HUD Audit Compliance Preparation

Published on: Apr 14, 2022 by Sheri Springer, CPA

Updated on: April 18, 2024

As a real estate investor who utilizes the U.S. Department of Housing and Urban Development (HUD) program, you have compliance requirements to prepare for.

(Download Video Transcript)

HUD Audit Guide

What is the HUD Program?

The HUD program was established to provide rental housing for eligible low-income families, the elderly, and those with disabilities. As a real estate investor, you need to understand that HUD does not finance loans. They insure 100% of the loan, allowing investors to lock in the lowest interest rates available.

The HUD vetting process is extensive, which mitigates risk factors for investors.
HUD requires sponsors to carry additional cash in the deal.
HUD loans are primarily asset-based with pro forma requirements on rent and expenses.

Because there are stringent requirements to be approved for the HUD program, the probability of the success of the project is high, making it attractive to investors.

AVOID ONE OF THE MOST COMMON FINDINGS IN HUD AUDITS

Compliance Audit Requirements

Financial audits are required for HUD programs with the following pre-determined objectives:

The financial data and reports are reviewed to detail how the funds were used accurately.
The internal control procedures are reviewed to ensure reasonable assurance that the HUD programs are managed to comply with applicable laws and regulations.
That management complies with the terms and conditions of federal awards and guarantees and has supporting documentation.

There are guidelines for durability and minimum standards required by HUD.
There are rent control guidelines you will need to abide by. These are based on rental properties in your area rather than designed by a federal number.

A GUIDE TO AUDITS: PREP, PLANNING, AND POST-AUDIT TIPS

What You Should Know About Your HUD Audit

HUD requires a two-component audit: a compliance audit of the organization's major HUD programs and a financial statement audit of the entity.

To prepare for your audit, gather the following items your auditor will need:

Regulatory Agreement
Affirmative Fair Housing Marketing Plan
Tenant Selection Plan
Management Certification
Management Entity Profile
Surplus Cash Calculations and Support for Owner Distributions
Insurance Policies (Fidelity and Hazard/Liability)

Work Order Listing
Listing of Cash Receipts/Disbursements and Supporting Documentation as Requested
REAC and/or Other Regulatory Agency Inspection Reports
Replacement Reserve Withdrawal Requests and Approvals

FIVE WAYS TO IMPROVE AUDIT EFFICIENCY

SVA’s team is experienced in all types of audits and we are ready to assist you. Give us a call to learn more about our real estate industry expertise.

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Biz Tip Topic Expert: Sheri Springer, CPA

Sheri is a Principal with SVA Certified Public Accountants. In her role, she oversees and performs audits for owners of affordable multifamily housing units receiving Section 42 Low-Income Housing Tax Credits.

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