Transcript Understanding Reporting Requirements: LIHTC, RD, HUD & A-133

Understanding Reporting Requirements:
LIHTC, RD, HUD & A-133
Heather Perry – Member
Amy Unterfranz – Senior Manager
@dozcpa
LIHTC, RD, HUD & A-133 Audits
• Unique reporting requirements:
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LIHTC
Rural Development
HUD
A-133
• How to prepare for your audits
• How to avoid potential audit findings
Reporting Requirements : LIHTC
Partnership Agreement
• Typically requires GAAP financial statements
• Specifies draft and final financial statement and tax
return due dates
Soft debt requirements
Syndicator or Investor Limited Partner requirements
Reporting Requirements - LIHTC
Many LIHTC entities have multiple layers of soft debt or even
one loan that may have specific requirements
• HUD & RD
• State or local agency debt – CalHFA, NJHFA, PHFA, etc.
State Agencies may have a specific audit guide that must be
followed
Other Regulatory Agreements
Reporting Requirements - LIHTC
Syndicator or Investor Limited Partner requirements
• Preferred or required report formats for financial statements
• Usually included in the partnership agreement or directed to a website
Reporting Requirements - LIHTC
Typical footnote disclosures include:
• Notes for all debt
• Related party fees that are paid or accrued
• Any guarantees (construction, operating deficit,
completion)
Reporting Requirements - LIHTC
• Partners equity & distributions
• Required capital contributions
• Allocation of profits and losses
• Waterfall – priority and order of payments to
partners for fees and distributions
Reporting Requirements - LIHTC
• Low Income Housing Tax Credits
• Amount of credits to be generated
• Compliance period
• Land use restriction agreement, if applicable
Reporting Requirements - RD
Partnership Agreement
Rural Development Guide
Last updated September 2013
Expecting a new guide to come out in the next year
Reporting Requirements - RD
Audits must be in accordance with GAAP and GAGAS
An additional opinion is included in the audit report:
Independent auditor’s report on internal control over financial
reporting and on compliance and other matters based on an
audit of financial statements in accordance with Government
Auditing Standards
Reporting requirements - RD
Internal control and compliance opinion –
• Must include significant deficiencies in internal control and
whether they are material weaknesses
• All instances of fraud and illegal acts
• Violations of provisions of contracts or grant agreements that
could have a material effect on the financial statements
Reporting requirements - RD
Additional matters that may be included in a GAGAS audit include:
• Significant concerns about the government program and
sustainability
• Unusual or catastrophic events that could effect entity’s financial
condition or operations
• Significant uncertainties in projections or estimations in the audit
• Any other matter auditors consider to be significant to users or
oversight bodies
Reporting Requirements - RD
Reporting Requirements - RD
Agreed Upon Procedures Report
• Must be completed by a CPA
• Required for all borrowers with 16 or more units
Reporting requirements - RD
Agreed Upon Procedures include:
1. Compare total amount paid from cash account to costs on
RD3560-7
2. Examine selected receipts, invoices, checks for O&M expenses
3. Compare O&M expenses to RD regulations for eligibility
4. Confirm payments with vendors
5. Confirm reserve balances at year end with financial institution
Reporting requirements - RD
6. Calculate number of reserve withdrawals
7. Examine caretaker agreement for compliance with RD
8. Examine bids from independent companies for services
provided by identity of interest companies
9. Compare ownership of contractors, owners, and management
agent to determine undisclosed IOI’s
10. Compare addresses to ensure delivery to correct property
11. Confirm IOI’s exist and provide services to general public
Reporting requirements - HUD
• Most HUD-assisted projects have annual
financial reporting requirements
• Specifically addressed in:
 Regulatory Agreement
 HAP Contract
Reporting requirements - HUD
In addition to Generally Accepted Auditing Standards (GAAS):
- Generally accepted government audit standards (GAGAS)
- Independent Auditor’s Report
- Report on Internal Control
- Consolidated Audit Guide for Audits of HUD Programs
- Report on compliance for major programs and internal control over
compliance
- Schedule of Findings & Questioned Costs
- Comments on Audit Resolution Matters Relating to HUD programs
- OMB Circular A-133 (NFPs)
Reporting requirements - HUD
Financial statements:
• Statement of Financial Position (Balance Sheet)
• Statement of Profit and Loss (Statement of Activities)
• Statement of Changes in Partners’ Equity (Statement of
Changes in Net Asset/Changes in Members’ Equity)
• Statement of Cash flows
Each statement should adhere to REAC’s prescribed format
Reporting requirements - HUD
Additional Components:
• Schedule of changes in property and equipment
• Computation of surplus cash, distributions and residual
receipts
• Schedule of findings and questioned costs
• Corrective action plan
• Auditor’s comments on audit resolution matters
• Certification pages
Reporting requirements - HUD
Exceptions:
• Project whose aggregate federal awards are less than
$500,000
• Owner-certified financial statements are still required to be
completed within REAC, (in accordance with Housing Notice
2013-23)
 REAC submissions will NOT have an opinion if only submitting owner
certified financial statements
 Elected audit for other uses would be a conventional audit report;
shouldn’t be paid from Federal funds
Reporting requirements - HUD
• 90-day reporting requirement to HUD
 Prior to 1999 requirement was 60 days (may still see in old reg.
