HUD Issues Guidance on PHA Completion of the FDS and Related Auditor Reporting. On December 10, 2008, the U.S. Department of Housing and Urban Development (HUD) issued a notice providing Public Housing Agencies (PHAs) with guidance on how to meet the requirements for preparing the required financial data schedule (FDS), as well as the related auditor reporting.  The HUD guidance was necessary in that there has been a delay in the availability of a revised FDS format by HUD.  GAQC Alert #96 is intended to inform our member firms that perform audits of PHAs about the new HUD guidance and what to expect going forward.  Additionally, GAQC Alert #96 is very helpful in that it also discusses the following:

Listen to an Archived Conference Call on the New Multifamily Housing Chapter of the HUD Consolidated Audit Guide. This archived GAQC conference call is intended for our members who perform HUD multifamily housing audits, and is based on recent revisions to Chapter 3 of the HUD Guide.  This call is also being made available to non-members as a public service.  As we informed you in GAQC Alert #85, Chapter 3 is effective for audits of profit-motivated sponsors/entities with fiscal years ending on or after December 31, 2008.  The presenter, Mr. George Datto, highlights the major changes in the chapter, as well as addresses member questions submitted in advance and during the live event. The presenter also explains at a very high-level Chapter 4, HUD Multifamily Hospital Program which was also recently revised.  Click here to learn more about the call and access the audio file.

HUD IPA Roster Update. As we communicated in GAQC Alert #68, on February 6, 2008, HUD issued a proposed rule titled, Independent Public Accountant Roster, relating to certain audits performed under the HUD Guide or of governments or not-for-profit organizations that receive HUD funding and are subject to a single audit.  See GAQC Alert #68 for highlights of the proposal and news item below "GAQC Issues Comment Letter on the Proposed HUD IPA Roster" for specifics of our comment letter.  As for the latest status of this proposal, in a recent public meeting, HUD staff announced that they were holding the proposed rule in abeyance in deference to the audit quality efforts underway by the Office of Management and Budget (OMB) and the AICPA in response to the federal study on single audit quality (PCIE report).  Upon completion of those efforts, HUD staff stated that HUD will evaluate whether the changes made meet HUD needs and determine whether there is a need to restart efforts relating to a roster.  We will keep our members firms informed of any new developments on this issue.

HUD Releases Revisions to Chapters 3 & 4 of its Consolidated Audit Guide.  As we informed GAQC members in GAQC Alert #85, on July 21, 2008, HUD issued its long-awaited revisions to Chapter 3 and Chapter 4 of the HUD Guide.  GAQC Alert #85 describes the significant changes in each chapter.  The new Chapter 3 is effective and can be used upon issuance.  You can access the related HUD transmittal letters that further describe the issuance of Chapters 3 and 4 by clicking here.

HUD is going through the process of updating the Guide (last revised on an overall basis in 2001) on a chapter-by-chapter basis. Remaining chapters to be updated by HUD include Chapters 1 and 2.  HUD is currently working on both chapters.  We will keep you apprised of any developments relating to these chapters as we become aware of them.

Passage of New Housing Act Continues Correspondent Lender Audit Requirement. There is finally a resolution to the question of whether the audit requirement for correspondent lenders will continue and the answer is YES. The House and Senate worked throughout June and July to come up with a package that would assist homeowners who cannot meet their mortgage payments and also to calm the markets in the wake of Fannie Mae and Freddie Mac's problems. The result is the Housing and Economic Recovery Act (H.R. 3221) which maintains the audit requirements for correspondent lenders selling FHA products intact.  President Bush signed H.R. 3221 into law on July 30.  

For purposes of background, prior to the introduction of H.R. 3221 there were several bills to help struggling homeowners amidst the subprime crisis that had been considered by the House and Senate. A previous House bill had been of particular interest to some of our members that audit correspondent lenders in that it included a provision that would allow certain correspondent lenders an option to replace the current audit requirement with a surety bond. The AICPA, joined by several financial trade associations, strongly opposed the efforts to substitute a surety bond for the audit requirement and ultimately were able to successfully make the case that the regulatory audit requirement should not be loosened.

