Advanced Auditing of HUD-Assisted Projects

• Chapter 0 - Overview
  • Course Goals
  • Introduction
• Chapter 1 - Government Auditing General Standards/Audits of the HUD-Assisted Projects
  • Learning Objectives
  • Introduction
  • Yellow Book General Standards
  • HUD Environment and Program Update
  • Establishing a Mutual Understanding of the Engagement
  • Real Estate Assessment Center
  • A Helpful Resource
  • Discussion Point
  • Appendix 1A
• Chapter 2 - Fieldwork Standards for Audits of the HUD-Assisted Projects
  • Learning Objectives
  • Planning
  • Additional Planning Considerations for Financial Statement Audits
  • Internal Controls
  • Compliance Procedures for HUD-Assisted Project Audits
  • Specific Requirements for Multifamily Programs
  • Chapter 3 - HUD Multifamily Housing Programs
  • Additional Compliance Considerations Not Included in the Guide
  • Questions
  • Appendix 2A
• Chapter 3 - Reporting Standards for Audits of HUD-Assisted Projects
  • Learning Objectives
  • Introduction
  • Major Required Reporting Items
  • The Standard Auditor's Report
  • The First Additional Reporting Standard
  • The Second and Third Additional Reporting Standards
  • Independent Auditor's Report on Compliance with Laws and Regulations Applicable to the Basic Financial Statements
  • Independent Auditors' Report on Compliance with Specific Requirements Applicable to the Major HUD Program(s)
  • Independent Auditors' Report on Compliance with Requirements Applicable to the Non-Major HUD Program(s)
  • Independent Auditor's Report on Compliance with Specific Requirements Applicable to Fair Housing and Nondiscrimination
  • Required Disclosures
  • Independent Auditor's Combined Report on Internal Control
  • Reporting Fraud
  • Attestation Requirements
• Chapter 4 - Annual Financial Statement Requirements
  • Learning Objective
  • Introduction
  • Projects Subject to Audit
  • Projects Not Subject to Audit
  • Required Content of Financial Statements
    • REAC
  • Appendix 4A - Example Financial Statements
  • Appendix 4B
  • Appendix 4C
  • Appendix 4D
  • Appendix 4E
  • Appendix 4F
  • Appendix 4G
• Chapter 5 - Financial Statement Requirements for HUD-Assisted Nonprofits
  • Learning Objectives
  • Introduction
  • HUD, the Single Audit Act and OMB Circular A-133
  • Audit Scope and Reporting to HUD under A-133
  • FAS 116 and the Capital Advance Program
  • Non-Profit Organizations and Reporting via REAC
  • Appendix 5A
• Chapter 6 - Applying the Consolidated Audit Guide to HUD-Regulated Mortgagees
  • Learning Objectives
  • Introduction
  • Use of the LASS System
  • Key Regulatory Requirements for Nonsupervised Mortgagees and Loan Correspondents
    • Audit Requirements
    • Compliance Areas and HUD Issued Guidance
  • Appendix 6A - Example Financial Statements
• Chapter 7 - Ethics Focus: Accounting and Auditing
  • Ethics Overview
  • Recent Developments
  • Spotlight on Independence
  • Key Ethical Dilemmas
  • Addressing Ethical Dilemmas
  • Available Resources
• Chapter 8 - Latest Developments
• Appendix A - 2007 Yellow Book Excerpts
• Appendix B - Update on the HUD Consolidated Audit Guide Revision Project
• Value Aid - Consolidated Audit Guide for Audits of HUD Programs

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Chapter 0

The overriding goal of this course is to address the implications of these and other environmental changes on the conduct of our audits of HUD-assisted projects.

More detailed goals include the following:

• Reviewing the general standards and highlighting the key issues with respect to those standards.
• Reviewing field work issues, especially engagement planning and supervision.
• Focusing on the Consolidated Audit Guide and its compliance requirements with regard to engagement planning and field work.
• Exploring reporting issues, especially the development of the example reports as set forth in the GAO Yellow Book.
• Reviewing the effect of OMB Circular A-133 on audit scope and reporting for HUDassisted nonprofits.
• Evaluating legislative and regulatory changes that will have an impact on existing multifamily housing programs.

We presented the first version of this advanced course on the auditing of HUD-assisted projects in the early 1990s. Since then, we have witnessed the overhaul of the Consolidated Audit Guide, the implementation of FASSUB and REAC, and continuous revisions to HUD housing programs.

From a practitioner's standpoint, one might hope that there might be an end in sight to changes in this environment, and that one can look forward to several years of tranquil times resulting from a lack of change. Unfortunately, if that is your wish, we suggest that you withdraw your penny from the wishing well because the environment is, if anything, more turbulent than ever. Issues, events, programmatic changes, and updated auditing standards affecting the course in recent years include, but are not limited to, the following:

1. Changes to the Consolidated Audit Guide.
2. HAP contract extensions and rent and other constraints on contract amendments.
3. Mark-to-Market Restructuring Act.
4. OMB Circular A-133 and its effect on auditors and auditees with HUD-assisted nonprofit projects.
5. HUD's information delivery system and the vastly expanded use of the Internet.
6. FASSUB and REAC.
7. Revisions to Government Auditing Standards.
8. Starting in calendar 2000, HUD began the process of"contracting out" to state housing finance agencies, local housing authorities, and, in some cases, local private organizations, the administration of Section 8 contracts. Since this program remains the most "compliance-intensive" of all multifamily borrower programs, it seems appropriate that we consider the ramifications of this significant change in program administration.

