Audits of HUD-Assisted Projects

Gain in-depth, hands-on information regarding HUD organization, programs, policies and procedures. Review the professional standards affecting specific federal programs.

Objectives:

• Understand which HUD programs require audited financial statements
• Comply with specific HUD regulations, contracts and procedures
• Understand the effect that Government Auditing Standards (Yellow Book), AICPA standards, OMB requirements and the Consolidated Audit Guide have on the design of the audit plan

Prerequisite: Basic knowledge of auditing HUD-assisted projects

Value Aid! Consolidated Audit Guide for Audits of HUD Programs

Chapter 0 - Overview Course Goals

• Identify key departments in the HUD organization;
• Recognize HUD projects that require audited financial statements;
• Understand specific HUD regulations, contracts, and procedures subject to audit;
• Identify and understand the relevant HUD documents to enable you to efficiently audit the aforementioned regulations, contracts, and procedures as they relate to any HUDregulated entity;
• Understand the effect of the Yellow Book, SAS 74 and the HUD Audit Guide on your audit programs for HUD projects and on your practice unit;
• Understand the requirements for annual financial statement reporting under the uniform financial standards, including the changes in HUD HB 4370.2 and the electronic filing of these statements;
• Understand the scope and applicability of SAS 99, Consideration of Fraud in a Financial Statement Audit;
• Better understand HUD's use of audited financial statements;
• Understand the requirements of OMB Circular A-133;
• Better understand the difference in audit scope and reporting requirements between HUD multifamily borrowers, HUD multifamily and single family lenders, public, and Indian housing entities.

This course is designed to provide you with in-depth, hands-on information regarding HUD's key offices, programs, policies, and procedures, and the application of current auditing and reporting standards to assist you in performing audits of HUD-assisted projects.

Chapter 1 - Overview of Key HUD Offices and Programs; Helpful Information Resources Learning Objectives

• Better understand the scope of HUD activity in housing in America.
• Identify key offices within HUD that have an impact on multifamily housing programs.
• Identify the general responsibilities of the HUD field offices' staff who regulate your client.
• Understand the role of HUD's Office of Inspector General in program enforcement and independent auditor workpaper review.
• Identify key sources of information to keep abreast of program changes.

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 Department of Housing and Urban Development plays both a direct and indirect role in the arena of housing in the United States and its territories.

• First, HUD is directly involved in the underwriting of multifamily housing for low and moderate income families, elderly and disabled families, and a broad array of housing for older Americans, including congregate facilities, intermediate care facilities, nursing homes, and hospitals. In this capacity, HUD functions as an insurance company and a hands-on underwriter of the insurance commitment for mortgage loans funded by commercial lenders.
• Second, HUD is the funding source for the capital advance programs, thus functioning as a lender. These multifamily loans and capital advance programs are the focal point of this course.

Class participants should recognize the much broader role that HUD plays in the housing arena. In addition to its two key direct roles, HUD is indirectly involved in the single family mortgage market, providing billions each year in insurance commitments to families who purchase, rehabilitate or refinance a single family house subject to a HUD-insured loan. These insurance commitments are authorized under titles I and II of the National Housing Act, and are underwritten and administered by thousands of mortgage lenders and loan correspondents (as HUD defines that term) throughout the country. All of the lenders and loan correspondents are subject to oversight by HUD, which includes a requirement for financial statement audits and additional compliance and internal control reporting by the independent auditor. The extent of the required reporting oversight depends on the nature and level of activity of the lender or loan correspondent.

HUD is also the primary debt, capital, and operating funding source for approximately 3,400 public housing agencies and Indian housing entities in the United States and its territories. These entities are subject to the single audit act, and the breadth and depth of compliance requirements for these entities have some common characteristics with HUD-assisted multifamily borrowers.

The following key concepts are important to the understanding of the operating environment for owners and projects with HUD insured mortgages, direct loans or capital grants

• The regulatory agreement focuses on the project. HUD's authority to regulate the activities of a HUD-assisted project is limited to items of project income, expenses, project assets, and project liabilities. HUD does not have the authority to regulate entity (versus project) activities, except with respect to transactions between the project and the entity. This means the focus on the audit is on operations of the project and any transactions between the project and the entity, rather than the entity.
• It is helpful to think in terms of a two-tier organization: the partnership (by example) as the top tier and the project as a second tier.
• HUD's motivation is to reduce the risk of default on an insured or direct loan.
• Because HUD is often the lender (or insurer) of last resort, HUD must place constraints on the owner/manager of the HUD-assisted project to protect HUD's interests.
• Controls over the use of cash provide HUD with some assurance that if the project has been properly underwritten, constructed, and managed, then HUD's insurance commitment or direct loan is not in significant jeopardy.
• Distribution also means distribution of non-cash assets. Control over the disposition of non-cash assets is equally important to HUD and the mortgagee, since those assets (realty and chattel) constitute the only sources of tangible security for the mortgage note.
• HUD loans and insured mortgages are uniformly non-recourse to the owners. So, except in the case of misuse of funds, HUD and the mortgagee's only security is the chattel and realty.
• HUD pays special attention to those situations involving "identity of interest" relationships (i.e. related parties involved in ownership and management of projects).

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