[Federal Register Volume 83, Number 88 (Monday, May 7, 2018)]
[Rules and Regulations]
[Pages 19905-19915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09501]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 83, No. 88 / Monday, May 7, 2018 / Rules and
Regulations
[[Page 19905]]
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1773
RIN 0572-AC33
Policy on Audits of RUS Borrowers and Grantees
AGENCY: Rural Utilities Service, USDA.
ACTION: Final rule with request for comment.
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SUMMARY: The Rural Utilities Service (RUS) is amending its regulations
regarding its Policy on Audits to incorporate 2011 revisions to the
Generally Accepted Government Auditing Standards (GAGAS) issued by the
Government Accountability Office (GAO), the clarified audit standards
issued by the American Institute of Certified Public Accountants
(AICPA) in 2011, and Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards, Subpart F, Audit
Requirements, issued by the Office of Management and Budget on December
26, 2013, and adopted by USDA on December 26, 2014. RUS is also
expanding and clarifying 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 a
number of existing audit requirements, and is amending the title to
reflect this change.
DATES: Effective Date: Rule will become effective on July 6, 2018 and
is applicable for financial audits for periods ending on or after
December 15, 2018.
Comment Date: Comments must be received by RUS on or before June 6,
2018.
ADDRESSES: Submit comments by either of the following methods:
Federal eRulemaking Portal at https://www.regulations.gov/. Follow instructions for submitting comments.
Postal Mail/Commercial Delivery: Please send your comments
addressed to Thomas P. Dickson, Acting Director, Program Development
and Regulatory Analysis, Rural Utilities Service, U.S. Department of
Agriculture, 1400 Independence Avenue SW, STOP 1522, Room 5164-S,
Washington, DC 20250-1522.
Additional information about Rural Development and its programs is
available on the internet at https://www.rd.usda.gov/.
FOR FURTHER INFORMATION CONTACT: William Chris Colberg, Acting Chief,
Technical Accounting and Auditing Staff, Program Accounting Services
Division, Rural Utilities Service, U.S. Department of Agriculture, 1400
Independence Avenue SW, STOP 1523, Washington, DC 20250-1523.
Telephone: (202) 720-1905.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be not significant for the
purposes of Executive Order 12866 and, therefore, has not been reviewed
by the Office of Management and Budget (OMB).
Executive Order 12372
This final rule is excluded from the scope of Executive Order
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 Executive Order 12372.
Executive Order 12988
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. RUS has determined that this final rule meets the
applicable standards provided in section 3 of the Executive Order. In
addition, all state and local laws and regulations that are in conflict
with this rule will be preempted, no retroactive effect will be given
to this rule, and, in accordance with section 212(e) of the Department
of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)),
administrative appeal procedures, if any, must be exhausted before an
action against the Department or its agencies may be initiated.
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 Certification
RUS has determined that this final rule will not significantly
affect the quality of the human environment as defined by the National
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore,
this action does not require an environmental impact statement or
assessment.
Catalog of Federal Domestic Assistance
The programs described by this final rule are listed in the Catalog
of Federal Domestic Assistance under Numbers CFDA 10.751, Rural Energy
Savings Program; CFDA 10.787, Broadband Initiatives Program; CFDA
10.850, Rural Electrification Loans and Loan Guarantees; CFDA 10.851,
Rural Telephone Loans and Loan Guarantees; CFDA 10.855, Distance
Learning and Telemedicine Loans and Grants; CFDA 10.857, Bulk Fuel
Revolving Fund Grants; CFDA 10.858, Denali Commission Grants and Loans;
CFDA 10.859, Assistance to High Energy Cost Rural Communities; CFDA
10.861, Public Television Station Digital Transition Grant Program;
and, CFDA 10.863, Community Connect Grant Program. The General Services
Administration (GSA) website at http://www.cfda.gov contains a PDF file
version of the CFDA catalog. The print edition of the catalog may be
purchased from the U.S. Government Publishing Office (GPO) by calling
(202) 512-1800 or toll free at 1-866-512-1800, or by ordering it online
at http://bookstore.gpo.gov.
Information Collection and Recordkeeping Requirements
The reporting and recordkeeping requirements contained in this
final rule have been approved by the Office of
[[Page 19906]]
Management and Budget (OMB) under OMB Control Number 0572-0095,
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C Chapter 35).
This final rule contains no new reporting or recordkeeping burdens
under OMB Control Number 0572-0095 that would require approval under
the Paperwork Reduction Act.
Send questions or comments regarding this burden or any other
aspect of these collections of information, including suggestions for
reducing the burden, to Thomas P. Dickson, Acting Director, Program
Development and Regulatory Analysis, Rural Utilities Service, U.S.
Department of Agriculture, 1400 Independence Avenue SW, Stop 1522, Room
5164-S, Washington, DC 20250-1522.
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.
Comments
We invite you to participate in this rulemaking by submitting
written comments, data, or views before the noted deadline. We will
consider the comments we received and may conduct additional rulemaking
based on the comments.
Background
7 CFR part 1773, Policy on Audits of RUS Borrowers and Grantees
(Part 1773), implements the standard RUS security instrument provision
requiring RUS electric and telecommunications borrowers and grantees 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 and
certified by an independent audit organization, satisfactory to RUS,
and accompanied by a report of such audit, in form and substance
satisfactory to RUS. This rule is amended to include coverage of all
grantees and the title of Part 1773 is revised to reflect this change.
This rule amends Part 1773 to incorporate the 2011 revisions to
GAGAS by the GAO issued in December 2011. The 2011 revision contains
major changes that reinforce the principles of transparency and
accountability and provide the framework for high-quality government
audits that add value. This revision to GAGAS incorporates the AICPA
Statements on Auditing Standards. The 2011 revisions to GAGAS were
effective for financial audits for periods ending on or after December
15, 2012.