GAQC Issues Comment Letter on the Proposed HUD IPA Roster. On April 7, 2008, the GAQC issued a comment letter on the Department of Housing and Urban Development (HUD) proposed rule titled, Independent Public Accountant Roster (Federal Register, Vol. 73, No. 25, page 7170).  See the section below for a summary of the proposal.  The GAQC letter notes the AICPA’s shared commitment with HUD to improving the quality of HUD audits and discusses the establishment of the GAQC as one example.  However, even in light of that commitment to audit quality, the letter expresses our serious reservations about the HUD proposal and strongly recommends that HUD not proceed with it.  The reservations, all of which are described in the comment letter, include concerns about the likely reduction in quality firms willing to perform HUD audits, the negative precedent that will be set by the proposal, questions about HUD’s authority to establish and effectively administer the Roster, federalism implications, and unintended consequences to firms that are removed from the Roster by HUD that could affect their ability to practice outside of the HUD arena.  The letter also describes numerous other concerns about specific provisions in the proposal including the lack of clarity regarding the registration, overly broad eligibility requirements, and the limited due process provided for firms that HUD might seek to remove from the proposed Roster. 

We thank all member firms that submitted comments for our consideration or that issued their own comment letters directly to HUD.  Please take a moment to read our comment letter.  Also, if you are interested in seeing the other feedback submitted to HUD on the proposal, you can access it by clicking here.  The GAQC Team will continue to monitor the status of the HUD proposal and keep you informed of any new developments via this Web page.

HUD Updates Illustrative Internal Control Reporting for SAS No. 112 Terminology.  HUD updated the illustrative internal control reporting that appears in the HUD Consolidated Audit Guide for SAS No. 112, Communicating Internal Control Related Matters in an Audit.  Click here for more information.  See GAQC Alert #93 for a discussion of Statement on Auditing Standards (SAS) No. 115 (AU section 325), Communicating Internal Control Related Matters Identified in an Audit (which superseded SAS No. 112 of the same name), on your HUD internal control reporting.

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Background[1]

The HUD mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD 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, primarily through multifamily loans and capital advance programs.

In addition to its two key direct roles, HUD is indirectly involved in the single family mortgage market, providing approximately $120 billion/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 approximately 7,500 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 (PHAs) and Indian housing entities in the United States and its territories. These entities are subject to the Single Audit Act and Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, 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 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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Office of Inspector General (OIG)

The OIG's mission is independent and objective reporting to the Secretary and the Congress for the purpose of bringing about positive change in the integrity, efficiency, and effectiveness of HUD operations. The staff is charged specifically with combating waste, fraud, and abuse in the administration of HUD programs and operations. Its goal is to ensure that the taxpayers' dollars appropriated by the Congress for HUD programs are used effectively to provide safe, decent, and sanitary housing for millions of Americans.

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Real Estate Assessment Center (REAC)

Background

The Real Estate Assessment Center's  mission is to provide and promote the effective use of accurate, timely and reliable information assessing the condition of HUD's portfolio; to provide information to help ensure safe, decent and affordable housing; and to restore the public trust by identifying fraud, abuse and waste of HUD resources.

Among REAC’s responsibilities are the following:

• To standardize the way HUD evaluates the condition of PHAs, multifamily properties and HUD-regulated lenders.
• To continuously assess PHA and housing property performance and to refer problem indicators to other HUD components for program intervention or enforcement action.

There are three subsystems within REAC which are of interest to the multifamily industry:

• Financial Assessment Subsystem (FASS): FASS is an automated system that supports the collection, validation, and assessment of financial data, including financial statement information, for multifamily housing properties insured and/or subsidized by HUD. This financial data is used by Office of Public and Indian Housing, REAC, and other HUD program offices, including the Office of Housing, and the Enforcement Center (EC), to assess multifamily properties for noncompliance and poor performance. The FASS supports this goal by automating the submission of annual financial data for properties with HUD subsidies, grants, and/or FHA-insured mortgages. It also facilitates management and prioritization of the multifamily housing portfolio by performing automated assessments of the financial data, highlighting projects for which compliance deficiencies are identified. REAC sets and applies uniform financial reporting standards for HUD’s multifamily housing programs, including a standard chart of accounts and supplemental compliance data, and annual audits of financial statements prepared in accordance with generally accepted accounting principles (GAAP). See the section below titled, “Guidelines for Reporting and Attestation Requirements of Uniform Financial Reporting Standards,” for more information. Click here to access documents and guidance relating to the FASS (including User Guides for both multifamily housing and PHAs) and click here to access frequently asked questions.
• Quality Assurance Subsystem (QASS): The REAC QASS conducts reviews of workpapers of participating independent auditors for compliance with generally accepted auditing standards (GAAS) and the HUD Consolidated Audit Guide (see section below). Further, the reviewers read the financial statements for disclosures required by the HUD financial accounting handbook (4370.2, REV-1). QASS staff also recommends sanctions for practitioners whose work is determined to be substandard as the result of workpaper review.
• Physical Assessment Subsystem (PASS): PASS collects and assesses data on the physical condition of HUD properties via the REAC Physical Inspection Protocol. The protocol defines the process for properly completing an assessment. All assessments must follow the protocol to be accepted by REAC. This guarantees a standard and objective approach.

