PHADA, Accounting Professionals Concerned About New Rules
On July 9, HUD issued Notice PIH 2025-20: Operating Fund Federal Financial Report (SF-425) Submission Process. This very technical notice implements requirements from the Office of Management and Budget that as of October 1, 2009, all Federal agencies and Federal grant and cooperative agreement recipients were required to use the SF-425 for financial reporting as included in 2 CFR 200. The SF-425 replaces the SF-269, SF-269A, SF-272 and SF-272A forms used to report the financial status of grants and cash transactions using awarded funds.
Article Summary
- New requirement to submit the SF-425 annually through the Operating Fund portal for each open Operating Subsidy grant beginning with FY 26 awards.
- Concerning new requirements include:
- Classifying rental income and other revenue sources as program income.
- Stating that program income must be expended before subsidy.
- Statement that previous guidance is superseded, despite apparent conflicts with regulations governing operating reserves, financial assessment indicators, and subsidy drawdowns.
- Inquiries are to be directed to HUD field offices, which are not equipped to handle the expected volume of calls.
- PHADA has requested a meeting with HUD on these topics.
- Financial experts will hold a session on this topic during the PHADA 2025 Legislative Forum, September 7–9, in Washington, DC.
Beginning with FY 26 Operating Subsidy, each housing authority will be required to submit SF-425s in the Public Housing Portal for each Operating Subsidy grant on an annual basis until all grant funds are expended. Reports on grant status as of December 31 must be submitted by April 30 of the following year for each open Operating Subsidy grant.
Additional Requirements Raise Concerns
In addition to describing the submission requirements and timeline, the notice addresses several other consequential issues. These include discussions of reporting and record management requirements, and recapturing unliquidated funds and cash on hand. Significant concerns include the following:
- Types of Funds are defined, including what is considered Operating Fund Program income based on 2 CFR 200. HUD states that rental income, non-rental income, interest earned on rental income, and income from third party agreements are considered program income. Further, “In the Public Housing program, program income is added to the total allowable costs, increasing the overall amount of the federal award.” According to HUD, such proceeds must be reported in the Operating Fund SF-425.
- Order of Expenditure is addressed, and the notice indicates that program income (with some exceptions) must be expended before Operating Subsidy based upon 2 CFR 200.307. However, the language of the CFR states that program income must be expended before additional Operating Subsidy is requested, suggesting this may be an incorrect interpretation. Clarification has been requested of HUD.
The notice also addresses revised record retention requirements and non-compliance, and HUD enforcement actions. Another significant concern is that all questions from housing authorities are to be directed to HUD field offices, which are not equipped to handle the expected volume of inquiries.
This guidance includes a few other major financial management changes that HUD says “supersede any previous language conveyed to PHAs….” Some parts of the guidance seem to conflict with existing rules governing operating reserves, HUD’s financial assessment indicators, and how HAs can draw down their funding.
This notice follows other recent problematic HUD guidance that would require HAs to relinquish interest income earned from operating funds. PHADA has many concerns about those new requirements, too.
More information at PHADA’s 2025 Legislative Forum
PHADA staff have asked HUD for a meeting that would include knowledgeable accountants and CFOs to address our concerns and questions. In addition, a session with financial experts is planned for the upcoming PHADA 2025 Legislative Forum, September 7–9, in Washington, DC, which will include detailed information and the opportunity for members to ask questions and discuss the requirements included in this notice.