatory Requirements shall no longer be a 
requirement as it no longer provides a meaningful benefit to RUS. 
Conforming changes were made to Sec. Sec.  1773.2, 1773.31, and 
1773.38.
    17. Section 1773.34 was updated to clarify that the auditor must 
prepare a schedule of findings to be included with the reports on 
internal control; compliance with laws, regulations, contracts and 
grant agreements; and instances of fraud. This change in report title 
is in compliance with the current Government Auditing Standards 
guidance. AA-PARA was replaced with RUS in the last sentence.
    18. Section 1773.38 was updated to clarify that audit requirements 
in 7 CFR part 1773 as a whole versus specific sections should be met 
annually by the auditor. The elimination of the Report of Compliance of 
Contractual Agreements and Regulatory Requirements removed the need to 
emphasize specific audit requirements applicable only to this report.
    19. Sections 1773.39, 1773.41, 1773.42, 1773.43 and 1773.44 were 
amended by removing all requirements of the sections and reserving the 
sections. These sections provided audit guidance or requirements that 
were specific to the Report of Compliance of Contractual Agreements and 
Regulatory Requirements. With the elimination of this report, these 
sections are no longer valid.

III. Executive Orders and Acts

Executive Order 12866

    This final rule has been determined to be not significant for the 
purposes of Executive Order (E.O.) 12866 and, therefore, has not been 
reviewed by the Office of Management and Budget (OMB).

Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

Executive Order 12372, Intergovernmental Review of Federal Programs

    This final rule is excluded from the scope of E.O. 12372, 
Intergovernmental Consultation, which may require consultation with 
state and local officials. See the final rule related notice entitled 
``Department Programs and Activities Excluded from Executive Order 
12372'' (50 FR 47034), advising that RUS loans and loan guarantees were 
not covered by E.O. 12372.

Executive Order 12988, Civil Justice Reform

    This final rule has been reviewed under E.O. 12988, Civil Justice 
Reform. In accordance with this final rule: (1) All State and local 
laws and regulations that are in conflict with this rule will be 
preempted; (2) No retroactive effect will be given to this rule; and 
(3) Administrative proceedings of the National Appeals Division (7 CFR 
part 11) must be exhausted before bringing suit in court challenging 
action taken under this rule.

Regulatory Flexibility Act Certification

    RUS has determined that this final rule will not have significant 
impact on a substantial number of small entities defined in the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The RUS loan 
programs provide borrowers with loans at interest rates and terms that 
are more favorable than those generally available from the private 
sector. Borrowers, as a result of obtaining Federal financing, receive 
economic benefits that exceed any direct cost associated with RUS 
regulations and requirements.

National Environmental Policy Act

    In accordance with the National Environmental Policy Act of 1969, 
Public Law 91-190, this final rule has been reviewed in accordance with 
7 CFR part 1970 (``Environmental Policies

[[Page 7560]]

and Procedures''). The Agency has determined that (i) this action meets 
the criteria established in 7 CFR 1970.53(f); (ii) no extraordinary 
circumstances exist; and (iii) the action is not ``connected'' to other 
actions with potentially significant impacts, is not considered a 
``cumulative action'' and is not precluded by 40 CFR 1506.1. Therefore, 
the Agency has determined that the action does not have a significant 
effect on the human environment, and therefore neither an Environmental 
Assessment nor an Environmental Impact Statement is required.

Assistance Listing Number (Formally Known as the Catalog of Federal 
Domestic Assistance)

    The Assistance Listing Numbers assigned to the programs described 
by this final rule are as follows: 10.751--Rural Energy Savings 
Program; 10.752--Rural eConnectivity Pilot Program, 10.850--Rural 
Electrification Loans and Loan Guarantees; 10.851--Rural Telephone 
Loans and Loan Guarantees; 10.855--Distance Learning and Telemedicine 
Loans and Grants; 10.858--Denali Commission Grants and Loans; 10.859--
Assistance to High Energy Cost Rural Communities; 10.863--Community 
Connect Grant Program and 10.886 Rural Broadband Access Loans and Loan 
Guarantees.

Information Collection and Recordkeeping Requirements

    The information collection and recordkeeping requirements contained 
in this rule are approved by OMB under OMB Control Number 0572-0095. 
This final rule contains no new reporting or recordkeeping burdens. The 
3-year renewal for this package is pending approval by OMB.

Unfunded Mandates

    This final rule contains no Federal mandates (under the regulatory 
provision of Title II of the Unfunded Mandates Reform Act of 1995) for 
state, local, and tribal governments or the private sector. Thus, this 
final rule is not subject to the requirements of sections 202 and 205 
of the Unfunded Mandates Reform Act of 1995.

