2016 Multifamily Conference Q and A Session

Direct Links to Individual Questions

Question Click link for Answer
Firm Registration:

What are firms doing in regards to firm registration in states when they do audits in multiple states?

LIHTC Cost Cert

For an LIHTC cost cert, How are people calculating the percentage to use for capitalizing the interest, taxes and insurance during the rehab period for a Project that is a rehab and there was minimal vacancy during the period.  The tenants are rotated to a few units while their unit is being rehabed.

What’s New?

Did HUD issue any new policies or regulations that will impact our audits this year?

Compliance Supplement Testing

Compliance supplement testing for HUD insured mortgage not refinanced out of existing 202. Non Profit entity purchased property with a bridge loan and refinanced with a HUD 207 under 223 (f). Since this would be under CFDA 14.155 and no compliance supplement what should the compliance testing default to? Is it incorrect to use the compliance supplement testing under 14.157?

Centralized Cash account

Centralized Cash account – owner/management utilizes for approximately 20 HUD Section 8 only no HUD insured mortgages/Regulatory Agreements. Under this circumstance is the owner/agent required to obtain the HUD approval letter to use the centralized cash account? Are there any restrictions in 4370.2 Handbook that HUD can enforce if no Regulatory Agreement restrictions?

Effect of MOR

1. MOR: What is the effect of MOR on a for profit properties that do not receive subsidies.

1a. If the same type of project above is required to submit monthly financial reports to HUD; does this increase the probability of having a MOR.

1b. What if the owner is not putting funds in the project? Or as little as possible thus contributing to the number of unavailable units; can this contribute to MOR selection due to occupancy percentages.

Purchasing requirements:

Does this apply to non-profits only?

Going concern

re: the requirements of management to provide information.

3a. To confirm management is required to produce this information without the assistance of the auditor?

3b. Is there paperwork/list that can be provided to management to assist them in providing the auditor information required timely?

3c. Any independence issues arise from this if the auditor  ‘assists’ by explaining or providing. List?

3d. Do we ask for this information from mgmt company, those charged with governance or both? If both, two separate assertions to be reviewed and analyzed by auditor?

Debt extinguishment

Debt extinguishment for profit entity no subsidies. Project receives funds at closing on a loan modification that was approved by HUD (loan interest rate reduction only) requirements of debt reporting under ASC 470-50. Calculation of gain/loss. Where can we find the test guidance for modification vs extinguishment?

Release in Tenant File

What type of release needs to be in tenant file regarding review of files by auditor. (no EIV) for profit.

Sample question

Calculated sample of 100% of all checks and debits except for mortgage payments (as they are confirmed) using random selection and a random number generator but sample sum total  is small. Does the sample need to be equal to a certain percentage value compared to all withdraws from accounts (less mtg pmts)? I know it should be representative of the population but many of items selected are under $500 each. when material misstatement is around $55,000

Section 232

We’ve heard that Section 232 properties can make distributions as many times as they want during the year and that the mid-year surplus cash calculation is no longer required as long as the property has a sufficient amount of surplus cash at year-end. Is this correct? If so, where can we find support for this?

Accounting standards update

Accounting Standards Update 2016-18 was released last month changing presentation of restricted cash on the SOCF (include with beginning & ending cash). Required implementation is 2018 but early adoption is permitted. Any discussion of this in HUD circles?

HUD Audit Threshold

Federal expenditures over 750k – not for profit organization owns 2 HUD projects. Different project numbers, but same federal ID number
Should the project’s federal assistance be combined for the 750k threshold?

Notice H2013-23 appears to only be applicable to for-profit entities. (This was per a HUD representative)

Presentation of Loan Costs

What is the preferred presentation of loan coasts on the RD 3560-10? Net with loan could cause confusion with RD field offices during their review.

Uniform Guidance

Under Uniform Guidance 202 Loan Major Program HAP
Can we say tenant file review is not direct & material and totally skip it?

Can we document our way there?


HUD 202 refinanced under Section 207 223(f), new regulatory agreement does not include a residual receipts rider. Is the project required to deposit surplus cash into a residual receipts account?