The professional standards and guidance contained in GAGAS provide
a framework for conducting high quality audits with competence,
integrity, objectivity, and independence. These standards are used by
auditors of entities that receive government awards and audit
organizations performing GAGAS audits. GAGAS contains standards for
audits as well as requirements and guidance dealing with ethics,
independence, auditors' professional judgment and competence, quality
control, performance of the audit, and reporting.
This rule amends Part 1773 to incorporate the clarified audit
standards issued by the AICPA in October 2011. The purpose of
redrafting the auditing standards was for clarity and convergence
although there were some changes and additions in terms of
requirements. The clarified standards also introduced new terminology
and new audit reports by adding extra paragraphs and segregating
sections of the report under subheadings.
In 2013, the Office of Management and Budget (OMB) revised uniform
administrative requirements, cost principles, and audit requirements
for Federal awards by issuing 2 CFR part 200, which served to
consolidate and replace OMB Circulars A-21, A-87, A-89, A-102, A-110,
A-122, and A-133. 2 CFR part 200 was adopted by USDA in December 2014.
The portion of this CFR applicable to audits, Subpart F, is recognized
and adopted by this revision to Part 1773.
This rule revises all subparts to encompass grantees, to remove
most references to Rural Telephone Bank (RTB), to conform the language
used to generally accepted auditing standards (GAAS) issued by the
AICPA and GAGAS. This rule adds, changes or deletes definitions as
appropriate to clarify certain existing information. Perhaps most
importantly, this rule replaces the RUS management letter with a report
on compliance with aspects of contractual agreements and regulatory
requirements based on the requirements found in AU-C 806 of GAAS. This
rule also provides information on the electronic filing of annual
audits in Sec. 1773.21. RUS is also adding a requirement to the
reporting package for a schedule of findings and recommendations in
Sec. 1773.34.
Due to the state boards of accountancy having now adopted peer
review requirements as part of the CPA licensing requirements for
performing attestation services, this amended rule significantly
streamlines the RUS peer review monitoring included in Sec. 1773.5 by
removing much of the guidance previously provided with regard to
auditor participation in an approved peer review program. RUS will no
longer require that all auditors submit copies of their peer review
reports but reserves the right to request said reports on a case by
case basis. It also removes the option of requesting a waiver of the
peer review requirement, relying instead on the requirements of the
state boards of accountancy and the guidance provided within the peer
review programs themselves.
Due to the scope and pervasiveness of the revisions being
implemented, Part 1773 as revised is being published in its entirety in
this final rule.
In this revision to Part 1773, all sample reports and financial
statements will be combined into four appendices which will be
available in RUS Bulletin 1773-1, Policy on Audits of RUS Borrowers and
Grantees. Appendix A of RUS Bulletin 1773-1 contains the sample
reports, financial statements and schedule of findings and
recommendations for electric borrowers; Appendix B contains similar
samples for telecommunications borrowers; Appendix C for broadband
borrowers; and Appendix D contains sample reports for grantees.
Appendices A through D will not be printed in the Code of Federal
Regulations; however, these appendices are available at https://www.regulations.gov/ for review and comment in conjunction with the
comment period for this final rule. Only Subparts A through E will be
published in the Code of Federal Regulations. The appendices are
included in RUS Bulletin 1773-1, Policy on Audits of RUS Borrowers and
Grantees, which contains all of Part 1773, including subparts A through
E and the appendices. Publishing Part 1773 in bulletin form provides
the RUS audit policy in an easy to read format. This publication is
available on RUS' website at https://www.rd.usda.gov/publications/regulations-guidelines/rural-utilities-service-audit.
USDA Non-Discrimination Statement
In accordance with Federal civil rights law and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Agencies, offices, and employees, and institutions participating in or
administering USDA programs are prohibited from discriminating based on
race, color, national origin, religion, sex,
[[Page 19907]]
gender identity (including gender expression), sexual orientation,
disability, age, marital status, family/parental status, income derived
from public assistance programs, 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.
Persons with disabilities who require alternative means of
communication for program information (e.g., Braille, large print,
audiotape, American Sign Language, etc.) should contact the responsible
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or
contact USDA through the Federal Relay Service at (800) 877-8339.
Additionally, program information may be made available in languages
other than English.
To file a program discrimination complaint, complete the USDA
Program Discrimination Complaint Form, AD-3027, found online at https://www.ascr.usda.gov/filing-program-discrimination-complaint-usda-customer and at any USDA office or write a letter addressed to USDA and
provide in the letter all of the information requested in the form. To
request a copy of the complaint form, call (866) 632-9992. Submit your
completed form or letter 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;
(2) fax: (202) 690-7442; or
(3) email: [email protected].
USDA is an equal opportunity provider, employer, and lender.
List of Subjects in 7 CFR Part 1773
Accounting, Auditing, Electric power, Grants, Loan programs--
broadband, Loan programs--communications, Loan programs--energy,
Reporting and recordkeeping requirements, Rural areas, Telephone.
0
For the reasons set forth in the preamble, RUS revises 7 CFR part 1773
to read as follows:
PART 1773--POLICY ON AUDITS OF RUS BORROWERS AND GRANTEES
Subpart A--General Provisions
Sec.
1773.1 General.
1773.2 Definitions.
Subpart B--RUS Audit Requirements
1773.3 Annual audit.
1773.4 Auditee's responsibilities.
1773.5 Qualifications of an auditor.
1773.6 Auditor communication.
1773.7 Audit standards.
1773.8 Audit date.
1773.9 Disclosure of fraud and noncompliance with provisions of
laws, regulations, contracts, and loan and grant agreements.
1773.10 Access to audit-documentation.
1773.11-1773.19 [Reserved]
Subpart C--RUS Requirements for the Submission and Review of the
Reporting Package
1773.20 The auditor's submission of the reporting package.
1773.21 Auditee's review and submission of the reporting package.
1773.22-1773.29 [Reserved]
Subpart D--RUS Reporting Requirements
1773.30 [Reserved]
1773.31 Auditor's report on the financial statements.
1773.32 Report on internal control over financial reporting and on
compliance and other matters.
1773.33 Report on compliance with aspects of contractual agreements
and regulatory requirements.