Executive Order 13132--Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with the States is not required.

Executive Order 13175--Consultation and Coordination With Indian Tribal 
Governments

    This E.O. imposes requirements on RUS in the development of 
regulatory policies that have Tribal implications or preempt Tribal 
laws. RUS has determined that the rule does not have a substantial 
direct effect on one or more Indian tribe(s) or on either the 
relationship or the distribution of powers and responsibilities between 
the Federal Government and Indian tribes. Thus, this rule is not 
subject to the requirements of E.O. 13175. If Tribal leaders are 
interested in consulting with RUS on this rule, they are encouraged to 
contact USDA's Office of Tribal Relations or Rural Development's Native 
American Coordinator at: usda.gov">[email protected]usda.gov to request such a consultation.

E-Government Act Compliance

    The Agency is committed to complying with the E-Government Act of 
2002, Public Law 107-347, which requires Government agencies in general 
to provide the public the option of submitting information or 
transacting business electronically to the maximum extent possible and 
to promote the use of the internet and other information technologies 
to provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

Civil Rights Impact Analysis

    Rural Development, a mission area for which RUS is an agency, has 
reviewed this rule in accordance with USDA Regulation 4300-4, Civil 
Rights Impact Analysis, to identify any major civil rights impacts the 
rule might have on program participants on the basis of age, race, 
color, national origin, sex, disability, sex, gender identity 
(including gender expression), genetic information, political beliefs, 
sexual orientation, marital status, familial status, parental status, 
veteran status, religion, reprisal and/or resulting from all or a part 
of an individual's income being derived from any public assistance 
program. After review and analysis of the rule and available data, it 
has been determined that based on the analysis of the program purpose, 
application submission and eligibility criteria, issuance of this final 
rule is not likely to negatively impact very low, low and moderate-
income populations, minority populations, women, Indian tribes or 
persons with disability, by virtue of their race, color, national 
origin, sex, age, disability, or marital or familial status. No major 
civil rights impact is likely to result from this rule.

USDA Non-Discrimination Statement

    In accordance with Federal civil rights laws and USDA civil rights 
regulations and policies, the USDA, its Mission Areas, agencies, staff 
offices, employees, and institutions participating in or administering 
USDA programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; the USDA TARGET 
Center at (202) 720-2600 (voice and TTY); or the 711 Relay Service.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.usda.gov/oascr, from any 
USDA office, by calling (866) 632-9992, or by writing a letter 
addressed to USDA. The letter must contain the complainant's name, 
address, telephone number, and a written description of the alleged 
discriminatory action in sufficient detail to inform the Assistant 
Secretary for Civil Rights (ASCR) about the nature and date of an 
alleged civil rights violation. The completed AD-3027 form or letter 
must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: usda.gov">[email protected]usda.gov.

List of Subjects

7 CFR Part 1709

    Administrative practices and procedure, Electric power, Grant 
programs--energy, Loan programs--

[[Page 7561]]

energy, Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1719

    Electric power, Grant programs--energy, Loan programs--energy, 
Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1734

    Community development, Grant programs--education, Grant programs--
health, Loan programs--education, Loan programs--health, Rural areas.

7 CFR Part 1738

    Fees, Loan programs--communications, Rural areas, 
Telecommunications, Telephone.

7 CFR Part 1739

    Grant programs--communications, Rural areas, Telecommunications, 
Telephone.

7 CFR Part 1770

    Accounting, Loan programs--communications, Report and recordkeeping 
requirements, Rural areas, Telephone, Uniform System of Accounts.

7 CFR Part 1773

    Accounting, Auditing, Electric power, Grant programs, Loan 
programs--communications, Loan programs--energy, Reporting and 
recordkeeping requirements, Rural areas, Telephone.

    For the reasons set forth in the preamble, RUS amends 7 CFR parts 
1709, 1719, 1734, 1738, 1739, 1770, and 1773 as follows:

PART 1709--ASSISTANCE TO HIGH ENERGY COST COMMUNITIES

0
1. The authority citation for part 1709 continues to read as follows:

    Authority:  5 U.S.C. 301, 7 U.S.C. 901 et seq.

Subpart A--General Requirements

0
2. Amend Sec.  1709.21 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  1709.21  Audit requirements.

* * * * *
    (a) If the recipient is a for-profit entity, an electric or 
telecommunications cooperative, or any other entity not covered by the 
definition of ``non-Federal entity'' in 2 CFR 200.1, the recipient 
shall provide an independent audit report in accordance with 7 CFR part 
1773 and the grant agreement.
    (b) If the recipient is a non-Federal entity, as defined in 2 CFR 
200.1, the recipient shall provide an audit in accordance with subpart 
F of 2 CFR part 200.

