HUD Update: For-Profit Entities Subject to the HUD Consolidated Audit Guide

Transcription

1 HUD Update: For-Profit Entities Subject to the HUD Consolidated Audit Guide A Web Event December 15, 2016 Administrative Notes Please ensure your pop-up blocker is disabled. Note the interactive toolbar at the bottom of your screen. Download slides and materials by clicking this icon. Ask questions by entering your question in the Q&A box. Please click the Help and/or Contact Us at the bottom of your screen. Call AICPA Member Service at

2 Trouble Shooting Troubleshooting Tips No Audio? Ensure that your computer speakers are turned on that the volume is appropriately set Check to ensure that audio streaming is enabled on your computer If the presentation slides stop advancing during the presentation Close out of the presentation and re-launch the webcast If you are still having audio or other technical difficulty Check with your IT personnel at your firm or state audit organization (SAO) to ensure that this event is not being blocked by a firewall Call the AICPA Service Center at Continuing Professional Education You must answer at least 75% of the random, attendance checks to earn CPE credit. Please respond to the attendance checks during the live presentation. You are not eligible to earn CPE by watching the archive of this event. At the end of today s presentation we will provide steps for obtaining your CPE certificate 4 2

3 Presenters Chris Stanz, CPA CliftonLarsonAllen LLP Denise Toomey, CPA Wolf & Company, P.C. 5 What We Will Cover Multifamily Program Updates HUD Requirements to be Familiar With Lender Program Update An Update on the U.S. Department of Housing and Urban Development (HUD) Consolidated Audit Guide for Audits of HUD Programs (HUD Guide) Planning Considerations for December 31, 2016, Year-End Audits 6 3

4 Multifamily Program Updates 7 Multifamily Programmatic Changes and Other Updates Updated User Guide, Industry User Guide for the Financial Assessment Subsystem Multifamily Housing (FASSUB) Financial Accounting Standards Board (FASB) Update No , Simplifying the Presentation of Debt Issuance Costs (ASU ): Accounting and HUD/FASSUB system requirements Real Estate Assessment Center (REAC) Quality Assurance Subsystem HUD to reinstate Management and Occupancy Reviews (MORs) Other Multifamily Updates 8 4

5 Updates to FASSUB Systems and Industry User Guides Updated Industry User Guide issued in July 2016 New version ( ) of Financial Assessment of Federal Housing Administration (FHA) Housing (FASS-FHA) submission templates changed to require additional details for accounts 1330, Other Reserves, and S , Net Deposits to Other Reserves, if account values are $1,000 or more 9 ASU Accounting Requirements Assets amortized over life of the loan Liability discount to debt 10 5

6 ASU Accounting Requirements Effective for financial statement periods beginning after December 15, 2015 Applied retrospectively to all prior periods presented Amortization of debt discount Effective interest method vs. straight line Reported as a component of interest expense Present amount of unamortized costs (face of balance sheet or in notes) Effect of adoption Considered a change in accounting principle - disclosure, - emphasis of matter paragraph in report, - governance communication. Change in debt presentation footnote 11 ASU HUD Reporting Requirements FASSUB System Release October 6, 2016 Modified FASSUB system to align with ASU Several changes will be made to the current chart of accounts as a result Two options allowed: Discounts on each debt obligation reported either individually or in the aggregate Added - Account 2340, Debt Issuance Costs - Account , Amortization of Debt Issuance Costs (indirect method section of cash flow statement) Updated definitions for certain accounts 12 6

7 REAC Quality Assurance Subsystem (QASS) Ensures financial data received are free of material misstatements Identifies high risk audit firms Performs Quality Control Reviews (QCRs) Makes referrals to oversight bodies 13 Management and Occupancy Reviews Letter issued to contract administrators regarding initiating MORs on higher-risk projects MORs covered by HUD Handbook , Multifamily Asset Management and Project Servicing 14 7

