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AHACPA AHACPA HUD REAC Overview
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Page 1: HUD REAC Overview - AHACPA...Unauthorized secondary financing (5 years) Miscellaneous violations of RA (5 years) Suspension of payments of subsidy (5 years) ... outside vendor. 52.

AHACPAAHACPA

HUD REAC Overview

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2

●What is HUD?●Operating Concepts●REAC Review●Guide General Requirements●Other Key Issues

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33

What is HUD?

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44

HUD

Public Indian

HousingCenter for

Faith-Based Partnerships

Inspector General

Fair Housing

Housing

Departmental Enforcement

Center

Community Planning and Development

GinnieMae

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55

Offi

ce o

f Hou

sing

Multifamily

Section 8Rental Assistance

Grants (202 & 811)

Preservation (OAHP)

FHA Single Family

Healthcare (OHP)

Hospital Facilities (241)

Residential Care (ORCF-232)

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66

● Insured Loans Sec 211(d)(3) Sec 211(d)(4) Sec 236 Sec 232 Sec 223(f) Sec 223(a)(7)

● Direct Loans Sec 202 Sec 811 Capital Advances

● Tenant Subsidy Section 8

● Old contract● New contract

PRAC PAC

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77

●Regulatory Agreement Pay Mortgage Fund Reserves Receive all cash belonging to the project All cash disbursements must be for reasonable and necessary

expenses Security Deposits collected and assets must equal or exceed liabilities

Building must be maintainedManagement Fees

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88

Loan Type Number of Units

Amount

207 – Rental Housing 276 1,520,000

207 – Manufactured Housing 707 22,029,425

213 – Cooperative Housing 6,579 551,515,700

220 – Rental Housing Urban Renewal 13,621 1,975,743,123

221(D)(4) – Mortgage Insurance 495,133 30,253,011,899

207/223(f) – Mortgage Insurance 552,123 31,811,763,472

231 – Mortgage Insurance Elderly Rental 9,244 341,797,600

232 – Nursing Home Assistive Living 387,217 25,923,905,124

542 – Risk Share 140,422 7,534,259,689

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99

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1010

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1111

Operating Concepts

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1212

●Do project operating expenses appear reasonable compared to similar project?

●Reasonable to what or whom?●FRONTLINE!!!

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1313

●Owning Entity vs. Project●Relationship between Owner & Agent?●Services provided by Agent?●Entity Cash vs. Project Operating Cash ●As the Insurer/Lender of the loan, HUD wishes to protect the bricks

& mortar as well as project assets, both cash & non-cash.

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1414

●Regulatory Agreement●Use Agreement●Subsidy ContractHUD Program Handbooks●Housing Notices●Mortgagee Letters

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1515

●Now 30 pages for a 221(d)(4)/223(f)●Section on definitions●Changes to R4R and Residual Receipts●Other changes that may turn out to be more important than

you think●Copy of New Regulatory Agreement

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1616

●MF Old●MF New●NH Old●NH New

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1717

●MOR - Have the principals and board members listed received HUD-2530 approval?

●Audit Guide - Owners shall not, without the prior written consent of HUD, convey, assign, transfer, dispose of, or encumber any of the mortgaged property or permit the conveyance, transfer, or encumbrance of such property.

●Recent changes in the 2530 (APPs) process have reduced the number if individuals required to file changes in APPs

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1818

●Mortgage Status ●Reserve for Replacement●Unauthorized Change in Project Ownership●Disposal of Project Assets●Distribution of Project Assets●Loans from Project funds●Underfunded Security Deposits●Commingling of funds

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1919

REAC Review

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Field Office

FASS Analyst

Meet with Entity(Is it over?)

The Entity Entered in FASS

Attestation

Assessments Produced

REAC Financial Assessment ProcessValidate DataAudited F/S

Start here

Submit to REAC

DEC

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2121

●Review results: 43% of submissions are closed by the FASS system 19% of submissions are closed by REAC analysts 30% of submissions are referred to Multifamily Program Center 8% of submissions are referred to Departmental Enforcement

Center

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2222

1. Unauthorized Distributions2. Unauthorized Loans3. ‘Other’ Auditor Findings - Code Z 4. Failure to make R4R Deposits5. Acquisition of Liabilities6. Failure to make Residual Receipts Deposits7. Underfunded Security Deposits

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2727

Guide General Requirements

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2828

●Financial Statement Audit Sufficient to permit an expression of an opinion on the financial statements

and the “in-relation-to” opinion on the supplemental information Follow GAAS and obtain a sufficient understanding of internal control to

determine the nature, timing and extent of tests to be performed. At a minimum follow AU-C Section 315.