Paid off a HUD 202 loan which reported residual receipts in prior year audits. In the current year for audit reporting purposes, should residual receipts be reflected as “other reserves” no that the regulatory agreement is not longer in effect?

Note: Residual receipts included in the HAP contract.

Acquisition / rehab

236 –>LP

236 project transferred all assets to the LP with the exception of residual receipts and operating deficit reserves, which were not involved in the closing statement. Should these funds transfer to the LP.

R4R transferred to LP and was included in the closing statement.

I have a Non profit who is sponsor and managing agent for a small 202 with capital advance – 39 units.  In addition to management fee, they charge a bookkeeping fee because they do all finance functions.  Additionally, they charge $25 per hour for maintenance staff for actual hours worked at the property.  The $25 is based upon estimated cost for maintenance staff plus benefits.  Do you see any compliance problem with this? answer
Enhanced AICPA reviews

For the gentleman / firm discussed yesterday who is receiving an enhanced review, what do you see as the outcome? What are his options? What if he tells them no and that he doesn’t agree with their assessment? What will happen to the peer reviewer?

Subrecipients and SEFA

2 CFR 200.510 (b)(4) regarding uniform guidance relates to reporting amounts passed through to subrecipients. If an entity does not pass through any fund is it required to include that fact in the SEFA footnotes?


Does the management company need to sign the engagement and rep letters?  i.e. Is it required?

Accounts Receivable policy

Peer Reviewer told us that accounts receivable policy is required even if AR is immaterial. There is no materiality level on accounting policies. Agree?

Compliance Testing

Les had mentioned that some firms are no longer traveling to sites and/or management companies to perform compliance testing. What procedures are being performed to address EIV related data

R4R Withdrawal on Nursing Home

Accounting for R4R withdrawal on leased nursing home. The lessee pays the expenses. The nursing home lessor requests the R4R withdrawal and the mortgagor pays the lessee directly. How do you show the withdrawal on the lessor’s’ books. If a distribution then REAC will show distributions were more than the surplus calculations.

I have a for profit multifamily property that has only an insured loan with HUD. No subsidy, etc. Market rate rents. In my area it is common for properties to assess a nonrefundable fee of about $300 for new tenants. This has been called by them a “restoration fee” or an “administration fee.

A MOR was performed in 2015 and HUD said a nonrefundable fee was not allowed and that these fees were to be converted into refundable deposits. The property disagrees. HUD cited the Regulatory Agreement as the reason that the property cannot assess the fee and must instead do a refundable security deposit.

So my question is…

  • Can a project that is only an insured loan property assess an administration fee to new tenants (and if so…how much? They want to assess $300, which is standard practice in our area for rental properties that are market rate. The reason for that amount is that it’s easier for college students to come up with $300 than a deposit equally the first month’s rent and $300 is about the cost of turning over a unit)

Some additional information:
At first, HUD said that the project would have to go back three years and recalculate these deposits. Now, HUD is saying it will be “going forward.”

Deferred Financing Costs

How should the reclassification of deferred financing costs be shown in the balance sheet and corresponding 5 year minimum debt pymt schedule? All in current? All in long-term? Or allocated in accordance with the depreciation?

MOR Deficiencies

I had a question on reporting MOR deficiencies on the Schedule of Prior Audit Findings.  Any recommendations/examples?  When a property has went through a MOR with a satisfactory rating but had deficiencies they had to fix – does property summarize that they had an MOR or do they have to list individual deficiencies

Cost Certifications

In regards to Ch 5 cost certifications (both Mortgagors (MCC) and Contractors (CCC)) could the speakers spend a little time discussing the level of testing and reporting required on such certifications?

Do the speakers feel that HUD field offices are consistent with the expected level of GAGAS and HUD Audit Guide reporting on both CCC and MCC?

Commissions- project expense?

Earlier this year my client listed their HUD insured property and after receiving an accepted offer, backed out due to tax ramifications he was not expecting. The broker still charged a $100,000 commission which they paid out of another entity. That entity (100% owner of the HUD property) now needs cash and they are wondering if they can pay this out of the property now.