1773.34 Schedule of findings and recommendations.
1773.35-1773.37 [Reserved]
Subpart E--RUS Audit Requirements and Documentation
1773.38 Scope of engagement.
1773.39 Utility plant and accumulated depreciation.
1773.40 Regulatory assets.
1773.41 Extraordinary retirement losses.
1773.42 Clearing accounts.
1773.43 Capital and equity accounts.
1773.44 Long-term debt.
1773.45 Regulatory liabilities.
1773.46-1773.48 [Reserved]
1773.49 OMB Control Number.
Authority: 7 U.S.C. 901 et seq., 7 U.S.C. 1921 et seq., 7 U.S.C.
6941 et seq.
Subpart A--General Provisions
Sec. 1773.1 General.
(a) This part implements the standards for audits required by the
loan and grant agreements of Rural Utilities Service (RUS) electric and
telecommunications borrowers and grantees. The provisions 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 and certified by an independent auditor, satisfactory to RUS,
and accompanied by a report of such audit, in form and substance
satisfactory to RUS.
(b) This part is based on the requirements of GAGAS in effect at
the time of the audit and applicable RUS regulations and subpart F
(Audit Requirements) of 2 CFR part 200 (Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal
Awards) (2 CFR 200.500-200.521).
(c) This part further sets forth the criteria for selecting
auditors satisfactory to RUS and certain audit procedures and audit
documentation that must be performed and prepared before an audit
report will be accepted by RUS.
(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 in order to assess and monitor the financial
condition of its borrowers and grantees and to fulfill its fiduciary
responsibilities.
(e) RUS reserves the right to suspend its acceptance of audits
performed by auditors who, in the opinion of RUS, are not meeting the
requirements of this part or with unresolved disputes or issues until
such time that the matter can be resolved to RUS' satisfaction.
Sec. 1773.2 Definitions.
As used in this part:
2 CFR part 200, subpart F means 2 CFR part 200, Uniform
Administrative Requirements, Cost Principles and Audit Requirements for
Federal Awards, subpart F, Audit Requirements, as adopted by USDA in 2
CFR part 400.
AA-PARA means RUS Assistant Administrator, Program Accounting and
Regulatory Analysis.
Administrator means the Administrator of RUS.
Affiliated company means a company that directly or indirectly
through one or more intermediaries, control or are controlled by, or
are under common control with, the auditee.
AICPA means the American Institute of Certified Public Accountants.
ASC means the Accounting Standards Codification issued by the
Financial Accounting Standards Board.
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
accounting principles generally accepted in the United States of
America (GAAP) and for determining whether the auditee has complied
with applicable laws, regulations, and provisions of loan or grant
contracts and grant agreements that could have a material effect on the
financial statements.
Audit date means the ``as of'' date established by the auditee.
Audit documentation has the same meaning as defined in the AICPA's
professional auditing standards.
[[Page 19908]]
Auditee means an RUS borrower and/or grantee that is required to
submit an annual audit as a condition of the award.
Auditor means government auditors as well as certified public
accounting firms that perform audits using generally accepted
government auditing standards (GAGAS).
BCAS means Broadband Collection and Analysis System (or successor
system).
Borrower means an entity that has an outstanding RUS or Federal
Financing Bank (FFB) loan or loan guarantee.
CPA means a Certified Public Accountant.
DCS means the Data Collection System (or successor system).
FASB means Financial Accounting Standards Board.
FFB means the Federal Financing Bank, a body corporate and
instrumentality of the United States of America under the general
supervision of the Secretary of the Department of the Treasury.
Fraud has the same meaning as defined in the AICPA's professional
auditing standards.
GAAP has the same meaning as defined in accounting standards issued
by the Government Accounting Standards Board (GASB) and the Financial
Accounting Standards Board (FASB).
GAGAS means generally accepted government auditing standards as set
forth in Government Auditing Standards, issued by the Comptroller
General of the United States, Government Accountability Office.
GAO means the United States Government Accountability Office.
GASB means Government Accounting Standards Board.
Governance board means the auditee's board of directors, managing
members, or other official body charged with governance.
Grantee means an entity that has a continuing responsibility under
a grant agreement with RUS.
Illegal act has the same meaning as defined by the Public Company
Accounting Oversight Board.
Material weakness has the same meaning as defined in the AICPA's
professional auditing standards.
OIG means the Office of the Inspector General, United States
Department of Agriculture.
OMB means The Office of Management and Budget.
Regulatory asset means an asset resulting from an action of a
regulator as defined by FASB.
Regulatory liability means a liability imposed on a regulated
enterprise by an action of a regulator as defined by FASB.
Related party has the same meaning as defined by FASB.
Reporting package means:
(1) The auditor's report on the financial statements;
(2) The report on internal control over financial reporting and on
compliance and other matters;
(3) The report on compliance with aspects of contractual agreements
and regulatory requirements;
(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.
RUS Bulletin 1773-1, Policy on Audits of RUS Borrowers and
Grantees, is a publication prepared by RUS that contains the RUS
regulation 7 CFR part 1773 and exhibits of sample audit reports,
financial statements, reports on internal control over financial
reporting and on compliance and other matters, report on compliance
with aspects of contractual agreements and regulatory requirements, and
schedule of findings and recommendations used in preparing audits of
RUS borrowers and grantees. This bulletin is available on the internet
at https://www.rd.usda.gov/publications/regulations-guidelines/bulletins/program-accounting.
RUS security agreement means a loan agreement, grant agreement,
mortgage, 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.
Significant deficiency has the same meaning as defined in the
AICPA's professional auditing standards.
Single Audit Act means Single Audit Act of 1984 (31 U.S.C. 7501 et
seq.) as implemented by 2 CFR part 200, subpart F.
State means any state or territory of the United States, or the
District of Columbia.