PART 1719--RURAL ENERGY SAVINGS PROGRAM

0
3. The authority citation for part 1719 continues to read as follows:

    Authority:  7 U.S.C. 8107a (Section 6407).

Subpart B--Application, Submission and Administration of RESP Loans

0
4. Amend Sec.  1719.13 by revising paragraphs (b) introductory text and 
(b)(1) and (2) to read as follows:


Sec.  1719.13  Auditing and accounting requirements.

* * * * *
    (b) Auditing requirements. RESP borrowers will be required to 
prepare audits as follows:
    (1) If the borrower is a for-profit entity, an electric or 
telecommunications cooperative, or any other entity not covered by the 
definition of ``non-Federal entity'' in 2 CFR 200.1, the borrower shall 
provide an independent audit report in accordance with 7 CFR part 1773 
and the award agreement. The certified public accountant (CPA) is 
selected by the awardee and must be approved by RUS as set forth in 7 
CFR 1773.5.
    (2) If the borrower is a non-Federal entity, as defined in 2 CFR 
200.1, the borrower shall provide an audit in accordance with subpart F 
of 2 CFR part 200.
* * * * *

PART 1734--DISTANCE LEARNING AND TELEMEDICINE LOAN AND GRANT 
PROGRAMS

0
5. The authority citation for part 1734 continues to read as follows:

    Authority: 7 U.S.C. 901 et seq. and 950aaa et seq.

Subpart A--Distance Learning and Telemedicine Loan and Grant 
Program--General

0
6. Amend Sec.  1734.8 by revising paragraphs (a) through (c) to read as 
follows:


Sec.  1734.8  Audit requirements.

* * * * *
    (a) If the awardee is a for-profit entity, an electric or 
telecommunications cooperative, or any other entity not covered by the 
definition of ``non-Federal entity'' in 2 CFR 200.1, the awardee shall 
provide an independent audit report in accordance with 7 CFR part 1773 
and the grant agreement.
    (b) If the awardee is a non-Federal entity, as defined in 2 CFR 
200.1, the awardee shall provide an audit in accordance with subpart F 
of 2 CFR part 200.
    (c) Grant awardees shall comply with 2 CFR part 200, and rules on 
the disposition of grant assets in part 200 shall be applied regardless 
of the type of legal organization of the grantee.

PART 1738--RURAL BROADBAND LOANS, LOAN/GRANT COMBINATIONS, AND LOAN 
GUARANTEES

0
7. The authority citation for part 1738 continues to read as follows:

    Authority: 7 U.S.C. 901 et seq.

Subpart F--Closing, Servicing, and Reporting for Loan and Loan/
Grant Combination Awards

0
8. Amend Sec.  1738.254 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  1738.254  Accounting, reporting, and monitoring requirements.

    (a) Awardees must adopt a system of accounts for maintaining 
financial records acceptable to the Agency, as described in 7 CFR part 
1770, subpart B.
    (b) Awardees will be required to prepare audits as follows:
    (1) If the awardee is a for-profit entity, an electric or 
telecommunications cooperative, or any other entity not covered by the 
definition of ``non-Federal entity'' in 2 CFR 200.1, the awardee shall 
provide an independent audit report in accordance with 7 CFR part 1773 
and the award agreement. The certified public accountant (CPA) 
conducting the annual audit is selected by the awardee and must be 
approved by RUS as set forth in 7 CFR 1773.5.
    (2) If the awardee is a non-Federal entity, as defined in 2 CFR 
200.1, the awardee shall provide an audit in accordance with subpart F 
of 2 CFR part 200.
* * * * *

PART 1739--BROADBAND GRANT PROGRAM

0
9. The authority citation for part 1739 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq.

Subpart A--Community Connect Grant Program

0
10. Amend Sec.  1739.20 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  1739.20  Audit requirements.

* * * * *

[[Page 7562]]

    (a) If the recipient is a for-profit entity, an electric or 
telecommunications cooperative, or any other entity not covered by the 
definition of ``non-Federal entity'' in 2 CFR 200.1, the recipient 
shall provide an independent audit report in accordance with 7 CFR part 
1773 and the grant agreement. Please note that the first audit 
submitted to the Agency and all subsequent audits must be comparative 
audits as described in 7 CFR part 1773.
    (b) If the recipient is a non-Federal entity, as defined in 2 CFR 
200.1, the recipient shall provide an audit in accordance with subpart 
F of 2 CFR part 200.

