1. Understanding Reporting Requirements: LIHTC, RD, HUD & A-133 Heather Perry – Member Amy Unterfranz – Senior Manager @dozcpa

2. LIHTC, RD, HUD & A-133 Audits Unique reporting requirements: LIHTC Rural Development HUD A-133 How to prepare for your audits How to avoid potential audit findings

3. 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

4. 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

5. 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

6. 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)

7. 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

8. Reporting Requirements - LIHTC Low Income Housing Tax Credits Amount of credits to be generated Compliance period Land use restriction agreement, if applicable

9. Reporting Requirements - RD Partnership Agreement Rural Development Guide Last updated September 2013 Expecting a new guide to come out in the next year

10. 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

11. 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

12. 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

13. Reporting Requirements - RD

14. Agreed Upon Procedures Report Must be completed by a CPA Required for all borrowers with 16 or more units

15. 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

16. 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

17. Reporting requirements - HUD Most HUD-assisted projects have annual financial reporting requirements Specifically addressed in:  Regulatory Agreement  HAP Contract

18. 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)

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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 ProgramMore than One Program $0 - $499,999No audit $500,000 or moreProgram-specific or A-133 Audit A-133 Single Audit

26. 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

27. 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

28. 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

29. 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

30. 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

31. Reporting requirements – A-133

32. Changes Coming: Uniform Administrative Requirements, Cost Principles and Audit Requirements  Supersedes and streamlines requirements from OMB Circulars A-21, A- 87, 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)

33. 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)

34. 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

35. 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

36. 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

37. Preparing for your Audit Planning helps the audit firm 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

38. 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

39. Preparing for your Audit The effects of planning: Correcting findings before year end Underfunding of security deposit cash Over distribution Advice/Guidance on handling of specific items Refinances Casualty losses Tax issues Reduce audit adjustments Discussions of new accounting guidance

40. Avoiding Potential Audit Findings Compliance is a year round job  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

41. Avoiding Potential Audit Findings Common Findings  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

42. Questions? Heather Perry – hperry@doz.nethperry@doz.net Amy Unterfranz – aunterfranz@doz.netaunterfranz@doz.net @dozcpa