| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
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| #7613 | Closed | public | Multifamily | Les Sparks |
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We’re working with a new developer, and they recently closed a deal with a section 8 contract and a commercial mortgage (no HUD insurance). We have their Section 8 contract and the Section 8 Use Agreement, but they don’t think there is a regulatory agreement associated with the project. I poked around on google, and really couldn’t find a HUD regulatory agreement that seems to apply when there is no HUD involvement with the loan. Does this seem right that there is no regulatory agreement on a Section 8-only deal? If that is the case, it doesn’t seem like the Section 8 documents provide a lot of detail on what should be audited. Do you have any advice on what sort of compliance requirements would be appropriate to exclude from our testing? |
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From Les Sparks: The answer to your question depends entirely on the HAP agreement. If there is no HUD-insured mortgage, then there will not be a Regulatory Agreement. Now having said that, the HAP agreement is the only document that requires any audit requirement. Now, if this HAP agreement’s only requirement is to have an audit, and the amount of the HAP contract is in excess of $500k, then the only real areas to audit in the Guide are: tenant files, security deposits, ELI, management functions. It is my personal opinion is that the requirement to audit cash receipts and disbursements is not required under most HAP contracts as there is no mention of these kinds of constraints in the HAP contract. From client: Thank you, Les – I appreciate the response. We’ve considered not doing cash receipts and disbursements, but were a little worried about HUD’s view on this. I think if we just include a memo in our audit file documenting our rationale for not testing that compliance requirement, we should be fine on any engagement inspection. From Les: Justin, my position on this comes entirely from the HAP contract. The HAP contract typically only requires the client to rent to certain people, how to do billings, rent adjustments and other things related leasing to tenants. They add an audit requirement in an addendum. So, unless the HAP contract requires R4R or residual receipts, then those areas are not required to be tested. The only time the HAP contract requires CD or CR testing, would be where the HAP contract indicates restrictions on the project’s cash account. |