8 Other Multifamily Housing Program Updates What s New! Updated Chapter 9 of Section 8 Renewal Guide Implementation of Housing Protections Authorized in Violence Against Women Reauthorization Act of 2013 Rental Assistance Demonstration (RAD) Fair Housing, Civil Rights and Relocation Notice Special and Add-on Management Fees Now Available for Properties that Implement a Homeless Preference Amended and Restated Low-Income Housing Preservation and Resident Homeownership Act Use Agreement Notice Draft Chapters of HUD Handbook , Multifamily Asset Management and Project Servicing, Released FY 17 Project Assistance Contracts (PAC) Renewals Oct. 5- Dec. 5, 2016 Previous Participation Final Rule FY 2017 Utility Adjustment Factors Effective February 11, Other Multifamily Housing Program Updates What s New! Operating Cost Adjustment Factors Effective February 11, 2017 HUD Launches Utility Benchmarking in an Effort to Increase Energy and Water Efficiency and Save Costs Reminder of Requirements for Lead-Based Paint Inspection Eligibility of Independent Students for Assisted Housing Under Section 8 HUD Publishes Evaluation of Rental Assistance Demonstration Family Self-Sufficiency Program Expanded to Privately Owned Multifamily Properties 16 8

9 Multifamily HUD Requirements to be Familiar With 17 Section 202/811 Project Rental Assistance Contracts (PRAC) Recapture Consolidated Appropriations Act, 2016 December 2015 Gives authority to continue to recapture in fiscal year 2016 Specific language for housing for the elderly and housing for persons with disabilities Applies to properties with PRAC contracts expiring between July 19, 2015 September 30, 2019 Excess residual receipts - $250 per unit Required to be paid upon termination of the contract Accounting considerations on recording loss/liability REAC record losses to account 7190, Other Entity Expenses, and provide adequate explanation in the details 18 9

10 Special HUD Audit Considerations First and Final Years New HUD Loan Refinance to a HUD Loan Transfer of Physical Assets Pay off of HUD Loan 19 First Year HUD Audit Considerations - Loans Effective date for HUD financial reporting and compliance REAC requires stub period reporting Compliance audit procedures and reporting on the stub period only Requires obtaining two trial balances from management Always obtain and understand the regulatory agreement 20 10

11 Other HUD Considerations Transfer of Physical Assets The transfer of ownership of a HUD insured project when the existing mortgage remains in force requires a transfer of physical assets (TPA) Reporting requirements for both the seller and the buyer Pay off of HUD Loan Contact HUD to determine if a final HUD audit, review or compilation is required 21 HUD Regulatory Agreements and Surplus Cash Understand the definitions in the HUD regulatory agreement Currently multiple versions are being used Original version 2011 version 2014 version Healthcare specific agreements Calculations will differ based on date of agreement 22 11

12 Surplus Cash Limitations on the ability to take surplus cash Non-compliance from physical inspection Non-compliance with HUD notices Distribution made with borrowed funds Limited distribution owners Common deviations Including amounts that do not meet HUD requirements Liability for future repairs Replacement reserve requests Refer to HUD chart of accounts. 23 Fair Housing and Nondiscrimination HUD Guide, Chapter 2. Reporting Requirements and Sample Reports, revised in January 2013 Eliminated separate auditor reporting on Fair Housing HUD compliance requirement Affirmative Fair Housing Marketing Plan Direct and material? 24 12

13 Equity Skimming Regulatory agreement Expenditures must be reasonable and necessary Mortgage note in default / Non-surplus cash position Cash distributions Repayment of owner advances Lending funds to owners or management agent Repayment of secondary financing without HUD approval Appendix B, HUD Guide, Chapter 3, HUD Multifamily Housing Programs HUD Office of Inspector General, National Single Audit Coordinator 25 Lender Program Update 26 13

