Reserve Funds / Surplus Cash
- NFP – HUD Insured Section 8
- Project has scheduled project improvements in Jan & Feb
- Concerned that they will have surplus cash that will be required to be deposited into R4R (old regulatory agreement – no residual receipts)
- May not be able to timely get a reserve draw to pay for planned improvements
- Can they fund a separate reserve account to avoid a surplus cash deposit? Is there a HUD account — > Funded reserves
- Note: also asked management about paying deposits for the improvements before year end.
HUD/REAC [Jump to this question in video]
- We have a client going through the 202 budget process and received a comment that their audit fees were higher than expected and requested documentation for bids. Is there a requirement for HUD projects to receive bids (besides the PHA requirement)?
- We have also had a client receive a comment from HUD on receiving bids for insurance (that were a related party through a board member)
HUD/REAC [Jump to this question in video]
- We have a client that had a city grant payable 15-year restriction period expire. When we report the grant income, what HUD chart of account should this be recorded to?
HUD/REAC [Jump to this question in video]
- We have a client that has paid off their 236 loan & completed their restriction period for 220 grant but still receives section 8 payments. Their section 8 contract states they are still required to follow their original regulatory agreement. They hold cash in excess of FDIC limits – should they be marking “no” on their owner certified REAC submission for the “Are you in compliance” question? Or can they evaluate significance of the noncompliance?
Property tax escrow [Jump to this question in video]
- In my state property taxes are paid in arrears annually (2018 calendar year taxes are due in April 2019). The mortgage companies escrow the property taxes. However, as of 12/31 there may only be 8/12ths or 9/12ths of the amount due in April.
- Is the 4/12ths or 3/12ths not escrowed required to be on the surplus cash calculation as a liability not escrowed at 12/31?
- The 4/12ths or 3/12ths will be collected in 2019 before being remitted in April 2019.
Audit AJE [Jump to this question in video]
- Recommendations for dealing with clients who always have numerous audit AJEs (due to client personnel laziness and/or incompetence). How do I avoid independence issues? Can I be involved with those AJEs indirectly?
- Meet with client personnel and discuss adjustments with them and then have them prepare?
- Other approaches?
Impairment [Jump to this question in video]
- How does your client access impairment in a tax credit property past the 10 year mark?
- New compliance opinion & testing for 12/31/2018 or 12/31/2019?
- What document contains the amount of required funded replacement reserves on an RD property?
- Should 3560s be part of the supplemental data and issued as part of audit?
RD audit Not Required [Jump to this question in video]
- Is RD looking for a CPA issued compilation report on 3560s for all projects without audit requirements?
RD Submissions [Jump to this question in video]
- Will RD have REAC-like submission process? If so, what is the expected roll out date?
- Please discuss reasons why assess control risk @ less than high.
Subsequent Event [Jump to this question in video]
- Do you have to disclose as a subsequent event if an owner lists a property for sale after year end?
Change in Ownership [Jump to this question in video]
- When there is a change in ownership/ sale of the project (HUD approved), are there any situations in which a stub period audit would not be required for the original borrower? From 1/1 of the reporting year through date of sale?
Audit Firm Information [Jump to this question in video]
- Our firm letterhead does not include the firm’s EIN or the specific partners name. Utilizing the HUD checklist during our internal review, we noticed these items are required. How is this information typically included in audit reports? Do you have any samples?
Mortgage Banking [Jump to this question in video]
- What is a best way to verify /audit the income of a mortgage banking entity?
Question regarding Multifamily (Chap 3)[Jump to this question in video]
- If no non-material instances of non-compliance are identified through the course of the audit, and there are no findings, is a management letter required?
Stub period [Jump to this question in video]
- Where in the HUD Audit Guide or other HUD documents will we find guidance about TPA’s and using the “stub period “?
- Is stub period limit still >/= 90 days? Had heard rumors it had been extended?
Questions not answered live, answers will be available soon
- What are the consequences to the owner and/or management agent for findings not resolved within 30 days or for repeated finding in consecutive years?
- Reporting status of prior audit findings from oversight agencies –
- At what level of significance do we report (or not report) such external findings in the report?
- Inspection above vs below score of 60?