Uniform System of Accounts means, for telecommunications borrowers,
Bulletin 1770B-1, Accounting Requirements for RUS Telecommunications
Borrowers (https://www.rd.usda.gov/files/UTP_Bulletins_1770B-1.pdf),
and for electric borrowers, as contained in 7 CFR part 1767, Accounting
Requirements for RUS Electric Borrowers, subpart B--Uniform System of
Accounts, Bulletin 1767B-1, (https://www.rd.usda.gov/files/UPA_Bulletin_1767B-1.pdf).
Subpart B--RUS Audit Requirements
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 must submit audited financial
statements on a comparative basis covering two consecutive 12 month
periods, unless the entity has not been in existence for two
consecutive 12-month audit periods. Consolidated 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 the AA-PARA 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 that are borrowers must continue to provide annual audited
financial statements. Auditees that are grantees 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) In addition to the requirements of this part, certain auditees
may be subject to the Single Audit Act. An auditee that is defined as a
Non-Federal Entity as defined in 2 CFR 200.69 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 and is required to meet the requirements of this part
as follows:
(1) Borrowers and/or grantees expending the threshold established
for the Single Audit Act (currently $750,000) or more in Federal awards
during the year must have an audit performed in accordance with the
Single Audit Act. See 2 CFR 200.502, Basis For Determining Federal
Awards Expended, for guidance in determining annual expenditures. The
audited financial statements must be submitted to RUS and to the
Federal Audit Clearinghouse.
(2) For auditees expending less than the threshold for expenditure
in Federal awards during the year, RUS reserves its right under 2 CFR
200.503, Relationship to other audit requirements, to arrange for an
audit performed in accordance with this part.
[[Page 19909]]
(3) Within 30 days of the audit date, auditees must notify the AA-
PARA, in writing, 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.
(i) An auditee electing to comply with this part must select an
auditor that meets the qualifications set forth in Sec. 1773.5.
(ii) If an audit is performed in accordance with the Single Audit
Act, the auditor's reporting on the financial statements that meet the
requirements of the Single Audit Act, will be sufficient to satisfy the
auditee's obligations under 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 borrowers unless the borrower 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.
Sec. 1773.4 Auditee's responsibilities.
(a) Selection of a qualified auditor. The auditee's governance
board is responsible for the selection of a qualified auditor that
meets the requirements set forth in Sec. 1773.5. When selecting an
auditor, the auditee should consider, among other matters:
(1) The qualifications of auditors available to do the work;
(2) The auditor's experience in performing audits of utilities,
related industries, or in the case of grantees, experience in auditing
entities comparable to the grantee; and
(3) The auditor's ability to complete the audit and submit the
reporting package within 90 days of the audit date.
(b) Board approval of selection. The board's approval of an auditor
must be recorded by a board resolution that states:
(1) The auditor represents that it meets RUS qualifications to
perform an audit; and
(2) The auditee and auditor will enter into an audit engagement in
accordance with Sec. 1773.6.
(c) Notification of selection. When the initial selection or
subsequent change of an auditor has been made, the auditee must notify
the AA-PARA, in writing, at least 90 days prior to the audit date.
(1) Within 30 days of the date of receipt of such notice, RUS will
notify the auditee, in writing, if the selection or change in auditor
is not satisfactory.
(2) Notification to RUS 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. Changes in the name of an auditor are considered to be a
change in the auditor.
(d) Audit engagement letter. The auditee must enter into an audit
agreement with the auditor that complies with Sec. 1773.6 prior to the
initiation of the audit.
(e) Debarment certification. The auditee must obtain, from the
selected auditor, a lower tier covered transaction certification (Form
AD-1048, Certification Regarding Debarment, Suspension, Ineligibility
and Voluntary Exclusion--Lower Tier Covered Transactions), as required
by Executive Orders 12549 and 12689, Debarment and Suspension, and any
rules or regulations issued thereunder.
(f) Peer review report. The auditee must obtain, from the selected
auditor, a copy of the auditor's current approved peer review report.
(g) Preparation of schedules. The auditee must prepare any
schedules that are required by the auditor to perform the audit,
including 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. Samples of these schedules can be
found in Appendices A-D, of RUS Bulletin 1773-1.
(1) The schedule of deferred debits and deferred credits must
include a description of the deferral and a notation as to whether the
deferral has received written approval from RUS. If a determination is
made that prior written approval is not required, cite the specific
authority for the deferral.
(2) The schedule of investments must include investments in
subsidiary and affiliated companies, corporations, limited liability
corporations and partnerships, joint ventures, etc. accounted for on
either the cost, equity or on a consolidated basis. For all
investments, the auditee must list the name of the entity, ownership
percentage, and the principal business in which the entity is engaged.
For investments recorded on the cost basis, the auditee must include
the original investment, advances, dividends declared or paid in the
current and prior years and the net investment. For investments
recorded on the equity or consolidated basis, the auditee must include
the ownership percentage, original investment, advances, dividends
declared or paid in the current and prior years, and current and prior
years' earnings and losses, including accumulated losses in excess of
the original investment.
(h) Scope limitations. The auditee will not limit the scope of the
audit to the extent that the auditor is unable to provide an
unqualified 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
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 with a written
explanation of noncompliance.
(2) The auditee must, within 30 days of the date of the letter or
email detailing the noncompliance, submit a corrected reporting package
to RUS.
(3) If a corrected reporting package is not received within 30 days
of the date of the letter or email detailing the noncompliance, RUS
will take appropriate action, depending on the severity of the
noncompliance.
(j) Submission of a plan of corrective action. If the auditor's
report contains findings and recommendations but does not include the
auditee's response, the auditee must submit written responses to RUS
within 180 days of the audit date. The written responses must address:
(1) The corrective action already taken or planned, or the reason
the auditee believes no action is necessary; and
(2) The status of corrective action taken on previously reported
findings and recommendations.
Sec. 1773.5 Qualifications of the auditor.
Auditors that meet the qualifications criteria of this section and
enter into an audit engagement with the auditee that complies with
Sec. 1773.6, will be considered satisfactory to RUS.