Guidelines for Reporting and Attestation Requirements of Uniform Financial Reporting Standards

Financial statement and other information must be submitted to REAC electronically by PHAs or multifamily program participants on FASS using templates (referred to as FASS templates) specifically designed for them.  Auditors participate in this submission process.  In order to insure accuracy and consistency of financial data in the assessment process, REAC requires the following as the basis for electronic submission: 

• Audited annual basic financial statements prepared in conformity with GAAP (PHAs submit basic financial statements and certain auditor’s reports electronically to REAC as well as maintain a hard copy of all financial statements and audit reports for three years; however, multifamily program participants maintain a hard copy of the basic financial statements and audit reports for three years but do not submit the statements or reports electronically.)
• Report by auditors on the hard copy of the FASS templates as to their “fair presentation in relation to audited basic financial statements” in accordance with the audit provisions of the AICPA Statement on Auditing Standards (SAS) No. 29, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents, (PHAs must electronically submit the required FASS template and related SAS 29 reporting to REAC; multifamily program participants must electronically submit the required FASS templates to REAC, however, are not required to electronically submit the related SAS 29 reporting; PHAs and multifamily program participants must both maintain a hard copy of the SAS 29 reporting for three years); and
• A separate (i.e., not part of the above two requirements) attestation agreed-upon procedures engagement under AICPA Statement on Standards for Attestation Engagements where the auditor compares the electronically submitted data in the REAC staging database (the FASS template information) to the related hard copy documents (the attestation report is prepared and submitted to REAC electronically by the auditor).

REAC requires owners to engage a licensed CPA or CPA firm to perform the agreed-upon procedures (see previous bullet) enumerated in a document titled, Guidelines for Reporting and Attestation Requirements of Uniform Financial Reporting Standards For Public Housing Authorities, Not-for-Profit Multifamily Program Participants, For-Profit Multifamily Program Participants, and their Independent Accountants.  The main purpose of this Guideline is to provide guidance to PHAs and multifamily participants and their auditors in meeting the above requirements.

Office of Lender Activities and Program Compliance

• Lender Assessment SubSystem (LASS): There are approximately 7,500 nonsupervised Title I and Title II lenders and loan correspondents who use the LASS system to submit their annual CPA prepared audit and financial statement to renew their FHA lender approval as part of the recertification process. The LASS system is used by both lenders and their CPAs (and works similarly to the FASS system and electronic submission descriptions above). To obtain further instructions on accessing the LASS system you can access the User Manual for LASS. The Financial Data Template (FDT) Line Definition Guide is also available and defines each of the line items on the FDT and Data Collection Form (DCF) and provides a list of required fields, by line number, on the FDT and DCF. Finally, for frequently asked questions and answers regarding the LASS, click here.

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HUD Consolidated Audit Guide

The purpose of this Guide is to assist independent auditors in performing program-specific audits of participants in selected HUD Housing and Ginnie Mae programs. The auditees that generally are audited under this Guide are for-profit entities (note that not-for-profit and governmental organizations that participate in HUD housing programs would fall under the requirements of the Single Audit Act and Circular A-133 and not this Guide).

Audits under the Guide must also be performed in accordance with the standards for financial audits in Government Auditing Standards, issued by the Comptroller General of the United States. The objectives of a HUD program-specific audit under the Guide are to assist the program managers in HUD in determining whether the auditee has: (a) provided financial data and reports that can be relied upon; (b) internal control in place to provide reasonable assurance that it is managing HUD programs in compliance with applicable laws and regulations; and (c) complied with the terms and conditions of federal awards and guarantees, and thus expended federal funds properly and with supporting documentation.