14 Recent HUD Program Activity Lenders Visit HUD s Federal Housing Administration (FHA) Lenders page to keep current Includes: - Link to Lender Electronic Assessment Portal (LEAP) Information page in the Approvals & Renewals section (including LEAP User Manual ; Independent Public Accountant (IPA) Registration and Assignment Instructions ) - Link to subscribe to receive FHA INFO announcements and SF news - Links to other useful information/resources FHA Single Family Housing Policy Handbook ( HUD Handbook or SF Handbook ) issued in 2015 with first sections becoming applicable starting in September Recent HUD Program Activity Lenders Change to Annual Recertification on LEAP - Revised Certification Statements Changes applied starting with lenders with fiscal year end July 2016 Make sure your clients understand what they are certifying to and that they answer the questions correctly Any NO response to a certification statement will cause delays to the annual recertification process. FHA has posted documents that describe changes and a comparison of the previous versions to the current versions by mortgagee type. See HUD s Annual Recertification page under FHA Lenders page These certifications are not subject to audit or agreed-upon procedures 28 14

15 Single Family Housing Policy Handbook FHA s SF Handbook is a consolidated, consistent and comprehensive single source for FHA Single Family Housing Policy: SF Handbook only applies to single family (SF) lenders with the exception of Section I.A.1 I.A.9 (Doing Business with FHA), which also applies to multifamily lenders. Consistent format and terms throughout SF Handbook support easier use Eventually, all SF Mortgagee Letters, Housing Notices, Handbooks and other policy documents with be consolidated into SF Handbook SF Handbook will cover all SF Housing policy 29 Single Family Housing Policy Handbook FHA s online and PDF SF Handbook accessible at HUD.gov (HUDClips) Additional information on the SF Handbook Information Page on HUD.gov SF Handbook was issued and effective in stages and original effective dates were 9/14/15 and 3/14/16 Certain sections still not complete On-line SF Handbook is continually updated (last revision 9/30/16) Effective dates are clearly indicated in each section 30 15

16 Single Family Housing Policy Handbook Mortgagee Letters (ML) since date of last update need to be reviewed for any applicable changes ML issued on 12/1/16 extends implementation dates of various parts of Section III, Servicing and Loss Mitigation that were set to become effective 12/1/16 to 3/1/17. udclips/letters/ Section V, Quality Control, Oversight and Compliance, contains the most significant changes impacting lender compliance requirements Auditors are required to test this area as detailed in HUD Guide, Chapter 7, FHA-Approved Lenders Audit Guidance 31 SF Handbook Quality Control (QC) Changes Applicable to Title I and Title II lenders Provides specific definitions, standards, documentation for: QC Program QC Plan Loan Administration Material Finding Mitigated Finding; Loan Sample Risk Assessment Establishes institutional and loan level QC Program requirements Eliminated on-site review of lender branch offices 32 16

17 SF Handbook QC Changes Updated requirements for participation for certain employees (Excluded Parties List, Limited Denial of Participation List, National Mortgage Licensing System and Registry (NMLS) registration) Specific timeframes for completion of QC and reporting Initial QC findings report drives reporting timeframes: Initial QC findings report - within 30 days to senior management Final QC findings report - within 60 days to senior management Unmitigated/unresolved material findings - no later than 90 days to FHA Fraud/material misrepresentation determination report immediately to HUD 33 SF Handbook QC Changes Minimum requirements for QC review detailed in a bulleted list Timeframe for selection and review of loan files: Pre-closing - reviewed after approval by Direct Endorsement (DE) underwriter and prior to closing Post-closing select monthly and review within 60 days from the end of the prior one-month period Early payment defaults - select monthly and review within 60 days from the end of the month in which loan was selected Servicing select monthly and review within 60 days from the end of the month in which loan was selected 34 17

18 SF Handbook QC Changes Updated Sample Size Standards: < 3,500 FHA mortgages/year: - 10% of FHA loans originated or serviced > 3,500 FHA mortgages/year: - either 10% of FHA loans originated or serviced, or - a stratified random sample of a size that ensures a 95% confidence level with a confidence interval not to exceed 2% on an annual basis, based on the defect rates for FHAinsured Mortgages recently reviewed Pre-closing reviews should be < 10% of sample size; Postclosing should be > 90% of sample size Exception for 9 or fewer loans in prior month select a minimum of 1 loan each month for pre-closing review 35 Recent HUD Program Activity - Government National Mortgage Association (Ginnie Mae) Pooling Eligibility for Streamlined Refinance Loans (10/19/ All Participant Memorandums (APM) 16-05) Issued generally to announce policy and Mortgage Backed Security (MSB) Guide changes accessed by Issuers, Document Custodians and other participants in Ginnie Mae programs. Home Equity Conversion Mortgage (HECM) Mortgage Backed Securities (HMBS) Monthly Reporting Cycle (11/17/ APM 16-06) Recent APMs - es/pages/mostrecentapms.aspx 36 18

