HUD Property Audits: A Property Manager s Perspective

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1 HUD Property Audits: A Property Manager s Perspective How Best to Prepare / Common Findings in an Audit

2 Objective This session will discuss HUD Property audits from a site manager s perspective covering: Common questions Areas of HUD compliance testing How to best prepare for testing Common types of HUD findings and how to avoid them

questions Areas of HUD compliance testing How to best

3 Common Questions Why are audits required Not-for-Profit audits are required due to the receipts of Federal funds (HUD insured mortgages/section 8 contracts) For-Profit audits are also required due to the receipt of Federal funds and also by the Investor Limited Partners, if applicable (Partnership Agreement requires the audit) When is the audit due? Not-for-Profit audits are typically due 90 days after year-end Investor Limited Partners generally require final audits by the end of February However, most of the information we will cover today is performed by the auditors during the fall

(Partnership Agreement requires the audit) When is the audit due?

4 Common Questions (continued) How does the audit impact the Property Manager? Auditors want to know what happened at the Property in the current period (increases/decreases in occupancy, major repairs, changes in budgeted expenditures, etc.) Financial impact to the Property and to the audit Was an inspection performed? Any required actions by the Project as a result of the inspection Annual tenant file recertification Auditors Required to test annually It is vital that tenant files are maintained accurately and orderly for efficient i review. When they are not, this causes additional questions and delays in completing this part of the audit

) Financial impact to the Property and to the audit Was an inspection performed?

5 Common Questions (continued) How do I know if my Property is a Not-for-Profit Discuss with your regional manager and/or accountant at management agent Knowing which type your project is will be a good first step to help identify the areas of compliance the auditors will be reviewing What happens if the property receives a finding? HUD will follow-up on almost every finding with the site or management agent office requiring evidence that the finding has been cleared (example) A flag is placed on the Property until the finding is cleared This flag could result in further inquiry by HUD on the Project and the Management Agent

9 Not-for-Profit Compliance Areas of testing: Tenant files (eligibility) Waitlist Cash disbursement Cash receipts Vacancy Special claims Surplus cash Types of testing may differ based on the program funds that received from HUD Testing based on OMB Circular A-133 Compliance Supplement and HUD Program Specific Audit Guide

testing may differ based on the program funds that received from HUD Testing

10 For-Profit Compliance Areas of testing: Tenant files (eligibility) Waitlist Cash disbursements Cash receipts Move-in and Move-out out inspections Work orders Rejected applicants Extremely low income families Fair Housing Testing required per Chapter 3 of the HUD Audit Guide

inspections Work orders Rejected applicants Extremely low income

11 Eligibility Testing Tenant files Files are reviewed to ensure files are kept in accordance with HUD requirements We check for updated documents and proper signatures We might only request only specific documents from the tenant file or we might request the entire tenant file If the entire file is requested, ensure all items are included: Application, original signed lease, background check, most recent recertification, move-in and move-out out checklist

file or we might request the entire tenant file If the entire file is requested, ensure all items are included:

12 Waitlist and Work Orders Waitlist During our testing, we will review the most current waitlist Ensure applicants are selected in the correct order Ways to make testing go smoother If there are reasons why they did not move-in, ensure there is clear documentation to explain why Work Orders During our testing, we will review specific work orders to determine work was completed in a timely manner Ways to make testing go smoother: Retain all work orders, make sure all have clear dates as to the notification from the tenant and when the work was completed

explain why Work Orders During our testing, we will review specific work orders to determine work was completed in a timely manner Ways to

13 Cash Disbursements Cash Disbursement Expenses Expenses paid during the year are related to the project and are reasonable and necessary to the project Expenses are coded to the proper general ledger account Ways to make testing go smoother: Copy of all invoices that equal the amount of the expense are provided Make sure approval process is followed according to your organization s policy and procedures

ledger account Ways to make testing go smoother: Copy of all invoices that equal the amount of the

14 Cash Receipts Cash Receipts For each tenant in the month selected: Review copy of tenant rent check and deposit slip to ensure proper amount was paid and prorated rent was calculated correctly Will also request Deposit register Monthly HAP Voucher Bank statements Ways to make testing go smoother: Deposit slip with tenant payments listed If check amount does not match required tenant payment, please provide explanation (e.g. includes security deposit or late charge)

Monthly HAP Voucher Bank statements Ways to make testing go smoother: Deposit slip with tenant payments listed If