agreements)
• HUD cannot supersede OMB reporting period of 9 months for
Single Audits (NFP entities)
 HUD provides a template for owner certified – unaudited statements
so the 90-day requirement can be achieved.
• i.e.. NFP owner with audit requirement (>$500k in awards) can file owner certified
within the 90 day window and have an additional 6 months to submit final audit to
REAC and Audit Clearinghouse. (9 months total from YE)
• NFP with <$500k in awards and no audit requirement only have 90 days to file
owner certified
Reporting requirements - HUD
• Uniform Financial Reporting Standards (UFRS) added the
Real Estate Assessment Center (REAC) reporting
requirement when issued on September 1, 1998 (which
amended Part 5 of Title 24 CFR)
 Assignment and Assumption agreement of a HAP contract may add this
to old HAP deals which did not previously require
Reporting requirements - HUD
REAC submission:
• HUD project managers maintain the Real Estate Management
System (REMS of I-REMS). It describes annual financial
statement (AFS) assessment and referral procedures (owner
requests).
• REMS links to REAC
• REAC maintains the Financial Assessment Subsystem –
Multifamily (FASS-MF) (FASUB)
• The HUD project manager is the start for the required audit.
PMs indicate a Audit is required by completing the “Financial
Statement Requirement” indicator in REMS
Reporting requirements – A-133
For fiscal years ending after December 31, 2003 and beginning before
December 26, 2014, organizations that expend less than $500,000
in federal awards during the year are exempt from single audit
requirements.
Total Federal
Awards Expended
One Program
More than One
Program
$0 - $499,999
No audit
No audit
$500,000 or more
Program-specific or A-133 Single Audit
A-133 Audit
Reporting requirements – A-133
A Single audit consists of two main parts:
• Audit of basic financial statements
• Audit of the entity’s major federal awards program(s)
• Gaining an understanding of and testing the internal
controls over compliance
• Testing compliance with requirements over the
program(s)
• Understanding of internal control over financial
reporting
Reporting requirements – A-133
Reporting package
• Financial statements and SEFA
• Schedule of prior audit findings
• Auditor’s opinion which must include either combined or separately
• An opinion (or disclaimer) on whether the financial statements
are presented fairly in all material respects in accordance w/
GAAP
• An opinion on whether the SEFA is presented fairly in all
material respects
• A report on compliance for major programs and internal control
over compliance
Reporting requirements – A-133
Reporting package (continued)
• Auditor’s opinion (continued)
• A report on compliance with laws, regulations, and provisions
of contracts/grant agreements, noncompliance that could
have a material effect on the financial statements as well as
an opinion as to whether the entity complied with laws,
regulations, and provisions that could have a direct and
material effect on each of the major programs
• If applicable, a schedule of findings and questioned costs
• Corrective action plan
Reporting requirements – A-133
Report Submission
• Data Collection – each entity must submit the
reporting package with a data collection form to the
Federal Clearinghouse certified by both the auditee
and auditor
• Submission deadline is the earlier of 30 days after
receipt of the auditor’s report or 9 months after the
end of the audit period
Reporting requirements – A-133
Schedule of Expenditures of Federal Awards (“SEFA”)
• Auditee’s responsibility to prepare
• Includes all Federal programs received and
expended, program title, CFDA number, award
number and year, name of the Federal agency, name
of pass-through entity (if applicable), and footnotes
• Auditor’s responsibility to opine on whether the SEFA
is presented fairly in all material respects
Reporting requirements – A-133
Reporting requirements – A-133
• Changes Coming: Uniform Administrative Requirements, Cost
Principles and Audit Requirements
 Supersedes and streamlines requirements from OMB Circulars A-21, A87, A-110, A-122, A-89, A-102, and A-133 and guidance on Single Audit
Act follow up from Circular A-50
 Goals – streamline the guidance for Federal awards administratively
and strengthen the oversight over Federal funds to reduce risks of
waste, fraud, and abuse (more than $500 billion expended annually)
Reporting requirements – A-133
• Effective dates:
 Federal agencies must implement the requirements to be effective by
12-26-14.
