U. S. Department of Housing and Urban Development




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U.S. Department of Housing and Urban Development

H O U S I N G

Special Attention of: Notice H 98-25 (HUD)

To All Multifamily Project

Mortgagors and HUD Field Offices Issued: April 24, 1998

with Multifamily Responsibility Expires: April 30, 1999

Cross References:

Subject: NEW MULTIFAMILY PROJECT AUDIT REQUIREMENTS OFFICE OF

MANAGEMENT AND BUDGET (OMB) CIRCULAR A-133 SINGLE AUDIT ACT

AMENDMENTS OF 1996 (PL 104-156, JULY 5, 1996; 31 USC 7501 et

seq.)

I. APPLICABILITY: This Notice applies to only nonprofit



multifamily mortgagors (including nonprofit cooperatives)

that own projects with mortgages insured or held by HUD or

that received loans or Capital Advances under the Section

202 and 811 programs. Audit requirements for these projects

have changed. This Notice does not apply to noninsured or

conventionally financed nonprofit projects that also have

Section 8 assistance (but these projects also may be subject

to the Single Audit Act Amendments and OMB Circular A-133).

Profit motivated and limited dividend mortgagors are not

affected by these changes.

The Department urges nonprofit project owners to review

carefully the contents of this Notice with the independent

Public Accountants they engaged to perform their annual

audits.


II. BACKGROUND: The Single Audit Act Amendments of 1996

modified audit requirements of non-Federal, nonprofit

entities. Audits of these entities with fiscal years

beginning after June 30, 1996, are affected. Audit

requirements for nonprofit project owners are governed by

OMB Circular A-133 and its accompanying Compliance

Supplement. Office of Housing, OIG, and OGC staff are

working closely with staff at OMB to facilitate a transition

to the modified auditing requirements. The newly revised

OMB Circular A-133, the Compliance Supplement, and related

documents can be downloaded from the following Internet

Website: http://www.whitehouse.gov/WH/EOP/OMB/Grants

H: Distribution: W-3-1

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III. HIGHLIGHTS OF CHANGES:



A. New Threshold: HUD previously required all nonprofit

project owners to provide to HUD audited annual

financial statements under the various mortgage

insurance, direct loan, and Capital Advance programs.

Under the revised OMB Circular A-133 requirements, only

nonprofit owners with annual federal awards expended of

$300,000 or more are required to submit audited

statements. Readers of this Notice should refer to OME



Circular A-133 for definitive guidance, but for

practical purposes the annual federal awards expended

generally may be calculated by adding together:

1. The total unpaid principal balances of all

mortgages or Capital Advances as of the end of the

fiscal year [insured, direct, and HUD-Held loans].

2. All additional annual assistance, such as Section

8, Rent Supplement, Interest Reduction Payments,

or Rental Assistance Payments.

3. Any unpaid amounts of Flexible Subsidy (principal)

as of the end of the fiscal year or HELP

assistance that the project may have received as

of the end of the fiscal year.

4. Drug Elimination Grants received during the fiscal

year.

5. All grants and awards received directly or



indirectly from other federal agencies during the

fiscal year.

B. New Filing Deadlines: HUD generally requires audited

annual financial statements to be filed with HUD sixty

days after the project's fiscal year end. The sole

exception is "old" Section 202 projects with case

numbers prefixes starting with "SH" that have ninety

days rather than sixty days.

Under the revised OMB Circular A-133, project owners

must submit the audited annual financial statements

within the earlier of thirty days after receipt of the

auditor's reports or nine months after the end of the

audit period. However, for fiscal years beginning

after June 30, 1996, and on or before June 30, 1998,

owners must submit the audited statements within the

earlier of thirty days after receipt of the auditor's

statements or thirteen months after the end of the

audit period.

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C. Audited versus Unaudited Financial Statements:



Although the new OMB Circular A-133 contains

significantly extended deadlines for filing audited

annual financial statements, nonprofit owners are not

relieved of their contractual responsibilities under

the Regulatory Agreements to file unaudited annual

financial statements. These financial statements must

be prepared in accordance with GAAP (Generally Accepted

Accounting Principles) and meet all HUD requirements

(e.g., HUD Handbook 4370.2 , Financial Operations and

Accounting Procedures for Insured Multifamily

Projects).

Unaudited financial statement reports are still due to

HUD no later than sixty days following the mortgagor's

fiscal year end. These unaudited annual financial

statements must be certified by both the mortgagors and

by the project managing agent where applicable. owners

should take appropriate measures to ensure their

financial statements are accurate and complete.

In addition to the submission required by OMB Circular

A-133, audited financial statements are to be submitted

as follows: One copy to the HUD Field Office with

jurisdiction over the project, and one copy to HUD's

clearinghouse at the address shown here:

HUD Multifamily Housing Clearinghouse--AFS

2277 Research Boulevard, Mail Stop 6C

Rockville, MD 20850-9998

Signed original unaudited financial statements are to

be submitted to only two locations: The HUD Field

office of jurisdiction and the HUD Multifamily

Clearinghouse in Maryland shown above. Owners or their

CPAs should not send unaudited financial statements to

the Single Audit clearinghouse.

D. Nonprofit Owners Below the $300,000 Threshold:

Nonprofit owners that expend less than $300,000 in federal

awards still are required under their Regulatory Agreements

to file unaudited annual financial statements that meet GAAP

and HUD requirements not later than sixty days following the

fiscal year end. These financial statements, supplemental

data, and timeliness of filing requirements have not

changed; these requirements are set forth in HUD Handbook

4370.2, Financial Operations and Accounting Procedures for

Insured Multifamily Projects. Audits of nonprofit owners

that expend less than $300,000 are not required.

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E. Reporting: Auditor reports under OMB Circular A-133



will be different from the auditor reports contained in

prior year project audits, and some reports may be

omitted entirely. Auditors should follow OMB Circular

A-133 and reporting models for audits in accordance

with OMB Circular A-133 issued by the American

Institute of Certified Public Accountants (AICPA).

F. Status of the HUD Audit Guide: Auditors of nonprofit

projects are no longer required to follow the

requirements set forth in HUD Handbook 2000.4 Rev-1,

Consolidated Audit Guide for Audits of HUD Programs.

Auditors should follow guidance in OMB Circular A-133

and its compliance supplement.

V. ENTITY LEVEL VERSUS PROJECT LEVEL AUDITS: HUD project

mortgagor entities are the entities subject to the audit and

financial reporting requirements of Circular A-133. HUD

mortgage insurance guidelines require the establishment of a

separate, independent legal entity (the mortgagor) to own

and operate one project.

VI. SUMMARY, CONCLUSION, AND NEXT STEPS: The Single Audit Act

Amendments of 1996 and the revised OMB Circular A-133 have

significantly changed auditing requirements for nonprofit

owners of projects whose mortgages are insured or held by

HUD.

Examples of A-133 audit reports are available on the AICPA



Website at http://www.aicpa.org, so persons with access to

this site can obtain additional technical guidance. HUD

will continue to work closely with OMB and with the AICPA to

develop additional information for HUD staff, project

owners, and accountants, as needed.

Art Agnos

Acting General Deputy

Assistant Secretary for



Housing-Federal Housing

Commissioner


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