(a) Licensing. Auditors that audit the financial statements of an
RUS auditee must be licensed to perform attestation engagements in the
United States of America. Auditors do not have to be licensed by the
state in which the auditee is located; however, auditors must abide by
the rules and regulations of professional conduct promulgated by
[[Page 19910]]
the accountancy board of the state in which the auditee is located.
(b) Independence. Auditors must be independent as determined by the
standards for independence in the AICPA Code of Professional Conduct
and in GAGAS in effect at the time of the audit.
(c) Peer review requirement. Auditors must be enrolled and
participating in a 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.
(1) Peer review reports. RUS reserves the right to request peer
review reports from selected auditors.
(2) Peer review requirements for new auditors. New auditing firms
must meet the requirements of their state board of accountancy with
regard to enrolling in a peer review program, timing of the first peer
review, and any other peer review requirements.
Sec. 1773.6 Auditor communication.
(a) GAGAS and AICPA standards require that the auditor communicate
with the auditee the auditor's understanding of the services to be
performed and document that understanding through a written
communication to those charged with governance. To be acceptable to
RUS, the auditor's communication must take the form of an audit
engagement letter prepared by the auditor and must be formally accepted
by the 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:
(1) The nature of planned work and level of assurance to be
provided related to internal control over financial reporting and
compliance with laws, regulation, and provision of contracts or grant
agreements;
(2) That the auditee and auditor acknowledge that the audit is
being performed and that the reporting package is being issued to
enable the auditee to comply with the provisions of RUS's security
instrument which requires compliance with this part;
(3) That the auditor acknowledges the mandatory reporting
requirements for fraud, illegal acts, or noncompliance with provisions
of laws, regulations, contracts, and grant agreements in Sec. 1773.9.
Acceptance of the engagement letter by the auditee is required, thus
granting the auditor permission to directly notify the appropriate
officials which may include but is not limited to the governance board,
RUS, and OIG;
(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
the AA-PARA as needed;
(5) That the auditee and auditor acknowledge that RUS will consider
the auditee to be in violation of its RUS Security Agreement and this
part if the auditee fails to have an audit performed and documented in
compliance with GAGAS and this part;
(6) That the auditor represents that it meets the requirements
under this part to perform the audit;
(7) That the auditor will perform the audit and will prepare the
reporting package in accordance with the requirements of this part;
(8) That the auditor will document the audit work performed in
accordance with GAGAS, and the requirements of this part; and
(9) That the auditor will make all audit documentation, including
the reporting package available to RUS or its representatives
(including but not limited to OIG and GAO), upon request, and will
permit the photocopying of all such audit documentation.
(b) A copy of the audit engagement letter must be available at the
auditee's office for inspection by RUS personnel. One copy of the
current audit engagement letter must be maintained in the auditor's
audit documentation.
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, 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 and to issue the required reporting package.
(c)(1) 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 the AA-PARA.
(2) If the auditor determines during the audit that an unqualified
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 the AA-PARA.
Sec. 1773.8 Audit date.
(a) 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, from RUS.
(1) An auditee may request a change in the audit date by writing to
the AA-PARA at least 60 days prior to the currently approved audit
date, providing justification for the change.
(2) The time period between the prior audit date and the newly
requested audit date must be no longer than twenty-three months.
(3) 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.
Sec. 1773.9 Disclosure of fraud, and noncompliance with provisions of
laws, regulations, contracts, and loan 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 loan and
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 loan and 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,
contract 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, 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;
[[Page 19911]]
(2) AA-PARA; 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 ``Uniform
Administrative Requirements, Cost Principles, and Audit Requirements
for Federal Awards''), report to the USDA-OIG-Audit, National Single
Audit Coordinator for USDA, 401 W. Peachtree St NW, Room 2328, Atlanta,
GA 30308,
(ii) For all other audits conducted in accordance with Sec. 1773.3
report to the appropriate office based on location. See https://www.usda.gov/oig/national.htm to determine the correct reporting
location.
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 all audit documentation.
Sec. Sec. 1773.11-1773.19 [Reserved]
Subpart C--RUS Requirements for the Submission and Review of the
Reporting Package
Sec. 1773.20 The auditor's submission of the reporting package.
(a) Time limit. Within 90 days of the audit date, the auditor must
deliver the reporting package to the auditee's governance board. At a
minimum, copies should be provided for each member of the governance
board and the manager. The auditor must also provide an electronic copy
of the audit which meets the requirements of Sec. 1773.21 for
subsequent transmittal to RUS.
(b) Communication with the governance board. In addition to
providing sufficient copies of the reporting package for each member of
the auditee's governance board, RUS requires that the auditor report
all audit findings to the auditee's governance board. RUS recommends
that audit findings also be communicated orally unless oral
communication would not be adequate. If the information is communicated
orally, the auditor must document the communication by appropriate
memoranda or notations in the audit documentation. If the auditor
communicates in writing, a copy of the written communication must be
included in the auditor's audit documentation.
(c) Matters to be communicated. Matters communicated to those
charged with governance must include, but are not limited to the
matters to be communicated as prescribed in the AICPA's professional
standards AU-C Section 260, ``The Auditor's Communication with Those
Charged with Governance''.
Sec. 1773.21 Auditee's review and submission of the reporting
package.
(a) The auditee's governance board should note and record receipt
of the reporting package and any action taken in response to the
reporting package in the minutes of the board meeting at which such
reporting package is presented.
(b) The auditee must furnish RUS with an electronic copy of the
reporting package within 120 days of the audit date as provided for in
Sec. 1773.3.
(c) The auditee must furnish AA-PARA 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 a copy of
each special report, 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 a Portable Document Format (PDF).
Auditees with a designation from 0001 through 0199 in the Electric
program and 500 through 699 in the Telecommunications programs shall
upload the reporting package to the DCS or its successor system.
Borrowers and/or grantees with a designation from 1100 through 1199,
1300 through 1399, and 1400 through 1499 in the Broadband program shall
upload the reporting package to the BCAS or its successor system. All
other borrowers and/or grantees may upload their reporting package
through DCS or its successor system. Specific instructions for
submission are available from the Technical Accounting and Auditing
Staff.
