Reply from Les Sparks:
Let me first start with what is REQUIRED. The HUD Audit Guide indicates that the CPA is required to issue a finding when they find significant deficiencies or material weaknesses or where there is material noncompliance. Now single audit requires that a finding also requires a finding where questioned costs are in excess of $25,000 whether it is material or not. This is indicates that a finding can be warranted for “significant” noncompliance. However, like I said, it is not required under the Guide.
Now, you mention that insurance coverages were not at the required amount. However, there were no claims, so not actual questioned costs were incurred. So the level of noncompliance is a difficult thing to determine and requires a lot of judgement. So, although it is difficult to give you a direct answer, here is what you may want to consider:
1. How much were they under the requirement and for which insurance?
2. Did they detect this on their own?
3. How long have they been out of compliance?
4. Remember, this is only one of a list of items covered under the “Management Function” requirement. This area also includes management fees, forms (9839 and 9832) maintenance, work orders/tenant complaints.
5. Is this a noncompliance that REAC will detect in the submission anyway?
6. Lastly, remember, that you are only required to report “Material” noncompliance.
These factors will have to be considered before the decision is made as to reporting a finding. If you choose not to report a finding, then you have a management letter comment. If you choose to issue a finding, and you are not calling it material noncompliance, you will have to modify the report as follows:
“The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported to management in writing and which are described in the accompanying schedule of findings and questioned costs as items 2016-1. Our opinion on each major federal program is not modified with respect to these matters.
PROJECT NAME’s response to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. PROJECT NAME’s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. “