PART 1770--ACCOUNTING REQUIREMENTS FOR RUS TELECOMMUNICATIONS 
BORROWERS

0
11. The authority citation for part 1770 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Subpart B--Uniform System of Accounts

0
12. Amend Sec.  1770.13 by revising paragraph (a) to read as follows:


Sec.  1770.13  Accounting requirements.

    (a) Each borrower shall maintain its books of accounts on the 
accrual basis of accounting. All transactions shall be recorded in the 
period in which they occur and reconciled monthly. The books of 
accounts shall be closed at the end of each fiscal year and financial 
statements shall be prepared for the period and audited in accordance 
with the provisions of 7 CFR part 1773.
* * * * *

PART 1773--POLICY ON AUDITS OF RUS AWARDEES

0
13. The authority citation for part 1773 continues to read as follows:

    Authority: 7 U.S.C. 901 et seq., 7 U.S.C. 1921 et seq., 7 U.S.C. 
6941 et seq.


0
14. The heading for part 1773 is revised to read as set forth above.

Subpart A--General Provisions

0
15. Amend Sec.  1773.1 by revising paragraphs (a), (c), and (d) to read 
as follows:


Sec.  1773.1  General.

    (a) This part implements the standards for audits required by the 
loan contracts and grant agreements of Rural Utilities Service (RUS) 
electric and telecommunications awardees. The provisions in this part 
require auditees to prepare and furnish to RUS, at least once during 
each 12-month period, a full and complete report of its financial 
condition, operations, and cash flows, in form and substance 
satisfactory to RUS, audited by an independent auditor that meets the 
requirements of Sec.  1773.5, and performed in accordance with auditing 
standards issued by generally accepted Government auditing standards 
(GAGAS) and the requirements of Sec.  1773.7.
* * * * *
    (c) This part further sets forth the criteria that an auditee 
should use to select an auditor and certain audit procedures and audit 
documentation that must be performed and prepared by the auditor.
    (d) Failure of an auditee to provide an audit in compliance with 
this part is a serious violation of the RUS security agreement. RUS 
relies on audited financial statements in order to assess and monitor 
the financial condition of its awardees and to fulfill its fiduciary 
responsibilities.
* * * * *

0
16. Amend Sec.  1773.2 by:
0
a. Removing the definition of ``AA-PARA'';
0
b. Adding, in alphabetical order, the definition of ``Agency designated 
system'';
0
c. Revising the definitions of ``Audit'' and Auditee'';
0
d. Adding, in alphabetical order, the definition of ``Awardee'';
0
e. Removing the definitions of ``BCAS'', ``Borrower'', and ``DCS'';
0
f. Adding, in alphabetical order, the definition of ``Financial 
statements'';
0
g. Removing the definition of ``Grantee'';
0
h. Adding, in alphabetical order, the definition of ``Peer review'';
0
i. Revising the definitions of ``Regulatory liability'', ``Related 
party'', ``Reporting package'', and ``RUS'';
0
j. Removing the definition of ``RUS Bulletin 1773-1''; and
0
k. Revising the definitions of ``RUS security agreement'' and ``Uniform 
System of Accounts''.
    The additions and revisions read as follows:


Sec.  1773.2  Definitions.

* * * * *
    Agency designated system means the electronic system designated by 
the Agency for awardees to upload audit documents.
* * * * *
    Audit means an examination of financial statements by an 
independent auditor for the purpose of expressing an opinion on the 
fairness with which those statements present 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 applicable laws, 
regulations, and provisions of contracts or grant agreements that could 
have a material effect on the financial statements.
* * * * *
    Auditee means a RUS awardee that is required to submit an annual 
audit as a condition of the award.
* * * * *
    Awardee means an entity that has an outstanding RUS or Federal 
Financing Bank (FFB) loan or loan guarantee and/or a continuing 
responsibility under a grant agreement with RUS.
* * * * *
    Financial statements mean the comparative balance sheets, 
statements of revenue and patronage capital (or statement of operations 
customary to the type of entity reporting) and statements of cash 
flows.
* * * * *
    Peer review means an approved study, appraisal, or 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.
* * * * *
    Regulatory liability 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.
    Related party has the same meaning as defined by FASB and GASB.
    Reporting package means:
    (1) The auditor's report on the financial statements;
    (2) The reports on internal control; compliance with provisions of 
laws, regulations, contracts, and grant agreements; and instances of 
fraud;
    (3) A complete set of financial statements;
    (4) The schedule of findings and recommendations; and
    (5) All supplemental schedules and information required by this 
part.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture. Contact information for RUS can be 
found at RUS Program Accounting Services Division Rural Development 
(usda.gov).
    RUS security agreement means a loan contract, grant agreement, 
mortgage,

[[Page 7563]]

security agreement, or other form of agreement that governs the terms 
and conditions of, or provides security for, loan and/or grant funds 
provided by RUS to the auditee.
* * * * *
    Uniform System of Accounts means, for telecommunications awardees, 
as contained in 7 CFR part 1770, subpart B, and for electric awardees, 
as contained in 7 CFR part 1767, subpart B.

