The following news items should be of interest to auditors that perform HUD audits.
NEW Extension of Annual Recertification Filing Deadline for Title I and Title II Lenders and Mortgagees with a December 31, 2013 Fiscal Year End
The U.S. Department of Housing and Urban Development (HUD) recently issued a mortgagee letter notifying Title I and Title II lenders and mortgagees with a December 31, 2013 fiscal year end that the deadline for filing their annual recertification package (including submission of financial information) has been extended. Mortgagee Letter 2013-42
: Extension of Annual Recertification Filing Deadline for Title I and Title II Lenders and Mortgagees with a December 31, 2013 Fiscal Year End
, was issued November 27, 2013 and is effective immediately. The deadline will be extended 30 days after HUD’s new LEAP system is implemented. FHA-approved lenders and mortgagees are required to complete their annual recertification process 90 days after their year end which is March 31 for those with December 31 year ends. Because LEAP will not be ready for submissions until after March 31, 2014, HUD has extended the deadline and anticipates lenders and mortgagees with a fiscal year end of December 31, 2013 should be prepared to complete the recertification process, including the submission of financial information and fee payments, not later than May 31, 2014.
NEW Lender Electronic Assessment Portal (LEAP) Webinar
HUD recently held a webinar providing details of the new LEAP system that will replace the current LASS system and the consolidation of Title I and Title II lender ID numbers. The presentation slides can be accessed at http://portal.hud.gov/hudportal/documents/huddoc?id=SF-T1and2.pdf. View the archived webinar at http://www.visualwebcaster.com/FHA/97065/reg.html.
HUD Issues Update to the HUD Guide
HUD recently issued a revision to Chapter 1, General Audit Guidance
, of the HUD Guide. The revised guidance in Chapter 1 applies to all entities required to undergo an audit under the HUD Guide and is effective for audits of entities with year ends ending on or after June 30, 2013.
The transmittal letter for Chapter 1
indicates that the revision is intended to reflect changes in Government Auditing Standards
and the clarified auditing standards issued by the AICPA. The last time this chapter was significantly revised was in April 2011. After the 2011 update, the GAQC communicated certain comments and questions to HUD about the chapter. Some of the new revisions to Chapter 1 are addressing the previous GAQC feedback. In January 2013, a more directed change was made to Chapter 1 to eliminate the $2 million major program threshold for FHA-approved lenders (see GAQC Alert #210
). That change continues to be reflected in the new chapter.
Some of the changes being made to Chapter 1 are as follows:
- The chapter clarifies that the HUD Guide is mandatory for audits of for-profit entities that are subject to HUD's uniform financial reporting standards and related mortgagee letters. Additionally, it clarifies that the HUD Guide requires a financial statement audit and a compliance audit of the major HUD programs and is clearer about the requirements for each, including that the HUD Guide is to be used for the compliance audit portion of the audit.
- The chapter clarifies that audits of states, local Governments and not-for-profit organizations are subject to Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, and that auditors should use the OMB Compliance Supplement (Supplement) and not the HUD Guide for those audits. It goes on to state that the HUD Guide can be used to build an audit program in accordance with Part 7 of the Supplement when a program covered in the HUD Guide is not included in the Supplement. Finally, it removes the previous discussion in Chapter 1 of the submission of the single audit reporting package directly to HUD.
- The auditor qualifications section of the previous chapter was removed. That section discussed matters such as peer review, licensing, and independence. Even though these items were removed from the chapter, auditors should keep in mind that Government Auditing Standards applies to these HUD audits and includes many of the same topic areas within its general standards. Note that HUD did add paragraph 1-8 to the new chapter to remind auditors about the Government Auditing Standards requirement for peer review and to emphasize that the peer review report does not need to be submitted by the auditor to HUD or the HUD Office of Inspector General unless requested or provided for in another chapter of the HUD Guide.
- The previous table that described major program threshold amounts has been deleted and the threshold requirements are now discussed in paragraph format. In general, the information discussed on this topic area is unchanged.
- The sampling requirements discussion has been enhanced. Additionally, the chapter now permits the auditor to follow the sampling approach in either Appendix A of Chapter 1 or the AICPA's Audit Guide, Government Auditing Standards and Circular A-133 Audits (GAS-A133 Guide). Note that Chapter 11 of the GAS-A133 Guide (which is the chapter that discusses sampling) will provide useful guidance to auditors even if they are using the sampling guidance in Chapter 1 of the HUD Guide. Finally, the Chapter 1, Appendix A, guidance on sampling was revised to define small populations as 250 items or fewer, to be more consistent with the AICPA GAS-A133 Guide. The previous threshold for small items in the Chapter 1 Appendix was set at 200.
- The Chapter was updated to remove material that was duplicative or conflicting with other chapters. It was also streamlined to remove duplicative references or restatements of requirements in Government Auditing Standards or generally accepted auditing standards. Auditors should closely look at paragraph 1-5, Planning the Audit, which includes a number of these types of "streamlining" changes.
NEW HUD Issues Final Clarified Auditor Report Illustrations
- Discussion regarding the corrective action plan and Fair Housing and Nondiscrimination requirements were removed from Chapter 1 as these are covered elsewhere in the HUD Guide.