During 2007, the HUD OIG and REAC continue to work on a revision of the Consolidated Audit Guide. The revised guide is being issued on a chapter-by-chapter basis. Your GAQC Team will continue to keep member firms informed of HUD's progress. Below is a list of the status of each chapter.

Chapter	Description	Updated	Effective
1	General Audit Guidance
2	Reporting Requirement and Sample Reports
2	Transmittal letter - Exhibits B and B-1	3/14/2007	3/31/2007
2	Exhibit B - Internal Control Reporting - Significant Deficiency	3/14/2007	3/31/2007
2	Exhibit B-1 - Internal Control Reporting - No Significant Deficiency	3/14/2007	3/31/2007
3	Transmittal Letter	7/21/2008	12/31/2008
3	HUD Multifamily Housing Programs	7/21/2008	12/31/2008
4	Transmittal Letter	7/21/2008	Effective upon issuance
4	HUD Multifamily Hospital Program	7/21/2008	Effective upon issuance
5	Transmittal Letter	3/23/2007	6/30/2007
5	Insured Development Cost Certification Audit Guidance	3/23/2007	6/30/2007
6	Transmittal Letter	1/30/2009	10/01/2008
6	Ginnie Mae Issuers of Mortgage-Backed Securities Audit Guidance	4/3/2007	6/30/2007
7	Transmittal Letter	4/27/2007	6/30/2007
7	HUD-Approved Title II Nonsupervised Mortgagees and Loan Correspondents Audit Guidance	4/27/2007	6/30/2007
8	Transmittal Letter	9/1/2006	12/31/2006
8	HUD-Approved Title I Nonsupervised Lenders and Loan Correspondents Audit Guidance	9/1/2006	12/31/2006
Appendix	HUD Regional Inspector Generals for Audit	3/2007	3/2007

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AICPA HUD Related CPE

Audits of HUD-Assisted Projects

This self study course will help you gain in-depth, hands-on information on HUD organization, programs, policies and procedures. This course will help you understand which HUD programs require audited financial statements; how to comply with specific HUD regulations, contracts and procedures; and understand the effect of Government Auditing Standards (Yellow Book), AICPA standards, and the Consolidated Audit Guide have on the design of the audit plan.

Advanced Auditing of HUD-Assisted Projects

This course offers insights into compliance pitfalls for HUD-assisted housing owners and managers and details how you can take advantage of new possibilities. Learn to recognize and apply the latest changes in the federally assisted housing industry and efficiently plan, perform and report a HUD-assisted engagement. The course includes coverage of the Consolidated Audit Guide for Audits of HUD Programs. You will also uncover the effects of OMB Circular A-133 on HUD-assisted nonprofit entities.

A prerequisite for this course is completion of the AICPA course Audits of HUD-Assisted Projects or equivalent knowledge.

Applying A-133 to Nonprofit and Governmental Organizations

This course is a must for you if you are involved in single audits of governmental entities or nonprofit organizations. You will learn how to be more effective in planning and performing those audits in accordance with the requirements of Circular A-133 and the Single Audit Act Amendments.  In addition, you will learn to apply the audit requirements in the latest version of OMB Circular A-133; understand the relationship of these requirements to GAAS, Government Auditing Standards, and the Single Audit Act Amendments; and plan for audits of governmental and nonprofit entities under A-133

The following CPE courses are available only online through the AICPA's CPExpress subscription:

Introduction to HUD Auditing: Key Regulatory and Contract Provisions

This online course provides an introduction to the HUD auditing environment. It is designed to introduce you to HUD's key regulatory and contract provisions. It is part of a two course CPExpress series.

Introduction to HUD Auditing: Overview of HUD Offices and Programs

This online course provides an introduction to the HUD auditing environment. It is designed to introduce you to HUD's key offices and programs. It is part of a two course CPExpress series.

Advanced HUD Auditing: Field Work Standards for Audits of HUD-Assisted Projects

This online course discusses the major goal of GAAS planning standards, which is to assure that, even in the planning stages, audits meet necessary legal and regulatory requirements and are properly planned to address requirements of key agency contracts, loan agreements, and handbooks. The course notes that HUD's adoption of the Single Audit concept of reasonable assurance requires an opinion level of assurance on compliance for the major programs, which requires a materiality consideration at the major program level and points out the expansion of the components of internal control, the application and testing of those components for a HUD engagement.

Advanced HUD Auditing: General Standards for Auditing in 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. If auditors use GAGAS in conjunction with any other standards, they should be knowledgeable and competent in applying those standards.