19 Recent HUD Program Activity - Government National Mortgage Association (Ginnie Mae) Annual Audited Financial Statements Reminder Published in Ginnie Mae s Notes and News newsletter on March 4, esnews/notesandnews_03_04_2016.pdf Issuers must submit annual audited financial statements and duplicate originals of Certificates of Insurance for Fidelity Bond and Errors and Omissions insurance annually Includes issuers that did not have outstanding Ginnie Mae securities or commitment authority to issue new securities at any time during the fiscal year. 37 Recent HUD Program Activity - Government National Mortgage Association (Ginnie Mae) Documents must be submitted via the IPA module in Ginnie Mae s Enterprise Portal (GMEP) within 90 days of the Issuer s fiscal year-end Issuers with a fiscal year-end of December 31 must submit their annual financial statements with the transmittal checklist and supplementary documents to Ginnie Mae by March 30, 2016 To arrange access to GMEP refer to Appendix III-29 of the Ginnie Mae Mortgage-Backed Securities (MBS) Guide , Rev. 1 for instructions for completing GMEP registration 38 19

20 Ginnie Mae Guidance Reference Guidance Website Consolidated Audit Guide for Audits of HUD Programs (Audit Guide) HUD Handbook REV-2 CHG- 20, Chapter 6 Chapter 6: Ginnie Mae Issuers of Mortgage- Backed Securities Audit Guidance - outlines the required documents that must be submitted. ites/default/files/audit%2 0guide_updated/Audit%2 0Guide%20Chapter%20 6%20%20Final%202% pdf Ginnie Mae Mortgage- Backed Securities Guide, Appendix VI-20 Appendix VI-20, Electronic Submission of Issuers Insurance and Annual Audited Financial Documents - instructions for submitting the financial documents electronically. v/issuers/program_guide lines/mbsguideappendi ceslib/appendix_vi- 20.pdf Ginnie Mae Mortgage- Backed Securities Guide, Sections 3-6 and 3-7 Section 3-6: Fidelity Bond and Errors and Omissions Insurance and Section 3-7: Required Financial Statements and Documents - outlines insurance eligibility g_business_with_ginnie requirements for mae/issuer_resources/m maintaining Ginnie Mae BSGuideLib/Chapter_03 Issuer status..pdf 39 Update on the HUD Guide 40 20

21 HUD Guide Chapters Chapter 1, General Audit Guidance Chapter 2, Reporting Requirements and Sample Reports Chapter 3, HUD Multifamily Housing Programs Chapter 4, Mortgage Insurance for Hospitals Program Chapter 5, Insured Development Cost Certification Audit Guidance Chapter 6, Ginnie Mae Issuers of Mortgage-Backed Securities Audit Guidance Chapter 7, FHA-Approved Lenders Audit Guidance 41 Chapter 1, General Audit Guidance Last update in May 2013 Items of note: HUD Guide mandatory for audits of all for-profit participants Auditors of entities subject to single audit should normally refer to the Office of Management and Budget (OMB) Compliance Supplement for compliance requirements and auditor information Audit sampling requirements Major program thresholds and related guidance (see next two slides) Retain audit documentation for a minimum of 6 years Withdrawal or termination after audit is initiated requires auditor to advise the Office of Inspector General National Single Audit Coordinator 42 21

