Cindy Lusk, LBMC Chattanooga Senior Manager, Audit
Are you safeguarding your HUD program funding by staying ahead of compliance requirements?
HUD Housing Notice H 2013‑23 outlines the financial reporting requirements for small multifamily housing projects that receive less than $500,000 in federal financial assistance. Although these owners are generally required to submit audited financial statements to HUD, the notice permits them to submit an owner‑certified GAAP‑basis financial statement, including notes, to REAC instead of a full audit.
Financial statements are required to be submitted within 90 days after the fiscal year ends, and owners are required to certify their accuracy and completeness. When applicable, management agents must also provide certification.
Chapter 3 of the Consolidated Audit Guide for Audits of HUD Programs (“HUD audit guide”) applies to both for-profit and nonprofit entities and outlines suggested audit procedures for auditors. It serves as a useful roadmap to help you understand what to expect and how to prepare for your upcoming audit.
You’ll find several key reminders below to help prepare for a compliant and successful year. For a more complete list of requirements, be sure to consult the HUD audit guide.
- Federal Financial Reports: Reports match actual records.
- Fair Housing & Nondiscrimination: An affirmative fair housing plan is being followed.
- Mortgage Status: Mortgage and escrow payments are made timely.
- Reserve for Replacement: Deposits are made as required. Withdrawals are HUD‑authorized.
- Residual Receipts: If applicable, deposits are made as required. Withdrawals are HUD‑authorized.
- Distributions to Owners: Surplus cash is calculated in accordance with the regulatory agreement. Distributions do not exceed surplus cash.
- Equity Skimming (Major Noncompliance Risk): Rent, assets, proceeds, income, or other funds derived from the project covered by the mortgage are not used for any purpose other than to meet actual or necessary expenses of the project.
- Cash Receipts: Receipts are deposited in a federally insured bank account in the name of the project or for centralized cash accounts, deposits are clearly traceable to the project.
- Cash Disbursements: Payments must be for legitimate project purposes only.
- Tenant Eligibility & Recertifications: Tenant files must be complete and compliant.
- Units Leased to Extremely Low-Income Families: For Section 8 properties, documentation demonstrating the owner’s compliance serving extremely low-income families.
- Tenant Security Deposits: Must be kept in a separate federally insured account.
- Management Functions: Management agent approval, insurance and fidelity bond requirements met, timely responses to HUD findings.
- Unauthorized Change of Ownership/Acquisition of Liabilities: Obtain written authorization from HUD to convey, assign, transfer, dispose of, or encumber any of the mortgaged property.
- Unauthorized Loans of Project Funds: Obtain written consent from HUD prior to assigning, transferring, disposing of, or encumbering any personal property of the project, including rents, or paying out any funds except for reasonable operating expenses and necessary repairs.
- Excess Income: Owners of Section 236 insured mortgage properties must submit excess income within 10 days of the end of the month for which it was collected.
- Leased Nursing Homes: Total lease payments are adequate to cover the debt service (including tax and insurance escrows) and reserve for replacement deposits. The owner receives lease payments in a timely manner. The project is properly maintained in accordance with housing quality standards. Major changes to the project have the proper HUD approval. The project complies with nondiscrimination, equal opportunity, or other requirements of state or local law or of HUD/FHA.
Contact us for more information on how we can help with your HUD audit and compliance needs.
Learn more about this contact LBMC’s Cindy Lusk at (423) 219-5184 or visit this page.
Frequently Asked Questions About HUD Audits
What is HUD?
The U.S. Department of Housing and Urban Development (HUD) administers a wide variety of programs established by housing legislation, including multifamily mortgage insurance, coinsured loans, rental subsidies, loans, advances, and grants. These programs are designed to revitalize urban communities, support housing development, encourage home ownership, and ensure access to safe and affordable housing. More information is available at https://www.hud.gov/hudprograms.
Who requires an audit?
In general, audited financial statements are required for multifamily profit-motivated projects with annual expenditures or HUD‑insured/HUD‑guaranteed loan balances of $500,000 or more, as well as multifamily non‑profit projects with annual expenditures of $1,000,000 or more for fiscal years beginning on or after October 1, 2024 (and $750,000 for fiscal years beginning prior to that date).
In addition, any Government National Mortgage Association (Ginnie Mae) Issuer with a remaining principal balance in its Ginnie Mae program at the end of the audit period is required to undergo an audit. Likewise, any Federal Housing Administration (FHA) approved lender that originated or serviced loans during the audit period is also subject to audit.
Projects that do not meet the audit thresholds noted above may be allowed to submit owner-certified financial statements. These submissions do not include an auditor’s opinion or an auditor’s report on compliance and internal controls. During the submission process, the owners will be required to certify that they receive less than the audit thresholds above in combined federal financial assistance and the system will cross-check HUD’s databases to verify this certification.
Refer to the program guidelines and your specific agreement for additional details related to your audit requirements and electronic filing submissions.
When is the HUD audit due?
Multifamily for‑profit housing project audits are generally due within 90 days after the end of the fiscal year.
Hospital project audits are generally due within 120 days after the fiscal year‑end.
Ginnie Mae project audits are generally required to be submitted within 90 days following the fiscal year‑end.
FHA project audits are typically due within 90 days after the close of the fiscal year.