Subpart B--RUS Audit Requirements

0
17. Revise Sec.  1773.3 to read as follows:


Sec.  1773.3  Annual audit.

    (a) Each auditee must have its financial statements audited 
annually by an auditor selected by the auditee and approved by RUS as 
set forth in Sec.  1773.4. All auditees, except those subject to the 
Single Audit Act, must submit audited financial statements on a 
comparative basis covering at least two consecutive 12-month periods, 
unless the entity has not been in existence for two consecutive 12-
month audit periods. Financial statements should be prepared in 
accordance with GAAP, or if prepared using a special purpose framework, 
reconciling schedules should be included. Audits of consolidated 
financial statements of the parent are not an acceptable replacement 
for an audit of the auditee.
    (b) Each auditee must establish an annual audit date within 12 
months of the date of the first advance and must prepare annual 
financial statements for the audit date established. Each auditee must 
notify RUS of the audit date at least 90 days prior to the selected 
audit date.
    (c) Auditees must furnish a reporting package to RUS within 120 
days of the audit date. (See Sec.  1773.21) Until all loans made or 
guaranteed by RUS are repaid and unliquidated obligations rescinded, 
auditees must continue to provide annual audited financial statements. 
Auditees with grant funding only must furnish annual audited financial 
statements in the year of the first advance and until all funds have 
been advanced or rescinded, and all financial compliance requirements 
have been fully satisfied.
    (d) An auditee that is identified as a non-Federal entity as 
defined in 2 CFR 200.1, which means a State, local government, Indian 
tribe, Institution of Higher Education (IHE), or nonprofit organization 
that carries out a Federal award as a recipient or subrecipient, must 
meet the audit requirements outlined in 2 CFR 200.501 and 200.502 and 
the Single Audit Act, and not this part.
    (1) For auditees expending less than the threshold for expenditure 
in Federal awards during the year, RUS reserves its right under 2 CFR 
200.503 to arrange for an audit performed in accordance with this part.
    (2) Within 30 days after the audit date, auditees subject to 2 CFR 
part 200, subpart F, must notify RUS, in writing via email, of the 
total Federal awards expended during the year and must state whether 
the audit will be performed in accordance with the Single Audit Act or 
this part.
    (e) Subpart F of 2 CFR part 200 does not apply to audits of RUS 
electric and telecommunications cooperatives and for-profit 
telecommunications awardees unless the awardee has contractually agreed 
with another Federal agency (e.g., Federal Emergency Management Agency) 
to provide a financial audit performed in accordance with 2 CFR part 
200, subpart F. In no circumstance will an auditee be required to 
submit separate audits performed in accordance with this part and 2 CFR 
part 200, subpart F.

0
18. Amend Sec.  1773.4 by revising paragraphs (a)(3), (c), (e), (f), 
(g) introductory text, (h), (i), and (j) introductory text to read as 
follows:


Sec.  1773.4  Auditee's responsibilities.