 Subpart F, Audit requirements, will apply to audits of non-Federal entity
fiscal years beginning on or after December 26, 2014.
 All awards made on or after 12-26-14 are subject to the new guidance
 Non-Federal entities will not be penalized for making entity-wide system
changes to comply with the Uniform Guidance after the effective date of
12-26-14 (including old awards)
Reporting requirements – A-133
• Subpart F – Audit Requirements
 Single audit threshold - $750,000
 Type A/B programs - $750,000 (unless total over $25 million)
 Low risk Type A – criteria questions (similar to before), must have been
audited as major in one of the last two audit periods and not had
material weakness in IC, modified opinion on major programs, or
questioned costs greater than 5% of program expenditures
 Coverage rule – 40% normal; 20% low risk auditee
 Low risk auditee – same as before PLUS no going concern, GAAP f/s
required
Reporting requirements – A-133
• Compliance requirements – 6 requirements (still subject to
change) – doubtful this will have a huge impact on the actual
testing as items are likely to be combined not eliminated
• Questioned costs threshold - $25,000
• Miscellaneous –
 Contracting subject to auditor’s peer review report
 Corrective action plan and summary of prior audit findings required –
clock starts w/ FAC report submitted
 Standard numbering for CY and PY findings
Preparing for your audit
• Planning plays a key role in the achievement of a successful
(and smoother) audit and tax season and delivering final
reports on time
• Time invested on the front end will likely cut out time during
the back end
• No surprises during year end fieldwork
• Create efficiencies by completing procedures earlier in the
year
• Get on the same page with your audit firm
Preparing for your Audit
• Planning helps the audit firm
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Understand internal controls of the organization
Assess audit risks and determine audit approach
Get more done earlier, so less work to do at year end fieldwork
Reduce likelihood for surprises at year end that will incur more time than
originally planned
• Required compliance testing completed during interim instead of year
end
• Allows for adequate and proper staffing on the job to deliver on time
audit reports and tax returns
Preparing for your Audit
• Planning helps the client
• Identify and address any improvement opportunities
• Create efficiencies in monthly financial close
• Improve quality of work and prevent occurrences of a
compliance problem
• Reduce time gathering documents and answering questions
during year end fieldwork
• Correct findings or management letter comments before year
end
Preparing for your Audit
The effects of planning:
• Correcting findings before year end
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Underfunding of security deposit cash
Over distribution
Advice/Guidance on handling of specific items
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Refinances
Casualty losses
Tax issues
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Reduce audit adjustments
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Discussions of new accounting guidance
Avoiding Potential Audit Findings
• Compliance is a year round job
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Have the appropriate individuals in place to monitor compliance
Read all grant and financing documents
Communicate with your awarding agencies
Ask questions during the year – to the agency and your auditors
Incorporate compliance checks into month-end checklists
Review prior year audit findings, findings from REAC inspections and
MORs, and any communication from awarding agencies to ensure they
have been answered and cleared
Avoiding Potential Audit Findings
• Common Findings
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Security deposit cash underfunding
Reserve for replacement deposits not made
Residual receipt deposits not made timely
Distributions in excess of surplus cash or approved ROI
Delinquent mortgage payment
REAC inspection score below 60
Questions?
Heather Perry – [email protected]
Amy Unterfranz – [email protected]
@dozcpa