GAGAS adds an internal control reporting requirement●Compliance Audit Opinion on each major program

● $500,000 for Multifamily & Link to 2013-16● Always for Ginnie Mae and FHA lenders

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2929

●Internal control over complianceDemonstrate auditor’s understanding and assessment of control

risk for IC over compliance● SINGLE AUDIT MUST ASSESS TO LOW

Should perform tests of controls over compliance regardless of assessment of control risk

Results clearly stated in documentation

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3030

●Hard copy may be required by some program offices, primary multifamily reporting will be electronic

●Required content IPA Report on Financial Statements and Supplementary Data IPA Report on Internal Control and Compliance in Accordance

with GAGAS IPA Report on Compliance on Each Major Program and Internal

Control Over Compliance

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3131

●Required Reports Schedule of Findings, Questioned Costs and RecommendationsManagement Letter Schedule of Status of Prior Audit Findings, Questioned Costs and

Recommendations Corrective Action Plan This probably means that a report reference must be made on the

prior audit findings and CAP schedules?

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3232

●See Example Report●Report now conforms to clarified audit standards●We no longer refer to the IPA Report for Each Major Program

and IC over Compliance as it is not a component of the financial audit

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3333

●These report requirements were previously combined in the report on IC and the major program report

●Focus on the financial statements only●Must report significant deficiencies & material weaknesses

in internal control over financial reporting, fraud and material noncompliance having a material effect on the AFS

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3434

●Limit of $500,000 (anything below this limit is not audited)●Requires an opinion on compliance●Must report on IC over compliance●Significant Def & Material weaknesses must be identified in body of

report●Report findings with auditee response●Example shows a table describing compliance areas tested. This is

optional, however, AHACPA believes that it should be utilized

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3535

● Included regardless of finding status●Now requires a positive statement that no findings were reported●Arranged in two components: Corrective Action Not Started or in Process Corrective Action Completed

●Regardless of status, findings are to be included in all required components

●Should not delay report issuance to enable correction

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3636

●Group project-based sample findings continue to be reported as before

●Required components: Numbered Questioned costs Information on Universe and Population Size Sample size info Number of instances of noncompliance Condition, Criteria, Cause, etc. (Yellowbook Requirements) Effect or potential effect Recommendations Reporting Views of Responsible Officials

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3737

●Used to report non-material noncompliance, if required (Required for chapter 3)

●Not to be used for material noncompliance●Auditor’s report should refer to it●Not to be used to report corrected material noncompliance

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3838

●Prepared by the auditee●Address all findings in the prior year’s finding schedule, including

repayment of questioned costs●Should include findings from audits, attestations, studies or reviews

conducted by oversight agencies that directly relate to the current year under audit

●Requires a positive statement that no findings were reported

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3939

●Prepared for each finding●Separate from report package and views of responsible officials●Follow example F●Describe corrective action taken, including tasks and subtasks and

dates for planned actions●Auditee should express agreement or disagreement with finding

and recommendations

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4040

●Willful misuse of any part of rent, assets, proceeds, income or other project funds

●Follow GAGAS●First responsibility to governance. If they fail to

communicate to external parties, auditor should report directly

●Auditors should communicate with Single Audit Coordinator

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4141

Other Key Issues

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●Three flag tiers Tier 1 – Elevated risk, significant long-term risk Tier 2 – Ongoing risks to HUD, not removed until

resolution date expires Tier 3 – Single risks to HUD and removed when

corrected.

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4343

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4444

● Repeated failure to file AFS – retained until 5 consecutive filings timely (3 or more occurrences in 7 years)

● Default – financial (60 days or more late on mortgage (5 years)● Unacceptable physical condition (removed after 5 consecutive years above

60) Below 30 2 consecutive scores below 60 Repeated scores below 60 or other failure to maintain standards

● Unauthorized distributions (5 years)● Repeated unresolved audit findings (retained for 5 years after resolution)

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4545

●Conversion to unapproved use ( 5 years)●Unauthorized alteration (5 years)●Unauthorized change in participant (5 years)●Unauthorized secondary financing (5 years)●Miscellaneous violations of RA (5 years)●Suspension of payments of subsidy (5 years)

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4646

● Failure to file AFS (after 10 day grace period) (removed when filed or 5 years which ever is sooner)

● Delinquent payments – 3 or more times in a year (15th of the month) (Removed when payments are current for 1 year or 5 years)