    (a) * * *
    (3) The auditor's ability to complete the audit and submit the 
reporting package to the auditee within 90 days of the audit date.
* * * * *
    (c) Notification of selection. When the initial selection or 
subsequent change of an auditor has been made, the auditee must notify 
RUS, in writing via email, at least 90 days prior to the audit date. 
Changes in the name of an auditor are considered to be a change in the 
auditor.
    (1) Within 30 days of the date of receipt of such notice, RUS or 
its designated representative will notify the auditee, in writing via 
email, if the selection or change in auditor is not satisfactory as 
identified in Sec.  1773.5.
    (2) Notification that the same auditor has been selected for 
succeeding audits of the auditee's financial statements is not 
required; however, the procedures outlined in this part must be 
followed for each new auditor selected, even though such auditor may 
previously have been approved by RUS to audit records of other RUS 
auditees.
* * * * *
    (e) Debarment certification. The auditee must obtain, from the 
selected auditor, a lower tier covered transaction certification or 
other method in accordance with 2 CFR 180.300 or 2 CFR part 417, as 
required by Executive Orders 12549 and 12689 and any rules or 
regulations in this chapter issued thereunder.
    (f) Peer review report. The auditee must obtain, from the selected 
auditor, a copy of the auditor's most recently accepted peer review 
report, which should be dated within 36 months of the engagement 
letter.
    (g) Preparation of schedules. The auditee must prepare any 
schedules that are required by the auditor to perform the audit, 
including a complete set of financial statements, a schedule of 
deferred debits and deferred credits and a detailed schedule of 
investments in subsidiary and affiliated companies accounted for on the 
cost, equity, or consolidated basis. The detailed schedule of 
investments can be included in the notes to the financial statements or 
as a separate schedule as long as all information required is 
adequately disclosed. If the auditee uses a method other than GAAP, 
reconciliation schedules should be included with the reporting package.
* * * * *
    (h) Scope limitations. The auditee will not limit the scope of the 
audit to the extent that the auditor is unable to provide an unmodified 
opinion that the financial statements are presented fairly in 
conformity with GAAP due to the scope limitation.
    (i) Submission of reporting package. The auditee must submit to 
RUS, via the Agency designated system, the required reporting package 
as set forth in Sec.  1773.21.
    (1) A reporting package that fails to meet the requirements 
detailed in this part will be returned to the auditee via email with a 
written explanation of noncompliance.
    (2) The auditee must, within 30 days of the date of the email 
detailing the noncompliance, submit a corrected reporting package to 
RUS via the Agency designated system.
    (3) If a corrected reporting package is not received within 30 days 
of the date of the email detailing the noncompliance, RUS will take 
appropriate action, depending on the severity of the noncompliance. Per 
Sec.  1773.1(d), failure to provide an audit in compliance with this 
part is a serious violation of the RUS security agreement. RUS relies 
on audited financial statements to assess and monitor the financial 
condition of its awardees and to fulfill its fiduciary 
responsibilities.
    (j) Submission of a plan of corrective action. If the auditor's 
report contains

[[Page 7564]]

findings and recommendations but does not include the auditee's 
response, the auditee must submit written responses via email to RUS 
within 180 days of the audit date. The written responses must address:
* * * * *

0
19. Amend Sec.  1773.5 by revising the introductory text and paragraph 
(c) and adding paragraph (d) to read as follows:


Sec.  1773.5  Qualifications of the auditor.

    Auditors must meet the qualifications criteria of this section and 
enter into an audit engagement with the auditee that complies with 
Sec.  1773.6 to be considered satisfactory to RUS.
* * * * *
    (c) Peer review requirement. Auditors must be enrolled in and 
comply with the requirements of an approved peer review program and 
must have undergone a satisfactory peer review of their accounting and 
audit practice. The peer review must be in effect at the date of the 
audit report opinion.
    (d) Peer review reports. RUS or its designated representative 
reserves the right to request peer review reports from selected 
auditors, including evidence indicating actions taken to correct 
deficiencies identified in the peer review report, if applicable.

0
20. Amend Sec.  1773.6 by revising paragraphs (a) introductory text, 
(a)(4), (7), and (9), and (b) to read as follows:


Sec.  1773.6  Auditor communication.

    (a) Under GAGAS and AICPA professional auditing standards, the 
auditor should agree upon the terms of the engagement with management 
or those charged with governance, as appropriate. The agreed-upon terms 
of the engagement should be documented in an audit engagement letter or 
other suitable form of written agreement. RUS requires the auditor's 
communication to take the form of an audit engagement letter prepared 
by the auditor and that it be formally accepted by the auditee's 
governance board or an audit committee representing the governance 
board. In addition to the requirements of the AICPA's professional 
auditing standards and GAGAS, the engagement letter must also include 
the following:
* * * * *
    (4) That the auditor acknowledges that it is required under Sec.  
1773.7 to contact RUS if the auditor is unable to resolve scope 
limitations imposed by the auditee, or if such limitations in scope 
violate this part. Acceptance of the engagement letter by the auditee 
is required, thus granting the auditor permission to directly notify 
RUS as needed;
* * * * *
    (7) That the auditor will perform the audit and will issue the 
required reports and the auditee will prepare and submit the reporting 
package in accordance with the requirements of this part;
* * * * *
    (9) That the auditor will make all audit documentation available to 
RUS or its representatives (including but not limited to OIG and GAO), 
upon request, and will permit the photocopying or imaging of all such 
audit documentation.
    (b) A copy of the audit engagement letter must be retained by both 
the auditee and auditor. The engagement letter must be available at the 
auditee's office for inspection by RUS personnel or its designated 
representatives.