Chapter 1

Government Auditing

General Standards/Audits of the HUD-Assisted Projects

Learning Objectives

• Identify issues unique to the HUD-assisted project environment.
• Apply components of due professional care to the HUD-assisted project environment.

The GAGAS general standards emphasize the independence of the audit organization and its individual auditors; the exercise of professional judgment in the performance of work and the preparation of related reports; the competence of audit staff; audit quality control and assurance; and external peer reviews. Additional qualifications when performing financial audits are that auditors performing financial audits should be knowledgeable in generally accepted accounting principles (GAAP), the AICPA's generally accepted auditing standards for field work and reporting and the related Statements on Auditing Standards (SAS), and the application of these standards. Also, if auditors use GAGAS in conjunction with any other standards, they should be knowledgeable and competent in applying those standards.

During 2008, the HUD Office of Inspector General (OIG) continues to be working on a revision of the Consolidated Audit Guide. As this course went to press a complete revised guide had not been issued. Practitioners should watch for the new Guide at www.hud.gov/offices/oig/. Portions of the revised guide are being issued on a chapter by chapter basis.

The Yellow Book contains general standards related to

• Independence.
• Professional judgment.
• Competence.
• Quality control and assurance.

The purpose of this section is to highlight aspects of the general standards.

The general standard related to Independence (paragraph 3.02 of the Yellow Book) covers a broad range of matters to which auditors should direct their attention. The following extracts from Chapter 3 of the Yellow Book the author finds especially noteworthy:

• Within the body of paragraph 3.07 are examples of personal impairments of individual auditors. One of the examples given is the
– "Concurrent or subsequent performance of an audit by the same individual who maintained the official accounting records when such services involved preparing source documents or originating data, in electronic or other form; posting transactions (whether coded by management or not coded); authorizing, executing, or consummating transactions (for example, approving invoices, payrolls, claims, or other payments of the entity or program being audited); maintaining an entity's bank account or otherwise having custody of the audited entity's funds; or otherwise exercising authority on behalf of the entity, or having authority to do so."
• Paragraph 3.08 requires that "audit organizations should include as part of their quality control system procedures to identify personal impairments and help ensure compliance with GAGAS independence requirements."
• Audit organizations that provide other professional services (nonaudit services) should evaluate whether providing these services creates an independence impairment either in fact or appearance (paragraph 3.20).
• In the 2002 independence Q & A document issued by the GAO, question 57 asked the following "Over the last few years, the U.S. Department of Housing and Urban Development (HUD) has introduced a number of electronic filing requirements for financial information for public housing authorities and multifamily housing projects. HUD will soon introduce new electronic filing requirements for the lender community. Would independence be considered impaired if an audit organization assists an entity in making the electronic submission? What if the transmitted amount was material to the financial statements?" The answer given was "No. This would be considered a routine byproduct of the audit and is permissible irrespective of the materiality of the transmitted amount and without applying the safeguards."

The Yellow Book general standards Professional Judgment (paragraph 3.31 of the Yellow Book) and Competence (at paragraph 3.40) are, in the author's opinion, not substantially different from GAAS standards for training and proficiency of the independent auditor (AU 210) and due professional care in the performance of work (AU 230). However, we do want to point out aspects of two components of Competence, namely, "additional qualifications" and "continuing professional education."

Paragraphs 3.44 and 3.45 address that auditors performing financial audits should be knowledgeable in generally accepted accounting principles (GAAP), the AICPA's generally accepted auditing standards for field work and reporting and the related Statements on Auditing Standards (SAS), and the application of these standards. Also, if auditors use GAGAS in conjunction with any other standards, they should be knowledgeable and competent in applying those standards. Similarly, for attestation engagements, GAGAS incorporate the AICPA's attestation standards. Auditors should be knowledgeable in the AICPA general attestation standard related to criteria, the AICPA attestation standards for field work and reporting, and the related Statements on Standards for Attestation Engagements (SSAE), and they should be competent in applying these standards and SSAE to the task assigned. Also, if auditors use GAGAS in conjunction with any other standards, they should be knowledgeable and competent in applying those standards.

Auditors performing work under GAGAS, including planning, directing, performing field work, or reporting on an audit or attestation engagement under GAGAS, should maintain their professional competence through continuing professional education (CPE). Therefore, each auditor performing work under GAGAS should complete, every two years, at least 24 hours of CPE that directly relates to government auditing, the government environment, or the specific or unique environment in which the audited entity operates. For auditors who are involved in any amount of planning, directing, or reporting on GAGAS assignments and those auditors who are not involved in those activities but charge 20% or more of their time annually to GAGAS assignments should also obtain at least an additional 56 hours of CPE (for a total of 80 hours of CPE in every two-year period) that enhances the auditor's professional proficiency to perform audits or attestation engagements. Auditors required to take the total 80 hours of CPE should complete at least 20 hours of CPE in each year of the two-year period.

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