● Physical Condition – Most recent score below 60 and additional (not consecutive) below 60 in the last 7 years (Removed with satisfactory review or 5 years)

● Unsatisfactory Management Review (removed with satisfactory review or 5 years)

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4747

●One incident of unauthorized distributions (removed at repayment of 5 years

●Material unresolved findings (removed at resolution or 5 years)●Failure to comply with an Action Plan (removed when action plan is

received and in good condition or 5 years)

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48

Project Management

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4949

●Management Fees Residential CommercialMiscellaneous Special Add-ons

●Many agreements omit miscellaneous as an oversight

Income Collected

Per Unit Amount

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5050

DOES COUNT● Rents ● Cooperative carrying charges● Rent Supplement payments● RAP payments● Section 8 regular tenant

assistance, including UA whose TTP is less than the UA

DOES NOT COUNT● Section 8 Special Claims Vacancy loss Unpaid rents Debt service Resident damage

● Excess rent and charges for Section 236 rent paid is greater than unit Basic Rent

● Section 236 Interest Reduction payments

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5151

DOES COUNT● Rent from commercial space● Parking fees paid● Charges collected for additional

services

DOES NOT COUNT● Charges for services paid to an

outside vendor

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5252

DOES COUNT● Laundry and other concession

income● Charges collected from

residents (damages, bad checks and late payments)

● Proceeds from Loss of Rents Insurance policies

● Income from furniture, equipment and other charges on approved rent schedule

● Pet fees

DOES NOT COUNT● Interest on security deposits● Section 8 special claims● Flexible subsidy funds● Refunds from property tax or

utility rate appeals● Proceeds from property damage

of liability policies● Recovered legal fees and court

cost● Replacement reserves and

residual receipts reimbursements

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5353

●Significant Rent increase may result in yield caps●Fee yield will be limited to a yield allowed under a 20% rent

increase using current management fee●Adjust percentage to achieve the desired rate●Hold harmless only pertains to fees approved before August 1, 1986

and are still in effect●Reasonable is determined by field offices in established ranges

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5454

●Not required to maintain separate payroll and fringe accounts

●Salaries for front-line activities on “shared” projects must be prorated in proportion to actual useNo surcharges Projects may make reimbursement payments to the management

company Recoveries of fringe costs must be prorated

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5555

●Charge all front-line activities Taking applications Screening, certifying and recertifying Maintenance Accounting from project income and expenses

●MOR - List all on-site staff charged to the project. (Use additional sheets if necessary).

●See Figure 6-2

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5656

● If activities are performed out of a single office: Agent must prorate costs according to use of services No flat charges

● Allocate salaries and fringe● Actual office expenses, fees and contract costs attributable to front-line activities

Salaries of supervisory personnel may not be charged

● If Agent staff performing front-line duties may bill project directly for actual time spent if each of the conditions are met: Supervisory salaries not charged Developed job descriptions for each generalist position outlining front-line and non-

front-line activities Charged at a reasonable rate Document hours spent on front-line activities

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5757

●All non-front-line activities except for centralized computer and accounting services

●Salaries and fringe, office expenses, fees and contract costs for the following Designing systems Preparing budgets required by owner or HUD Recruiting and hiring and training for project staff exceeding budget Project monitoring visits Analyzing problems and communications with owner Staffing

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5858

●Salaries of supervisors must be paid from fee unless of the following exceptions is met Prorated share of salaries of supervisory personnel providing oversight of

centralized accounting Total charges cannot exceed costs of stand-alone or independent contractor

●Salary for employee designated to replace a direct employee may be paid out of project funds after the first 40 hours The amount paid may not exceed the lesser of:

● Twice the amount of the absent employees weekly salary● The actual amount of the replacement’s weekly salary

May be used to pay up to 90 days

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5959

●HUD Audit Guide – Management Functions Determine whether the project is maintained in good repair and condition.

If the units are subsidized, determine whether management’s procedures ensure that units meet applicable housing quality standards

●Best action of the CPA is to look for client controls Indicate below to confirm that there is a schedule for preventative

maintenance/servicing for the items listed that are applicable.

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6060

Tenant Files

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6161

●Applications (VERY COMMON PROBLEM) List ALL states household members have lived in Has any member of the household ever been on the sex offender registry?

●Sample Application from a Large Management Company●Using HUD Model Lease Current version HUD-90105a (12/2007) VAWA Lease Addendum

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6262

● Does the owner/agent and/or EIV Coordinator have: Initial/current EIV Coordinator Access Approval form and User Access Approval forms Rules of Behavior forms for persons without EIV access

● Evidence that staff with access to the EIV system or to EIV reports take annual security awareness training?

