HUD Requirements

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ID Status Date Public/Private Industry AHACPA Contact
#7059 Closed public Multifamily Les Sparks
Customer Reply

Hello Les – I’m hoping you can help me with assessing what audit requirements I am supposed to follow with a new client we are considering.
The Project has an NSP loan in excess of $5 million from the City where it is located and a Public Housing Capital Funds loan in excess of $10 million.
Both of their loans are from (payable to) The City – however, I believe these are HUD Programs (NSP and CFP) from which City received the money which it loaned to the Project.
The majority of the remaining funding for the project came from seller-financing and Investor Equity Contributions so with the exception of the above, there is no other outside funding.
The Project also an Annual Contributions Contract which provides assistance to 60 units. The rental assistance received under by the ACC units will be less than $500K per year.
The Project also has Project Based Vouchers (HAP contract) which provides assistance to another 60 units. The rental assistance provided under this contact may exceed $500K in some years but in the initial year, it will not.

Here are the questions that I have:

1) Are the NSP loan and the PH Capital Funds loan considered major HUD programs subject to compliance testing/reporting. I’m confused because while it seems these are HUD programs (the city received funds from HUD), the funds are not directly received from/insured by HUD.

2) If we assume that each of the rental assistance programs noted do not exceed 500K annually, are these considered major HUD programs subject to compliance testing/reporting.
I know in your classes that I’ve attended, you always stress looking to the Regulatory Agreements that have been signed. In this case, I see no Regulatory Agreements between the owner and HUD – rather the Regulatory Agreements in this case are between the Owner and The City.

3) It appears (based on a review of the agreements) as though both rental assistance agreements are with the City (and not HUD). Would this mean that in a year that the Project Based Vouchers (HAP contract) proceeds exceed 500K, we still would not be subject to the HUD Major Program testing/reporting requirements?

I know this is a lot of information to sort through but I am just trying to decide whether this engagement requires HUD reporting or can be reported on in a more traditional manner.
I’d appreciate any guidance that you can provide me with Les. Thank you very much!
Kathy Christensen

From Les Sparks:

I guess my first question is “What type of project are we dealing with; who owns this and are we subject to Uniform Guidance?” There are a couple of clues embedded in your email, but I need to be certain.

Since you mentioned a Capital Fund Loan, I make an assumption that this project is tied to some extent to a PHA. These loans are normally called CFFP loans. They are mortgages obtained from a 3rd party and are to be repaid from the proceeds of capital funds to be received in the future. In that case, the loan is not an expenditure of Federal awards until year’s loan payments are made from the CFP program. Since the CFP funds are awards in the year of repayment, the PHA must record them as expenditures, but I do not think the project should be considered a subrecipient in this case. I would think the same goes for the NSP grant. It is an award in the year of grant/loan, but I do not think it is a mortgage of the type that must be considered each year. However, I guess it depends on structure and judgment. These are not normally shown in SEFAs each year.

From client:

Les, this is a for-profit entity (is that what you are asking)?

From Les:

OK as a for-profit entity, the PHA has given the entity money to purchase/build a building. It could even have been a building with ACC units that still receive subsidy. In those cases the PHA remains responsible for the expenditures in the SEFA. Even if the agreements call for audits, they would be GAAS audits only unless there is specific language that they be audited under GAGAS.

As far as the SEFA is concerned, that issue remains with the PHA as the new entity is not subject to Uniform Guidance.

From client:

Les I apologize for brining this back up again and please forgive me for continuing to beat this dead horse but I need to draft a memo for our workpaper file on these matters and before I do so, I want to make sure that I am understanding everything you’ve commented on (and also clarify things with regards to the assistance programs). Can you tell me if I’m seeing things properly (again, this is a for-profit entity)?

1) The NSP loan and the PH Capital Advance are funds which were received from the City or the PHA (and not directly from HUD) and as such, would not fall under the HUD Audit Guide reporting requirements

2) The Project has HAP contract with the City’s Housing Authority covering 60 units of Project Based Vouchers and an Annual Contributions Contract (ACC) covering an additional 60 Public Housing units. These two agreements would also not fall under the HUD Audit Guide reporting requirements because the funds were received from the City rather than being received directly from HUD.

3) All other sources of funds are conventional financing and given this, and assuming the above is accurate, a “traditional” GAAS audit should be all that is required.

Thank you again Les for taking the time to help me see this matter accurately!

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