0
21. Revise Sec.  1773.7 to read as follows:


Sec.  1773.7  Audit standards.

    (a) The audit of the financial statements must be performed in 
accordance with GAGAS and this part in effect at the audit date unless 
the auditee is directed otherwise, in writing, via email by RUS.
    (b) The audit of the financial statements must include such tests 
of the accounting records and such other auditing procedures that are 
sufficient to enable the auditor to express an opinion on the financial 
statements.
    (c) Audit scope limitations are as follows:
    (1) As noted under Sec.  1773.4(h), the auditee will not limit the 
scope of the audit to the extent that the auditor is unable to meet RUS 
audit requirements without prior written approval of RUS.
    (2) If the auditor determines during the audit that an unmodified 
opinion cannot be issued due to a scope limitation imposed by the 
auditee, the auditor should use professional judgment to determine what 
levels of the auditee's management and/or those charged with governance 
should be informed.
    (3) After informing the auditee's management and/or those charged 
with governance, if the scope limitation is not adequately resolved, 
the auditor should immediately contact RUS.

0
22. Revise Sec.  1773.8 to read as follows:


Sec.  1773.8  Audit date.

    The annual audit must be performed as of the end of the same 
calendar month each year unless prior approval to change the audit date 
is obtained, in writing via email, from RUS or its designated 
representative.
    (a) An auditee may request a change in the audit date by writing 
via email to RUS at least 60 days prior to the currently approved audit 
date, providing justification for the change.
    (b) The time period between the prior audit date and the newly 
requested audit date must be no longer than twenty-three months.
    (c) Comparative financial statements must be prepared and audited 
for the 12 months ending as of the new audit date and for the 12 months 
immediately preceding that period.

0
23. Revise Sec.  1773.9 to read as follows:


Sec.  1773.9  Disclosure of fraud, and noncompliance with provisions of 
law, regulations, contracts, and grant agreements.

    (a) In accordance with GAGAS, the auditor is responsible for 
planning and performing the audit to provide reasonable assurance about 
whether the financial statements are free of material misstatement due 
to error or fraud. The auditor must also plan the audit to provide 
reasonable assurance of detecting material misstatements resulting from 
violations of provisions of laws, regulations, contracts, or grant 
agreements that could have a direct and material effect on the 
financial statements.
    (b) 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 
ascertaining whether a violation of provisions of laws, regulations, 
contracts, or grant agreements has occurred.
    (c) Pursuant to the terms of its audit engagement letter with the 
auditee, the auditor must immediately report, in writing via email, all 
instances of fraud, illegal acts, and all indications or instances of 
noncompliance with laws, whether material or not, to:
    (1) The president of the auditee's governance board;
    (2) RUS; and
    (3) OIG, as follows:
    (i) For all audits performed in accordance with Sec.  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: [email protected], or online at: https://usdaoig.oversight.gov.
    (ii) For all other audits conducted in accordance with Sec.  1773.3 
report to the USDA Office of Inspector General

[[Page 7565]]

online at: https://usdaoig.overight.gov. If you need to provide any 
documents concerning your complaint, please fax to (202) 690-2474 or 
mail to USDA, OIG Hotline, P.O. Box 23399, Washington, DC 20026-3399, 
or alternately by telephone (800) 424-9121. Please note on your 
documents that you submitted your complaint online or by telephone.

0
24. Revise Sec.  1773.10 to read as follows:


Sec.  1773.10  Access to audit documentation.

    Pursuant to the terms of this part and the audit engagement letter, 
the auditor must make all audit documentation available to RUS, or its 
designated representative, upon request and must permit RUS, or its 
designated representative, to photocopy or image all audit 
documentation.

Subpart C--RUS Requirements for the Submission and Review of the 
Reporting Package


Sec.  1773.20  [Amended]

0
25. Amend Sec.  1773.20 by removing paragraph (b) and redesignating 
paragraph (c) as paragraph (b).

0
26. Amend Sec.  1773.21 by revising paragraphs (b) through (e) to read 
as follows:


Sec.  1773.21  Auditee's review and submission of the reporting 
package.

* * * * *
    (b) The auditee must furnish RUS with an electronic copy of the 
reporting package, as described in paragraph (e) of this section, 
within 120 days of the audit date as provided for in Sec.  1773.3.
    (c) The auditee must furnish RUS with a copy of its plan for 
corrective action, if any, within 180 days of the audit date.
    (d) The auditee must include in the reporting package comparative 
balance sheets, statements of revenue and patronage capital (or 
statement of operations customary to the type of entity reporting) and 
statements of cash flows, a copy of each defined report or schedule, 
and a summary of recommendations or similar communications, if any, 
received from the auditor as a result of the audit.
    (e) All required submissions to RUS described in paragraphs (b) 
through (d) of this section should be furnished electronically. The 
electronic copy must be provided in an unlocked or unencrypted Portable 
Document Format (PDF). All RUS electric and telecommunications auditees 
shall upload the reporting package to the Agency designated system.