15 Vacancy and Special Claim Testing Vacancy testing Vacant Unit Listing for the Project Ensure HAP has been adjusted Recalculate prorated subsidy based on move-out date Special Claim Testing Listing of special claims recorded Review of HUD form C for required documentation

subsidy based on move-out date Special Claim Testing Listing of

16 Move-In Testing For each tenant selected: Calculation of prorated rent Initial move-in payment documentation Copy of check Deposit slip with tenant payments listed Ways to make testing go smoother: If tenant did not pay what their lease states, clearly document why On deposit slips, indicate the selected tenant Ensure move-in inspection report is completed, signed and included in tenant s file

smoother: If tenant did not pay what their lease states, clearly document why On deposit slips,

17 Move-Out Testing For each tenant selected: Security deposit disposition report Copy of check issued for refund Ways to make testing go smoother: Send all requested information If tenant did not receive a refund, document why and make sure to include the notification letter with the detail as to why the deposit was not refunded in the tenant s file

information If tenant did not receive a refund, document why and make sure to include

18 Rejected Applicants, Extremely Low Income and Fair Housing Rejected Applicants Reason applicant was rejected was within Fair Housing Standards Notification letter was sent and it contained information on the appeal process Extremely Low Income testing Ensure the owner did not lease fewer than 40% of the units to extremely low income (30% of median income) families Fair Housing Review marketing brochure or other marketing efforts for fair housing logo

Extremely Low Income testing Ensure the owner did not lease fewer than 40% of the units to extremely low income

19 Other Aspects of a Financial Statement Audit Review of MOR and REAC inspections Fixed asset and expense testing Replacement reserve Residual receipts reserve Security deposits Rent revenue Vacancies Other items Real estate taxes and management fees

Replacement reserve Residual receipts reserve Security

20 Components of a HUD Financial Statement Management Certifications Owner Certifications Audit Opinions GAAP Financial Statements HUD required information Findings

21 Most Common Audit Findings and How to Avoid Them Incorrect replacement reserve deposit is made or the incorrect amount of deposit is made Review deposit funding now As a general rule, an increase in rent typically results in an increased monthly deposit. All increases should be applied timely Unapproved replacement reserve withdrawal There should not be any withdrawals from the reserve accounts without prior HUD approval a Surplus cash is not deposited within the timeframe required by HUD Make all deposits to residual receipts account within 90 days of year-end Talk to your auditor about how and when the audit report will be finalized to ensure you deposit the correct amount within the proper timeframe

22 Most Common Audit Findings and How to Avoid Them Security deposit cash account is underfunded Compare your cash balances with your deposit listings on a monthly basis Transfer operating cash to cover any shortfalls a minimum of f45d 4-5 days prior to year-end Missing tenant file information Consider having a checklist in each tenant file which ensures that t the required documents are included. d This helps with both the audit and the MOR inspection For properties that share a property manager, ensure that t all deposits and expenses are recorded d on the correct properties books Project cash can only be used for the project

23 What You Can Do to Avoid Findings and Make Your Audit Go Smoothly Keep lines of communication open between the property and the person (group) preparing the financials Communicate damage to the property timely regardless if claim has been filed with insurance company Communicate all fixed asset purchases and disposals timely as well as enter all invoices when they are received Communicate any construction ti projects Record and submit all invoices timely Keep accounting aware of all correspondence from HUD Be aware of expiration of management certifications

24 What You Can Do to Avoid Findings and make Your Audit Go Smoothly Ensure Affirmative i Fair Housing Marketing Plan is updated d at least every 5 years Security deposits should be refunded within state law requirements Generally 30 days, see for your specific state Keep property in code with HUD to avoid REAC inspections and MOR findings Respond to MOR and REAC inspections within the proper time guidelines Make sure you are attending trainings and conferences to keep up-to-date with any changes in HUD s world

25 Thank You for Your Time and Attention! Questions?

26 Our Contact Information Kelly Perlman, Plante & Moran, PLLC Greg Wasiak, Dauby O Connor & Zaleski, LLC gwasiak@doz.net Aram Moore, Fentress & Barnes amoore@fentressbarnes.com

Management & Occupancy Review Timeline/Checklist

Management & Occupancy Review Timeline/Checklist Management & Occupancy Timeline/Checklist Before Before Before Before Before A. Print the 9834 from the HUD/Forms web site http://www.hud.gov/offices/adm/hudclips/forms/files/9834.doc Begin full file audit