22 Chapter 1, Major Program Thresholds Entities subject to Chapters 3 and 4 individual assistance program for which expenditures equaled or exceeded $500,000 during the applicable year (including HUD-insured or HUD-guaranteed loan balance equal to or exceeding $500,000 as of the end of the audit period) Entities subject to Chapter 5 No major program designation is needed. 43 Chapter 1, Major Programs Entities subject to Chapter 6 Ginnie Mae program is major if the issuer had a servicing portfolio or had any remaining principal balance at the end of the audit period. Audits of entities subject to Chapter 7 FHA-approved lender s program is major regardless of the amount of loans originated or serviced during the period under audit. Note: If combined originations and a servicing portfolio is less than $2 million, the opinion on compliance need only cover requirements in 7-5(A), Quality Control Plan, and 7-5(G), Lender Annual Recertification, Adjusted Net Worth, Liquidity, and Licensing

23 Chapter 2 - Reporting Last update March 2013 Items of note: Discusses the reporting requirements that result from the performance of the required financial statement and compliance audit conducted in accordance with HUD Guide Describes required elements of reporting package Describes report distribution requirements Includes auditor report examples Includes requirements for Schedule of Findings and Questioned Costs and an example of the schedule 45 Chapter 3, HUD Multifamily Housing Programs Last updated July 2008 Items of note Includes requirements for conducting the compliance portion of the annual financial audits of profit-motivated and limiteddistribution entities participating in HUD s FHA multifamily housing programs Keep in mind that chapters 1 and 2 (which were revised in 2013) are used in conjunction with chapter 3 Includes group project-based sampling of certain areas when conditions are met 46 23

24 Chapter 3, Compliance Requirements Federal Financial Reports Fair Housing and Nondiscrimination Mortgage Status Replacement Reserve Residual Receipts Distributions to Owners Equity Skimming Cash Receipts Cash Disbursements Tenant Applications, Eligibility, and Recertification Units Leased to Extremely Low-Income Families Tenant Security Deposits Management Functions Unauthorized Change of Ownership/Acquisition of Liabilities Unauthorized Loans of Project Funds Excess Income Leased Nursing Homes Mark to Market Program (M2M) 47 Chapter 3 - Group Project-Based Sampling Refresher Exceptions for testing when project is owned and/or managed by an entity that owns and/or manages multiple HUD/FHA assisted projects Compliance sections - Tenant Application, Eligibility, and Recertification; Tenant Security Deposits and Management Functions All other compliance sections except for the three cited above must be performed on each project 48 24

25 Chapter 3 - Group Project-Based Sampling Conditions Refresher Same system is used by management for the compliance section for all projects Projects have the same supervisor, procedures followed are identical and the test of internal controls did not disclose any weaknesses Owner agrees to the project-based sample method (signed agreement i.e., engagement letter) Auditor fully documents all the above 49 Chapter 3 - Group Project-Based Sampling Refresher What is meant by same supervisor? The person that - Directly responsible to get the related work accomplished or in charge of the function - Gets work accomplished through staff who reports the results to the individual that is ultimately responsible for accomplishing the function - Can be at the project, regional or corporate office 50 25

26 Chapter 3 - Group Project-Based Sampling Refresher Minimum Sampling Requirements At least 20% of the projects No less than a minimum of four projects each year Each project reviewed at least every five years or less If the auditor elects to do the five-year sampling plan, the sampling schedule and system for selecting must be included in the work papers 51 Chapter 3 - Group Project-Based Sampling Refresher If a condition is noted that is to be reported in a finding or management letter, it must be reported in all reports Opinion on compliance provided for each individual project; testing must support the opinion for each individual project and not the group as a whole 52 26

27 Chapter 4, Mortgage Insurance for Hospitals Program Last updated September 2014 Items of note: Includes requirements for conducting the annual financial audits of profit-motivated and limited-distribution entities participating as mortgagors in HUD s FHA s Mortgage Insurance for Hospitals Program, under Section 242 of the National Housing Act. Keep in mind that chapters 1 and 2 (which were revised in 2013) are used in conjunction with chapter Chapter 4, Compliance Requirements Federal Financial Reports Mortgage Status Mortgage Reserve Fund, Equipment Replacement Reserve Fund, and Special Escrows Distributions to Owners or Affiliates Equity Skimming Cash Receipts Cash Disbursements Unauthorized Change of Ownership/Mergers/Acquisitions, and Liabilities Unauthorized Loans or Loan Guarantees of Project Funds Acquisition of Real Property and Personalty Budget Financial Monitoring by the Board Additional Indebtedness Minimum Account Presentation Ratios Cost Certification and Final Endorsement Other Conditions 54 27