Subpart D--RUS Reporting Requirements

0
27. Revise Sec.  1773.31 to read as follows:


Sec.  1773.31  Auditor's report on the financial statements.

    The auditor should form an opinion on whether the comparative 
financial statements as a whole are presented fairly, in all material 
respects, in accordance with GAAP, and issue a written report that 
meets AICPA professional auditing standards and GAGAS requirements. The 
report must include the manual, printed, or digital signature of the 
audit firm.

0
28. Amend Sec.  1773.32 by revising the section heading and paragraphs 
(a) introductory text, (b), and (c) to read as follows:


Sec.  1773.32  Reports on internal control; compliance with provisions 
of laws, regulations, contracts, and grant agreements; and instances of 
fraud.

    (a) As required by GAGAS, the auditor must prepare a written report 
describing the scope of the auditor's testing of internal control over 
financial reporting and of compliance with provisions of laws, 
regulations, contracts, and grant agreements, and that the tests 
provided sufficient, appropriate evidence to support opinions on the 
effectiveness of internal control and on compliance with provisions of 
laws, regulations, contracts, and grant agreements. This report must 
include the manual, printed or digital signature of the audit firm and 
must include the following items as appropriate:
* * * * *
    (b) When the auditor detects instances of noncompliance or abuse 
that have an effect on the financial statements that are less than 
material but warrant the attention of those charged with governance, 
they should communicate those findings in writing to those charged with 
governance in a separate communication. If the auditor has issued a 
separate communication detailing immaterial instances of noncompliance 
or abuse, the reports on internal control; compliance with provisions 
of laws, regulations, contracts, and grant agreements; and instances of 
fraud must be modified to include a statement such as:
    ``We noted certain immaterial instances of noncompliance [and/or 
abuse], which we have reported to the management of (auditee's name) in 
a separate letter dated (month, day, 20XX).''
    (c) If the auditor has issued a separate letter to management to 
communicate other matters involving the design and operation of the 
internal control over financial reporting, the reports on internal 
control; compliance with provisions of laws, regulations, contracts, 
and grant agreements; and instances of fraud must be modified to 
include a statement such as:
    ``However, we noted other matters involving the internal control 
over financial reporting that we have reported to the management of 
(auditee's name) in a separate letter dated (month, day, 20XX).''
* * * * *


Sec.  1773.33  [Removed and Reserved]

0
29. Remove and reserve Sec.  1773.33.

0
30. Revise Sec.  1773.34 to read as follows:


Sec.  1773.34  Schedule of findings and recommendations.

    The auditor must prepare a schedule of findings and recommendations 
to be included with the reports on internal control; compliance with 
laws, regulations, contracts, and grant agreements; and instances of 
fraud. The schedule of findings and recommendations shall be developed 
and presented utilizing the elements of a finding discussed in GAGAS 
and shall include recommendations for remediation. If the schedule does 
not include responses from management, as well as any planned 
corrective actions, those items must be submitted directly to RUS by 
management in accordance with Sec.  1773.4(j).

Subpart E--RUS Audit Requirements and Documentation

0
31. Revise Sec.  1773.38 to read as follows:


Sec.  1773.38  Scope of engagement.

    The audit requirements set forth in this part should be met 
annually by the auditor during the audit of the RUS auditee's financial 
statements. The auditor must exercise professional judgment in 
determining whether any auditing procedures in addition to those 
mandated by GAGAS or this part should be performed on the auditee's 
financial records in order to afford a reasonable basis for rendering 
the auditor's opinion on the financial statements and the reports on 
internal control; compliance with provisions of laws, regulations, 
contracts, and grant agreements; and instances of fraud; and schedule 
of findings and recommendations.

[[Page 7566]]

Sec. Sec.  1773.39, 1773.41, 1773.42, 1773.43, and 1773.44  [Removed 
and Reserved]

0
32. Remove and reserve Sec. Sec.  1773.39, 1773.41, 1773.42, 1773.43, 
and 1773.44.

Andrew Berke,
Administrator, Rural Utilities Service, Rural Development.
[FR Doc. 2023-01496 Filed 2-3-23; 8:45 am]
BILLING CODE 3410-15-P