Sec. Sec. 1773.22-1773.29 [Reserved]
Subpart D--RUS Reporting Requirements
Sec. 1773.30 [Reserved]
Sec. 1773.31 Auditor's report on the financial statements.
The auditor must prepare a written report on 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. The report must include the manual or printed signature of
the auditor, cover all statements presented, and refer to the separate
report on internal controls over financial reporting and on compliance
and other matters and the report on compliance with aspects of
contractual agreements and regulatory requirements issued in
conjunction with the auditor's report on the financial statements. The
auditor's report on the financial statements should also state that the
report on internal controls over financial reporting and on compliance
and other matters is an integral part of a GAGAS audit, and in
considering the results of the audit, that this report should be read
along with the auditor's report on the financial statements.
Sec. 1773.32 Report on internal control over financial reporting and
on compliance and other matters.
(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 loan 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 loan and grant agreements. This
report must include the manual or printed signature of the auditor and
must include the following items as appropriate:
(1) Significant deficiencies and material weaknesses in internal
control;
(2) Instances of fraud and noncompliance with provisions of laws or
regulations that have a material effect on the audit and any other
instances that warrant the attention of those charged with governance;
(3) Noncompliance with provisions of contracts or grant agreements
that have a material effect on the audit; and
(4) Abuse that has a material effect on the audit.
(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 report on internal controls over financial reporting and
on compliance and other matters must be modified to include a statement
such as:
[[Page 19912]]
``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 report on internal
controls over financial reporting and on compliance and other matters
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).''
(d) The report must contain the status of known but uncorrected
deficiencies from prior audits that affect the current audit objective.
Sec. 1773.33 Report on compliance with aspects of contractual
agreements and regulatory requirements.
The auditor must prepare a report on compliance with aspects of
contractual agreements and regulatory requirements that includes, at a
minimum, comments on:
(a) Audit procedures. State whether the audit has been performed in
accordance with this part;
(b) Special reports. State whether any special reports, summaries
of recommendations, or similar communications were furnished to the
auditee's management during the course of the audit or during interim
audit work, and provide a description of the information furnished;
(c) Accounting and records. Comment on whether, during the course
of the audit, anything came to the auditor's attention to indicate that
the auditee did not maintain adequate and effective accounting
procedures and records and utilize adequate and fair methods for
accumulating and recording labor, material, and overhead costs, and for
distributing these costs to construction, retirement, and maintenance
or other expense accounts. Where appropriate, comment on whether
anything came to the auditor's attention to indicate that the auditee
did not:
(1) Establish continuing property records (CPRs) that are updated
on a current basis, at least annually, and are reconciled with the
controlling general ledger plant accounts;
(2) Promptly clear construction clearing accounts of costs of
completed construction to the proper classified plant accounts and
accrue depreciation on such completed construction from the date the
plant was placed in service;
(3) Currently and systematically record and properly price
retirements of plant;
(4) Properly account for the accumulated provision for depreciation
accounts associated with retirements of plant or properly disclose any
unusual charges or credits to such accounts; and
(5) Obtain RUS approval for the sale, lease or transfer of capital
assets secured under the RUS security agreement when approval is
required, and properly handle any proceeds from the sale or lease of
plant, material or scrap in conformance with RUS requirements.
(d) Materials control. Comment on whether, during the course of the
audit, anything came to the auditor's attention to indicate that the
control over materials and supplies was not adequate.
(e) Compliance with RUS loan and security instrument provisions.
Comment on whether, during the course of the audit, anything came to
the auditor's attention to indicate that the following provisions of
RUS' loan and security instruments have not been complied with:
(1) For electric auditees, provisions related to:
(i) The requirements for an auditee to obtain written approval of
mortgagees to enter into any contract for the management, operation, or
maintenance of the auditee's system if the contract covers all or
substantially all of the electric system. For purposes of this part,
the following contracts shall be deemed as requiring RUS approval:
(A) Management contracts in which the auditee has contracted to
have another auditee or other entity manage its affairs;
(B) Operations and maintenance contracts in which the auditee has
contracted to have another auditee or other entity operate and/or
maintain all or substantially all of the physical plant facilities of
the auditee.
(C) Operations and maintenance contracts in which the auditee has
contracted to operate and maintain the physical plant facilities of
another auditee or other utility system;
(ii) The requirement for an auditee to prepare and furnish
mortgagees annual or periodic financial and operating reports on the
auditee's financial condition and operations accurately and within the
required deadlines. The auditor shall comment on whether, during the
course of the audit, anything came to the auditor's attention to
indicate that the information represented by the auditee as having been
submitted to RUS in its most recent December 31 Financial and Operating
Report Electric Distribution or Financial and Operating Report Electric
Power Supply was not in agreement with the auditee's audited records.
If the auditee represents that an amended report has been filed as of
December 31, the comments must relate to the amended report; and
(iii) The requirement for an auditee to use depreciation rates that
are within the ranges established by RUS for each primary plant account
(See RUS Bulletin 183-1, Depreciation Rates and Procedures at https://www.rd.usda.gov/files/UPA_Bulletin_183-1.pdf), or with the requirements
of the state regulatory body having jurisdiction over the auditee's
depreciation rates in computing monthly accruals.
(2) For telecommunications auditees, provisions related to:
(i) The requirement for an auditee to obtain written approval of
the mortgagees to enter into any contract, agreement or lease between
the auditee and an affiliate other than as allowed under 7 CFR part
1744, subpart E; and
(ii) The requirement for an auditee to prepare and furnish
mortgagees annual or periodic financial and operating reports on the
auditee's financial condition and operations accurately and within the
required deadlines. The auditor shall comment on whether, during the
course of the audit, anything came to the auditor's attention to
indicate that the information represented by the auditee as having been
submitted to RUS in its most recent December 31 Operating Report for
Telecommunications Borrowers was not in agreement with the auditee's
audited records. If the auditee represents that an amended report has
been filed as of December 31, the comments must be related to the
amended report.
