| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #7737 | Closed | public | Multifamily | Les Sparks |
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At the multi-family conference, a cohort inquired about HUD tenant file audits at the Q&A session. He indicated that the panel was in agreement that such audit testing needed to be done. I was not there for the interchange, but I am uncertain as to whether he framed his question properly. We all agree that file testing is a requirement. His question should have been whether the auditor needs to conduct the testing directly, or whether such testing can be done by qualified third parties. Given qualified third parties can do such testing, the next question would be whether the auditor needs to make those arrangements directly, or can the auditor rely on testing arranged by other third parties if the auditor verifies the qualifications, training and testing work done by the third party tester. My thinking is that if an auditor is aware that, during the year of audit, independent third party review has occurred, initiated by another third party, and the auditor verifies that the third party tester is qualified, their test work meets or exceeds HUD requirements, the auditor can review the results of that testing, and the results are satisfactory, the auditor would not need to do additional direct testing of tenant files. Is my thinking flawed? |
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From Les Sparks: This is an interesting question and one that I am not sure I have a definite answer to. It is clear that professional standards allow for the use of third-parties for audit testing. You have mentioned in your question some of those requirements. Here are some concerns I have that are solely related to the HUD Audit Guide. First, HUD generally requires that testing be performed for the entire year. That is always a bit of a sticking point. Second, if the other party is the 3rd party Contract Administrator, then HUD already knows they are doing it and has already requested that more testing be performed in the Guide. Remember that the Guide was in place before the latest round of lawsuits was ever discussed in the CA community. So, I think that there is some expectation that testing will be performed above and beyond the CA work. If the work is performed by someone hired by the client, then it may be considered internal control only. So, there is a lot of variability in this issue. I can only advise to follow the standards, and the Guide and document what you are attempting to do. WIthout anymore specifics it is harder to tell for sure. However, after I reviewed the relevant AU-C on this matter, I think it is clear that the auditor should be establishing an understanding with the specialist and the the specialist objectivity be assessed. That may preclude a specialist hired by the client. From client: Thanks for the response, glad I could make your life more interesting! The file testing done is for LIHTC compliance purposes, but it is my assessment is that tenants qualifying for tax credit units will also qualify for HUD purposes (I would observe as an aside, however, that the reverse is not true). If I plan to rely upon their work, I agree I would need to assess the credentials of the 3rd party auditor and the extent of their work as part of my overall evaluation. Is there a definitive checklist of documents that needs to be in a tenant file for HUD? Thanks for your insights! Much appreciated. From Les: The issue here is simply a matter of professional standards and reliance on 3rd party specialists (AU-C-620). If you can comply with those requirements, then their use is not prohibited in any way. IMO the biggest issue revolves around the the following requirement from AU-C-620: Agreement With the Auditor’s Specialist In the end, I guess it depends on who this specialist is. If it is a 3rd party contract administrator, it will be difficult to get the above agreement. Not to say, I believe it is prohibited, but it is more of an issue that depends a lot on judgment. I would believe that HUD is against it simply because CA work was being done when HUD OIG produced the Guide. That being said, it also depends on the risk assessment and resulting amount of risk and control the CPA is intending to utilize in the audit. AU-C-500 – Audit Evidence also indicates the following: Information to Be Used as Audit Evidence I think the combination of these statements is enough to outline any requirements. Les From client: Thanks for the follow-up thoughts. MSHDA is the 3rd party contract administrator with the IRS for tax credit properties, and their file audit work is done for tax credit compliance purposes. The results are sent to the project as well as MSHDA, so access to test results is not an issue. As I have pondered this further myself, I have observed that HUD interests are more comprehensive than tax credit requirements, although they both target low income persons. Accordingly, while there may be opportunities to omit or reduce the income evaluation and documentation testing, which aligns with tax credit requirements, other compliance and documentation considerations for HUD purposes would still have to be addressed. Thanks again for being a sounding board! |