● Does the owner/agent have security measures in place to limit access to EIV information and reports to only those persons who have proper authorization?

● Does the owner/agent have a procedure to review all EIV User IDs to periodically determine if the users still have a valid need to access EIV data?

● Does the owner/agent terminate access promptly (within 30 days) of all users who no longer have a valid need to access EIV data?

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6363

●Does the owner/agent have policies and procedures describing the use of EIV employment and income information and the EIV reports?

● Is the owner/agent using the following EIV reports, and taking appropriate action… Summary, New Hires, No Income, Failed EIV Prescreen, Failed Verification

(SSA), Existing Tenant Search, Multiple Subsidy, Deceased Tenant●Consents, Consents, Consents!!!

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6464

●Some IPAs reporting that MOR personnel are requiring the O/A to force IPAs to have Cyber Awareness training or other HUD security training

●Who is required to have training? EIV Users are required to complete online training annually EIV users authorized by owners to have access to EIV must complete the

Security Awareness Training Questionnaire for Multifamily Housing Programs

O/A staff who have access to EIV system but use EIV reports to perform their job function must also have security training

No where are IPAs mentioned

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6565

●What are the minimum requirements?●Use system in its entirety EIV Income Report Other EIV Income Reports (Income Discrepancy, New Hires, No Income on

50059 and No Income Report by HHS or SSA) EIV Verification Reports (Existing Tenant, Multiple Subsidy, Identity

Verification and Deceased Tenant●Owners Must: Use Existing Tenant Search for screening Develop policies regarding use of EIV Income reports and other verification

reports Have current signed consents

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6666

●Required documentation in tenant files: No Dispute of EIV information – EIV Income Report, current acceptable

tenant-provided info, and/or 3rd party verification Disputed EIV Information – EIV Income Report & 3rd party verification Tenant-reported Income Not Verified – EIV Income report, current

acceptable tenant-provided documents or 3rd party verification

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6767

●Minimum Audit Requirements Check for Income Reports while reviewing tenant files

● Review procedures related to inconsistencies between EIV reports and other documentation

Existing tenant search in tenant file Master file should contain

● New Hires● Identity Verification● Multiple Subsidy● Deceased Tenants

Likely only required for HUD Audit Guide audits and not Single Audit

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6868

●Regulatory Agreements Requirements 12. Any funds collected as security deposits shall be kept (a) separate and

apart from all other funds of the Project; (b) in interest bearing trust accounts, to the extent required by State or local law; and (c) in an amount which shall at all times equal or exceed the aggregate of all outstanding obligations under said account.

34. Borrower shall not require as a condition of occupancy or leasing of any unit in the Project, any consideration or deposit other than the prepayment of the first month’s rent plus a security deposit in an amount not in excess of one month’s rent to guarantee the performance of the lease terms.

●There is no requirement to collect a security deposit, nor are there any procedures dictating the return of security deposits

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6969

●Handbook 4350.3 Requirements Owner must collect security deposits Collect established amounts Comply with state and local law May collect on installment basis Deposit is refundable Follow specific rules on refund or use of deposits Return within 30 days or shorter if required by state law or provide an

itemized list of charges●Applies only to projects subject to 4350.3 (excludes most insured

projects)

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● Obtain an understanding of the project owner’s procedures… 4370.2, chapter 2● …account … established in a federally insured depository● …Deposit => Obligations● Determine whether interest is earned on the security deposit account, if state/local

law requires pay the tenant for interest earned● Select a sample of tenants that moved in and tenants that moved out during the

period under review and perform the following steps: Determine whether collected at lease in the amount required in lease agreement Determine deposits were deposited in account Trace tenant balances at end of year to tenant list for agreement Determine refunds or an itemized list within 30 days of move out

● Which of these procedures apply to the insured only projects? There is no requirement to return within 30 days or to even collect deposits

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● HUD-9834 Does the advertising program comply with the existing Affirmative Fair Housing

Marketing Plan? Is the fair housing sign posted in the rental office? Is the fair housing logo included in published advertising materials? Have modifications been made to the HUD model lease? Aside from rents and security deposits, what other charges are assessed (replacement

keys, lockouts, etc.)?● Audit Guide Procedures Was in Fair Housing – Now Removed Was in Fair Housing – Now Removed Was in Fair Housing – Now Removed Lease is in Audit Guide, no specifically mentioned Not specifically mentioned (See 4350.3 Q&A)


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