| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
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| #13229 | Closed | public | Multifamily | Les Sparks |
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Potential multi-family housing client that was just referred to us. Had a HUD insured mortgage a couple years ago that was refinanced with an non-HUD insured mortgage. Still has a section 8 contract for about $580,000 a year. Regulatory agreement is dated 1981. For-profit project that has been run consistently for the past number of years. HUD compliance and financial scores are in the 90s consistently. Same auditors for several years. This year, auditors withdrew from the engagement because they were concerned with unauthorized distributions by the owner even though owner did not do anything inconsistent with prior years when unqualified opinions were issued. We have looked through all the agreements and do not see anything that would suggest there were unauthorized distributions. Are we missing something here or is the other audit firm incorrect in its assessment of unauthorized distributions? |
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Steve, it all comes down to the original HAP contract. If the that original HAP contract gad distribution restrictions, the client could be held to surplus cash. Of course, if they distribute more, then it is a finding. However, I cannot understand why they would withdraw due to a situation that cannot even be verified. There has to be more to the story. Further, in many cases where a Section 8 contract restricted distributions (limited dividend) to a certain percentage, that provision could be overwritten by signing a new 20-year renewal contract that would allow full surplus cash distributions.
So, find out a little more and let me know. There are a lot of considerations.
Les Sparks AHACPA (801) 547-0809
From: AHACPA Support <support@ahacpa.org> |
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Les, I had a chance to speak to this potential client this afternoon. They are looking for some additional information like the original HAP contract. We do know that the last two year’s audit reports were unqualified with no findings. Surplus
This potential client did mention today that they are of the understanding that the prior firm told them that they consulted with you on this same issue and it was your recommendation to them to tell this HUD project to self-report this
Thanks for any help on this.
From: AHACPA Support <support@ahacpa.org> |
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Steve, I guess it all comes down to what everyone told me. For sure, if they had a distribution restriction and they did not follow it then there should be findings. If the prior auditor thought it was necessary to self-report, then why no findings? If they had gone to the trouble to talk to me, I doubt they would just choose to not report it as a finding. I suspect, that what is going is that no one has seen the original HAP and there is concern over it. I would take small comfort in the report not being rejected by HUD. It could mean there is no restriction or it could just mean they are not following up yet. I am never sure which.
It all comes down to those agreements. Does the client believe they are allowed distributions and why? Most of the people who are in this situation believe they have the ability to distribute. It does not mean that they have it, per se, but they think they do. When you say the Reg Agreement was dated in 1981, does that mean the HAP contract or the old mortgage? As I mentioned some agreements dated around that time frame did have dividend limitations. However, many of those limitations were removed in a subsequent renewal.
I have attached a document form HUD’s Office of General Counsel on distributions. It may be of some help as to which contract have these limitations. Nevertheless subsequent renewals could change those requirements.
Les Sparks AHACPA (801) 547-0809
From: AHACPA Support <support@ahacpa.org> |
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Les,
Thank you for you comments. Truly appreciated.
You think if we contacted their HUD contact to look at what HUD has in their data base on this project that would be an accurate source of information? I am thinking that HUD’s profile of this project in their electronic data base would
We can find a Section 8 agreement from the mid 1990s but not certain that is the first one.
Thank you again.
From: AHACPA Support <support@ahacpa.org> |
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HUD is certainly a source if you can get them to talk to you. ☹ They should know. A 1990’s agreement would be a renewal.
Les Sparks AHACPA (801) 547-0809
From: AHACPA Support <support@ahacpa.org> |