Advanced HUD Auditing: Nonprofits and HUD Regulated Mortgagees

This online course provides a brief history HUD programs. The purpose of the remaining part of the course is to review sections of the Consolidated Audit Guide applicable to the audit of a HUD-regulated mortgagee as well as to provide guidance to the auditor on implementation.

Advanced HUD Auditing: Reporting Standards and Financial Statement Requirements

The purpose of this online course is to review Generally Accepted Auditing Standards and Government Auditing Standards relative to reporting requirements for HUD multifamily financial audits. All HUD-assisted projects have annual financial statement reporting requirements to HUD. However, as programs and governmental oversight of project owners has evolved, it seems fair to state that requirements are no longer of the 'vanilla' variety; perhaps 'smorgasbord' would be a more accurate description. Accordingly, this course attempts to review the current requirements.

CPExpress is the AICPA’s online learning solution, is a powerful reference tool that’s cost-effective and convenient that offers over 900 online courses and over 1200 hours of CPE and has the following benefits:

• Convenient one and two credit-hour courses allows you to fit CPE into a busy schedule
• Any course is only four clicks away for fast access to the information you need
• Updates and hot topics at your fingertips keep you current on the latest developments
• Unlimited 24/7 access lets you take CPE at your convenience
• Print CPE certificates on demand to document your training
• A wide variety of courses including HUD, Single Audit, Not-for-Profits and other Governmental topics.

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Directory of Helpful Web Sites

www.hud.gov (HUD Central Site)

www.hud.gov/localoffices.cfm (HUD Field Offices)

www.hudclips.org (HUD Client Information and Policy System (HUDCLIPS))

www.hud.gov/groups/lenders.cfm (HUD Lender Web Site)

www.hud.gov/offices/oig (HUD Office of Inspector General)

www.hud.gov/offices/reac (Real Estate Assessment Center (REAC))

www.hud.gov/offices/reac/products/prodmf.cfm (Financial Assessment Subsystem - Multifamily Housing (FASS-MF))

www.hud.gov/offices/reac/products/prodqass.cfm (Quality Assurance Subsystem (QASS))

www.hud.gov/offices/hsg/hsgmulti.cfm (Multifamily Housing)

www.hud.gov/offices/enforce (Department Enforcement Center (DEC))

www.hud.gov/offices/hsg/omhar (Office of Affordable Housing Preservation (OAHP))

www.hud.gov/offices/hsg/sfh/lass/prodlass.cfm (Lender Assessment Subsystem (LASS))

www.hud.gov/ll/code/llslcrit.html (FHA/Housing - Lender List Selection Criteria)

www.hud.gov/offices/reac/products/fass/pha_flyers.cfm (GAAP Flyers)

www.hud.gov/offices/reac/products/fass/pha_briefs.cfm (Accounting Briefs)

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Listing of HUD Handbooks

Search the following site to obtain the handbooks online: http://www.hudclips.org/sub_nonhud/cgi/hbks.cgi?hbks

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HUD Contact information:

Department of Housing and Urban Development
Office of Inspector General Mid-Atlantic Audit District Single Audit Coordinator George Datto 100 Penn Square East Wanamaker Bldg., Suite 1005 Philadelphia, PA 19107 Phone: Voice  (215) 656-3401 Ext. 3491  FAX   (215) 656-3409 Web Page:  http://www.hud.gov/offices/oig/	Questions about  single audits and the HUD Consolidated Audit Guide
REAC The PIH-REAC Technical Assistance Center can be reached through many mediums: By Phone: 1-888-245-4860 Monday - Friday, 7:00am to 8:30pm   By Internet at:  http://www.hud.gov/offices/reac/contactus/xbusiness.cfm By Electronic Mail: REAC_TAC@hud.gov By U.S. Mail: HUD Office of Public and Indian Housing Real Estate Assessment Center 550 12th Street, SW Suite 100 Washington, DC 20410	Questions about FASS and related submissions and QASS
LASS   For LASS technical assistance check the LASS User Guide or contact the Technical Support Team (202) 755-7400 Ext. 163 or email LASS@hud.gov.   For Accounting and Auditing Issues, check the LASS Line Item Definition Guide or contact the LASS accounting support team at (202) 755 7400 Ext. 100 or email LASS@hud.gov.	For questions about LASS.

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