28 Chapter 5, Development Cost Certification Audit Guidance Last updated March 2007 Items of note: Provides guidance to for-profit mortgagors for the audit of development cost certifications. Cost certification is basis for HUD s determination of the project s actual development cost and/or maximum insurable mortgage Necessary before the project may proceed to final formal endorsement Cost certification must be in the HUD field office 30 days before final endorsement/closing Submitted in hard-copy format to HUD field office Not required to be electronically submitted through REAC 55 Chapter 6, Ginnie Mae Issuers of Mortgage- Backed Securities Audit Guidance Last updated February 2016 Items of Note: Updated to reflect changes in Ginnie Mae s net worth, liquidity, insurance and reporting requirements Insurance requirement language was revised Minimum net worth requirements language revised to reflect an increase in the incremental net worth required for single family insurers and the cumulative requirement for issuers participating in more than one program Liquid asset requirement language also revised Monthly trial balance reporting language revised 56 28

29 Chapter 7, FHA-Approved Lenders Audit Guidance Last updated October 2016 Items of note: Revised chapter and transmittal letter posted to HUD's Office of Inspector General Web site Applies to supervised and nonsupervised lenders Revised chapter became effective upon issuance Main reason for revision is to reflect changes needed as a result of the issuance of SF Handbook (discussed earlier) - Entire HUD Guide also included with SF Handbook 57 Chapter 7, FHA-Approved Lenders Audit Guidance - Changes The "Quality Control Plan" section was most affected by the issuance of the SF Handbook both from the perspective of describing the entity's compliance requirements and the related suggested audit procedures. See section 7-5 (A), "Compliance Requirements and Suggested Audits Procedures Applicable to Lenders With both Title I and Title II Authorities

30 Chapter 7, FHA-Approved Lenders Audit Guidance - Changes Quality Control Plan Suggested Audit Procedures with Changes Item m Revised procedure related to selection of early payment defaults Item q Revised procedure related to determine whether the lender reported any findings of fraud or material misrepresentation to FHA upon the lender s confirmation of the deficiency, using the lender reporting feature in Neighborhood Watch Various other suggested audit procedures revised to refer to appropriate sections of the SF Handbook 59 Chapter 7, FHA-Approved Lenders Audit Guidance - Changes In various places in the chapter, the term "should" has been replaced with "must." When "Operating Loss Reporting" is required to be made, it must be submitted as a "notice of material event" in LEAP (Section 7-4, "Electronic Submission of Audited Financial Statements and Compliance Data," section C, "Operating Loss Reporting ) Extension requests (section 7-4 B.) Lender may request extension of recertification package due date through LEAP at least 45 days before due date A number of editorial revisions made 60 30

31 Planning Considerations for December 31, 2016 Year-end Audits 61 Planning Considerations Ensure familiarity with program requirement changes discussed earlier in presentation Review HUD audit requirements including major program determination in chapter 1 of HUD Guide Review Government Auditing Standards (GAS) CPE and independence requirements (along with AICPA independence requirements) to ensure compliance Ensure that engagement letters meet the requirements in chapter 1 of HUD Guide 62 31

32 Planning Considerations (continued) Review reporting requirements in chapter 2 of HUD Guide applicable to entity Make sure you review the most recent Regulatory Agreement for your client For lender clients, make sure you are familiar with the changes to the SF Handbook and chapter 7 of the HUD Guide Review communications from HUD to your client 63 Questions????? 64 32

33 How do I get my CPE certificate? Access your CPE certificate by clicking this orange icon. If at the end of this presentation you are eligible for but unable to print your CPE certificate, please log back in to this webcast in 24 hours and click the orange Get CPE button. Your certificate will still be available. If you need assistance with locating your certificate, please contact the AICPA Service Center at or service@aicpa.org. 65 Thank You for Attending! 66 33