I am thinking no since it is not a reasonable operating expense and that they will need to wait until the calculation of surplus cash at the end of the period to “”reimburse”” the owner. Do you agree? Thank you!!


1) When presenting a Section 202 with PRAC on a Schedule of Expenditures of Federal Awards, is it required to show two lines, one for the Capital Advance and one for the rental assistance? Or should we show just one line for the expenditures under the one CFDA #? Also, should we calculate separate materiality for advance and assistance? Or just one materiality?

2) Does HUD still require Owners / Agents to have hardcopy audits on hand with signatures? Or do pdf’s with signed signature pages now meet the HUD requirement?

Surplus Cash calculation

In regards to Surplus Cash calculation, we’ve had clients consistently exclude deferred revenue from cable contract from the surplus cash calculation as it does not represent a cash payment to be made in the next 30 days. They haven’t had an issue with this from HUD , however, we are starting to see the state Contract Administrator for other clients expect that the current portion of the deferred revenue to be included as a liability in the SC calculation. Is this something that we should expect to see HUD push back on (ie the current portion should be in the SC calc) or would this seem to be more of a local issue with the Contact Administrator

Forgiveness of debt

We have a nonprofit client that is the sponsor of a HUD entity (loan has been paid off but still getting rent subsidy).  Sponsor has been paying a lot of the expenses due to cash flow of the HUD entity, and the intent was for the project to repay the sponsor eventually.  However, the sponsor has now decided they aren’t going to require the repayment and wants to just write this off their books and have the project record it as forgiveness of debt. Is this the best way to handle or should it be recorded as sponsor contribution to the project?  (They expect this will continue indefinitely where the sponsor keeps paying the expenses and not getting repaid.)

Cash disbursement testing

“It was commented that if we have proper documentation to support a low risk in deposits such as great analytics you do not recommend transactional test cash receipts even though the HUD audit guide states to do so.

what is your opinion in the case of cash disbursements?? Can we rely on analytics and risk assessment to not transactionally test cash disbursements??”

Ben Carson?

What are the possible affects on HUD from change in administration and appointment of Ben Carson who’s experience is “I lived in affordable housing”.

Question on licensing

Are we required to be licensed in all the states where the individual properties are located or only in the states where the management agents are located.


How much impact will the new leasing standards affect multifamily?

Debt Service Coverage Ratio

My client received a notice from HUD that their debt service coverage ratio was below 1. I was just curious why the ratio calculates NOI without allowing an addback for interest expense? It’s harming their calculation and to me doesn’t make sense why an entity’s net income would need evaluate net income before depr but not interest and then be able to meet the debt service (which includes interest expense) 1.0-1.2 times.

I have to help them respond as to what they will do to fix the situation asap but didn’t understand why this calculation was like this which is really the cause for them failing.

Procurement compliance requirement

If you have a Capital Advance or a 202 Project subject to the compliance supplement, what defines what costs and/or services falls under the Procurement, Suspension compliance requirement? For example would the audit fee fall under a service subject to bidding under this compliance supplement in that it is an engagement letter?

In our opinion it would seem to be a lot of bidding for services, we are just trying to figure out what true costs fall under this requirement.


What happens to Replacement Reserves after a HUD loan has been paid off? We have been looking into clarification regarding restrictions on the Replacement Reserves account after project paid off their mortgage loan. The project is a non-profit, they are still under Section 8 assistance contract but are no longer subject to a single audit since they fall under the $500,000 major program threshold.

1. Do they need authorization to withdraw from Replacement Reserves?
2. Do they have to maintain such account at a minimum of $1,000 per unit?
3. Where can we find guidance regarding status of the non-profit and regulations after a loan payoff?

Lease Date and TIC Dates

Is it a finding if the lease and the TIC are not dated the same dates? I ask this because we were audited and it was a finding. We have a policy that after the 1st year there are no penalties for lease break. We only require a 30 day notice prior to vacating. I think this should be a management decision.

Refinance Costs

Is there any precedent for the refinance costs on a HUD insured mortgage to be considered reasonable operating expenses. we capitalized refinance fees and HUD is asking for reimbursement of those costs. they are refinancing with HUD. these costs were included in the HUD loan application in the sources and uses schedule.


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