(3) For Broadband auditees, provisions relating to the requirement
for an auditee to prepare and furnish mortgagee quarterly or periodic
financial and operating reports on the auditee's financial condition
and operations accurately and within the required deadlines. The
auditor shall comment on whether, during the course of the audit,
anything came to the auditor's attention to indicate that the
information represented by the auditee as having been submitted to RUS
in its most recent BCAS filing was not in agreement with the auditee's
audited records. If the auditee represents that an amended report has
been filed, the comments must be related to the amended report.
(4) For grantees, provisions related to:
[[Page 19913]]
(i) Recipients of Broadband Initiatives Program loans and grants,
the requirement for the recipient to prepare and furnish RUS quarterly
and annual financial and operating reports on the financial condition
and operations of the auditee accurately and within the required
deadlines. The auditor shall comment on whether, during the course of
the audit, anything came to the auditor's attention to indicate that
the information represented by the auditee as having been submitted to
RUS in its most recent BCAS filing was not in agreement with the
audited records of the auditee. If the auditee represents that an
amended report has been filed, the comments must relate to the amended
report. The auditor must state whether the Annual Compliance
Certificate required by the RUS Security Agreement has been filed in a
timely manner with RUS.
(ii) Recipients of all other grant programs within the electric and
telecommunications programs, the requirements to prepare and furnish
RUS with any required financial reporting accurately and within
required deadlines, as appropriate for that specific program. The
auditor shall comment on whether, during the course of the audit,
anything came to the auditor's attention to indicate that the
information represented by the grantee as having been submitted to RUS
in its most recent filing was not in agreement with the audited records
of the grantee. If the grantee represents that an amended report has
been filed, the comments must relate to the amended report.
(f) Related party transactions. Comment on whether, during the
course of the audit, anything came to the attention of the auditor to
indicate that all material related party transactions have not been
disclosed in the notes to the financial statements in accordance with
ASC 850, entitled ``Related Party Disclosures''.
(g) Deferred debits and deferred credits. For electric auditees,
comment on whether, during the course of the audit anything came to the
attention of the auditor to indicate that the auditee provided detailed
schedule of deferred debits and deferred credits, including, but not
limited to, margin stabilization plans, revenue deferral plans, and
expense deferrals is not accurately presented. This schedule must be
included as supplemental information or within the notes to the
financial statements; and
(h) Investments. For electric and telecommunications auditees,
comment on whether, during the course of the audit, anything came to
the auditor's attention to indicate that the auditee provided detailed
schedule of investments is not accurately presented. This schedule must
be included as supplemental information or within the notes to the
financial statements. The auditor must state that the audit did not
disclose any investments in subsidiary or affiliated companies.
Sec. 1773.34 Schedule of findings and recommendations.
The auditor must prepare a schedule of findings and recommendations
to be included with the audited financial statements. 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 the AA-PARA by management in
accordance with Sec. 1773.4(j).
Sec. Sec. 1773.35-1773.37 [Reserved]
Subpart E--RUS Audit Requirements and Documentation
Sec. 1773.38 Scope of engagement.
The audit requirements set forth in Sec. 1773.39 through 1773.45
must 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 report on the financial statements, report on
internal controls over financial reporting and on compliance and other
matters, report on compliance with aspects of contractual agreements
and regulatory requirements, and schedule of findings and
recommendations.
Sec. 1773.39 Utility plant and accumulated depreciation.
(a) General. The audit of these accounts shall include tests of
additions, replacements, retirements, and changes. The auditor's audit
documentation shall support that the auditor:
(1) Examined direct labor and material transactions to determine
whether the auditee's accounting records reflect a complete
accumulation of costs;
(2) Examined indirect costs and overhead charges to determine if
they conform to the Uniform System of Accounts or the Federal
Acquisitions Regulations as required under the RUS Security Agreement;
(3) Reviewed the costs of completed construction and retirement
projects to determine if they were cleared promptly from the work in
progress accounts to the classified plant in service accounts and the
related depreciation accounts;
(4) Examined direct purchases of special equipment and general
plant;
(5) Determined the degree of accuracy and control of costing
retirements, including tests of salvage and removal costs;
(6) Reviewed the auditee's work order procedures; and
(7) Reviewed depreciation rates for adequate support, and compared
them to RUS guidelines to determine that they were in compliance.
(b) Construction work in progress. (1) The audit documentation
shall include a summary of open work orders reconciled to the general
ledger and note on the summary any unusual or atypical projects.
(2) The auditor's audit documentation shall support that the
auditor:
(i) Reviewed equipment purchases charged to work orders, including
payments and receiving reports;
(ii) Reviewed contracts showing the scope of the work, the nature
of the contract, the contract amount, and scheduled payments and
reviewed supporting documents to determine that services contracted for
were in fact rendered;
(iii) Reviewed time cards and pay rates for a sample of employees
who allocate their time to work orders;
(iv) Reviewed the nature of material and supplies issued to the
project, traced amounts and quantities to supporting documents, and
reviewed the reasonableness of clearing rates for assignment of stores
expense to the work order;
(v) Reviewed the accuracy of the computation of overheads applied
to the work order; and
(vi) Reviewed other costs charged to the work order for support and
propriety.
(3) The auditor's audit documentation shall support that the
auditor:
(i) Scheduled payments to contractors and traced to verify payments
and supporting invoices;
(ii) Traced contract costs to final closeout documents, to the
general ledger, and to the continuing property records; and
(iii) Verified the costs of owner furnished materials, if
applicable.
(4) The auditor shall review the auditee's procedures for
unitization and classification of work order and contract
[[Page 19914]]
costs. The auditor's audit documentation shall support that the
auditor:
(i) Reviewed the tabulation of record units for construction from
the work order staking sheets to the tabulation of record units, to the
unitization sheets, and to the continuing property records;
(ii) Reviewed the procedures for unitizing and distributing costs
of completed construction to the plant accounts;
(iii) Verified that standard costs were being used;
(iv) Evaluated the basis for development of standard costs; and
(v) Determined that costs of completed construction were cleared
promptly from work in progress accounts.