- Anytime a health and safety issue is reported?
- Are there other determining factors?
Independence / Compliance
- How strictly do they hold to the requirement to put out to bid the audit each year?
- Typically, just roll from year to year with the same auditor. At what point does that become a familiarity risk? Or does it?
Tests of Control
- On a property master landlord Section 232 Project where you are testing a majority of the operating expenses with balance sheet items (ins, PPTX, MIP, interest, depreciation).
- do you still need to perform separate tests of control over compliance?
- If there are no comments in management letter – does it still need to be submitted?
- Answer: Yes, with appropriate language saying that nothing came to the auditor’s attention that needed to be reported.
- Are letters submitted in REAC or email to project manager?
- Answer: Submit the letters as part of the REAC electronic submission
- Please confirm “entity cash” is not included as part of HUD acct#1120
- Answer: Entity cash is acct# 1125 and is not included as part of project cash, specially when determining surplus cash. Entity cash can be used to satisfy entity expenses or for distributions, etc. Suggest taking a look at the Industry Users Guide, Appendix A. for account definitions.
management company closes books on 25th of each month. Is this allowed by HUD? Does the management agreement specifically state the mgmt company must post thru end of each month and yr. Audit balance sheet date is 12/31.
Mgmt company states it is normal practice. Since they are closing books on 25th auditor concerned that not all income and/or expenses is recorded–does this become an annual audit finding? Compliance? What are consequences to auditor and/or owner? How should auditor proceed as it has been brought to mgmt agent attention several times.
- Are owner/borrower advances recorded as a payable?
- Answer: they should be
- Since HUD does not like other liabilities on books how do you report repayment so that it does not come up as unauthorized distribution or acquisition of liability?
- Answer: Conditions for repayment are more important than form of repayment.
- What qualifies as an advance vs a contribution?
- Owner judgement, do they wish to be repaid or not?
- If project needs help paying bills isn’t owners required to contribute to the property to allow the property to meet its liabilities?
- Question: can the highlighted version of Peters regulatory agreement be available for download with the highlighted passages?
- It is in the “Supplemental Materials” folder in the ShareFile link Kathy emailed to you directly yesterday.
- It is also on the website. Go to https://ahacpa.org/library/ and search for “regulatory”
Mandatory Cash Receipts
- Is the cash receipts test mandatory?
- We do HUD Multifamily audits for 2 management companies. We do cash receipts testing for 1 but not the other. The 1 we did not do testing on has a check scanning system which we documented and very strong controls over all aspects of management.
Procurement Under Uniform guidance
- Would procurement be direct and material compliance requirement for a NFP with a HUD insured mortgage with ongoing compliance requirements, after the original construction/rehab is completed? Historically, the only testing we have been doing is in special tests and provisions. This has included cash disbursement testing to test that the property is being used for the allowed purpose. But we have called this a special test, not a test of allowable costs. Therefore, would procurement testing need to be performed on these disbursements? Is this something HUD has given guidance on?
Tenant File Testing
- I have read and interpreted the Consolidated HUD Audit Guide, Chapter 3, Section 3-5, subsection J, paragraph 1 as only pertaining to owner’s who participate in HUD’s rent subsidy programs. The entities we audit operate under the provisions of Section 223(f) of the National Housing Act, with mortgage insurance provided by the Federal Housing Administration (“FHA”) of HUD. These entities do not have housing assistance payment contracts or any type of equivalent with HUD. Would you agree that Subsection J, Tenant Application, Eligibility, and Recertification would not apply to entities that only have loan insurance and no rent subsidy agreements?
- In the past we have tested our clients’ tenant files according to subsection J.
- For a single audit, can you elect to adopt the Uniform Guidance for awards before December 26, 2014? If not, how would the wording of the SEFA need to be if there are awards pre 2014 and post 2014?
- I have a project that is a new 221(d)(4) and the HUD Asset Manager is saying my client can’t charge application fee, pet deposits or any other fees besides the rent. I am thinking the asset manager is referring to subsidized housing which this project is a luxury apartment complex. Can you tell me where I can find in the HUD handbook the charges that can be charged for a project that is not subsidized? Any help you can give would be appreciated.