(c) Continuing property records. The auditor's audit documentation
shall support that the auditor:
(1) Determined whether the subsidiary plant records agree with the
controlling general ledger plant accounts;
(2) Noted differences in the audit documentation; and
(3) Commented, in the report on compliance with aspects of
contractual agreements and regulatory requirements, on any
discrepancies.
(d) Retirement work-in-progress. The auditor's audit documentation
shall support that the auditor:
(1) Determined that plant retirements are currently and
systematically recorded and priced on the basis of the continuing
property records, and determined that costs of removal have been
properly accounted for;
(2) Explained the method used in computing the cost of units of
plant retired if continuing property records have not been established
and determined whether costs appeared reasonable; and
(3) Determined the manner in which net losses due to retirements
were accounted for and traced clearing entries to the depreciation
reserve, the plant accounts, and the continuing property records.
(e) Provision for accumulated depreciation. The auditor's audit
documentation shall support that the auditor:
(1) Verified the depreciation accruals for the period, including
the depreciation base;
(2) Reviewed the basis of the depreciation rates, any change in
rates and the reason for the change, and, if appropriate, determined
whether the rates are in compliance with RUS requirements or with the
requirements of the state regulatory body having jurisdiction over the
auditee's depreciation rates;
(3) Reviewed salvage and removal costs; and
(4) Searched for unrecorded retirements.
(f) Other reserves. The auditor's audit documentation shall include
an account analysis for all other material plant reserves, such as the
reserve for the amortization of plant acquisition adjustments. The
auditor's audit documentation shall support that appropriate tests of
transactions were performed.
(g) Narrative. The auditor shall include in the audit documentation
a comprehensive narrative on the scope of work performed, observations
made, and conclusions reached. Matters covered in this narrative shall
include:
(1) The nature of construction and other additions;
(2) The control over, and the accuracy of pricing retirements;
(3) The accuracy of distributing costs to classified utility plant
accounts;
(4) An evaluation of the method of:
(i) Capitalizing the direct loadings on labor and material costs;
(ii) Distributing transportation costs and other expense clearing
accounts; and
(iii) Capitalizing overhead costs;
(5) The tests of depreciation;
(6) A review of agreements such as those relating to acquisitions,
property sales, and leases which affect the plant accounts; and
(7) Notations, if applicable, of RUS approval of property sales and
the propriety of the disposition of the proceeds.
Sec. 1773.40 Regulatory assets.
The auditor's audit documentation shall support that the auditor
tested whether all regulatory assets comply with the requirements of
ASC 980. For Electric auditees only, the auditor's audit documentation
shall support that all regulatory assets have received RUS approval.
Sec. 1773.41 Extraordinary retirement losses.
The auditor's audit documentation shall support that the auditor
tested retirement losses, including any required approval by a
regulatory commission with jurisdiction in the matter, or RUS, in the
absence of commission jurisdiction.
Sec. 1773.42 Clearing accounts.
The auditor's audit documentation shall support that the auditor
tested all clearing accounts and that transactions selected for testing
were reviewed for proper allocation between expense and capital
accounts.
Sec. 1773.43 Capital and equity accounts.
(a) Capital stock. For privately owned companies, the audit
documentation shall include analyses of all stock transactions during
the audit period. The auditor's audit documentation shall support that
the auditor:
(1) Reviewed the subsidiary records and reconciled them to the
general ledger control account;
(2) Reviewed authorizations and issuances or redemptions of capital
stock for proper approvals by the governance board, stockholders,
regulatory commissions and RUS, as required;
(3) Determined that transactions were made in accordance with the
appropriate provisions of the articles of incorporation, bylaws, and
RUS loan documents; and
(4) Determined that transactions were recorded in accordance with
the Uniform System of Accounts.
(b) Memberships. For cooperative organizations, the audit
documentation shall include an analysis of the membership transactions
during the audit period. The auditor's audit documentation shall
support that the auditor:
(1) Reviewed the subsidiary records and reconciled them to the
general ledger control account; and
(2) Determined that transactions were made in accordance with the
appropriate provisions of the articles of incorporation, bylaws, and
RUS loan documents.
(c) Patronage capital, retained earnings, margins, and other
equities. The audit documentation shall include an analysis of the
patronage capital, retained earnings, margins and other equities, and
any related reserve accounts. The auditor's audit documentation shall
support that the auditor:
(1) Determined that the transactions were made in accordance with
the appropriate provisions of the articles of incorporation, bylaws,
RUS loan documents, Uniform System of Accounts, or orders of regulatory
commissions;
(2) Traced payments to underlying support; and
(3) Determined whether, under the terms of the RUS security
instrument, restrictions of retained earnings or margins are required
and, if so, whether they have been properly recorded.
Sec. 1773.44 Long-term debt.
The auditor's audit documentation shall support that the auditor:
(a) Confirmed RUS, FFB, and RTB debt to the appropriate
confirmation schedule (RUS Form 690, Confirmation
[[Page 19915]]
Schedule Obligation to the FFB; Form 614, Confirmation Schedule--Long-
term Obligation to RUS; or, Confirmation Schedule for RTB Debt);
(b) Confirmed other long-term debt directly with the lender;
(c) Examined notes executed or cancelled during the audit period;
and
(d) Tested accrued interest computations.
Sec. 1773.45 Regulatory liabilities.
The auditor's audit documentation shall support that all regulatory
liabilities comply with the requirements of ASC 980. For electric
auditees only, the auditor's audit documentation shall document whether
all regulatory liabilities have received RUS approval.
Sec. Sec. 1773.46-1773.48 [Reserved]
Sec. 1773.49 OMB Control Number.
The information collection requirements in this part are approved
by the Office of Management and Budget (OMB) and assigned the OMB
Control Number 0572-0095.
Date: April 30, 2018.
Kenneth L. Johnson,
Administrator, Rural Utilities Service.
[FR Doc. 2018-09501 Filed 5-4-18; 8:45 am]
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