As noted in GAQC Alert #214
, when HUD issued an update to Chapter 2, Reporting Requirements and Sample Reports,
of the HUD Guide, the transmittal of the chapter
indicated it did not include report illustrations. Instead, HUD asked the AICPA to provide it with updated “clarified” illustrations. With the issuance of GAQC Alert #214
, the GAQC released drafts of the updated clarified reports that were sent to HUD for approval and issuance. Late last week, HUD issued the final clarified reports and incorporated them into the version of Chapter 2 on its Web site. Access the updated chapter 2 which includes illustrative reports
. Access the HUD transmittal announcing the addition of the illustrative reports
For the most part, there were no substantive changes made by HUD to the reports that were provided by the GAQC. However, during the clearance process, HUD removed a footnote that had been included in the draft illustrative HUD major program compliance and internal control over compliance report. The footnote stated the following: “Note that for entities subject to an audit in accordance with Chapter 7 of this Guide, staff from the HUD Recertification Branch have indicated that when such entities have been approved as both a Title I and a Title II lender, HUD considers the lender to have one major HUD program. Therefore, the auditor’s testing and related reporting should result in an opinion on the one major HUD program.” In speaking with the HUD Recertification Branch Chief about the reason for the footnote deletion, he stated that the deletion was made due to feedback received from other areas of HUD during the report clearance process. He also offered assurance that his office does not expect auditors that followed the guidance in the footnote to take any follow-up action and that there was no plan to reject reports or take any other action towards auditors that followed the guidance in the footnote for their completed 12/31/12 year-end audits or those that are near completion. With regard to audits of year-ends after 12/31/12, the Recertification Branch will work to develop guidance that further explains the impact of the footnote deletion on major program identification and testing. The GAQC will closely monitor this situation and communicate any guidance issued by the Recertification Branch in the future.
HUD Report Illustrations
As noted in GAQC Alert #210, HUD recently updated the reporting guidance in Chapter 2, Reporting Requirements and Sample Reports, of the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide). However, HUD did not include report illustrations in the updated Chapter 2. Instead, HUD asked the AICPA to provide it with updated “clarified” illustrations that are in line with those that will appear in the GAS-A133 Guide for use in the HUD Guide. As noted in GAQC Alert #214, the GAQC has developed illustrative HUD reports, modeling them after the illustrations posted above, and has sent them to HUD for purposes of adding the illustrations as an addendum to Chapter 2 of the HUD Guide. Since it is likely to take HUD some time to formally issue the report illustrations, the GAQC recommends that you use these clarified reports for your HUD audits until such time that HUD formally issues the report illustrations. At that time we will update the links below to direct you to the HUD Web site. See GAQC Alert #214 for more information.
HUD Updates Reporting Guidance for all Entities Covered by the HUD Consolidated Audit Guide
On January 24, 2013, HUD updated the reporting guidance in Chapter 2, Reporting Requirements and Sample Reports. The revisions were made to align the HUD guidance with the 2011 Government Auditing Standards issued by the U.S. Government Accountability Office and generally accepted auditing standards, issued by the AICPA. A significant change in the guidance is the elimination of separate reporting on compliance with respect to nonmajor HUD programs. The updated chapter 2 does not include auditor’s reporting examples. Those reports will be added in a future revision (see more about HUD report status in item below).
Chapter 2 will be effective for audits of entities with fiscal years ending on or after March 31, 2013. Early application is encouraged by HUD. In addition to the elimination of nonmajor reporting, the other significant changes to chapter 2 are listed below:
- Paragraph 2-1 provides background on the reporting standards and requirements applicable to an audit performed pursuant to the consolidated audit guide.
- Paragraphs 2-2 and 2-3 cover report issuance and distribution requirements.
- Revised instructions in paragraph 2-4 relating to the required reporting package.
- Suggested auditor’s reports on internal control and compliance were aligned to be consistent with the AICPA’s Audit Guide: Government Auditing Standards and Circular A-133 Audits.
- Separate reporting on compliance with specific requirements applicable to fair housing and nondiscrimination was eliminated.
HUD Updates Audit Threshold for FHA-Approved Lenders
As noted below, in late 2012, HUD updated its guidance for FHA-approved lenders. On January 24, 2013, HUD released a related amendment to Chapter 1, General Audit Guidance (see page 1-5), of the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide), to remove the $2 million major program threshold for FHA-approved lenders. This change was made in light of the revisions to Chapter 2 of the HUD Guide (see above) that deleted the non-major program reporting requirement. However, since all FHA-lenders must comply with quality control, net worth, liquidity, and licensing requirements, HUD is now requiring that FHA-approved lenders having combined origination and a servicing portfolio of less than $2,000,000, to undergo a full compliance audit that covers only the following compliance requirements in Chapter 7: (1) section 7-5.A., Quality Control Plan; and (2) section 7-5.G., Lender Annual Recertification, Adjusted Net Worth, Liquidity and Licensing. For all other FHA-approved lenders, the compliance audit continues to be performed using the entirety of Chapter 7 of the HUD Guide. This change applies to audits of entities with fiscal years ending on or after March 31, 2013. For those auditors electing early application of the non-major program changes to Chapter 2 of the HUD Guide, this change is to be used for audits of entities with fiscal years ending on or after December 31, 2012.
HUD Updates Audit Guide for FHA-Approved Lenders
In December 2012, HUD updated the guidance contained within the Consolidated Audit Guide for Audits of HUD Programs, relating to institutions that participate in the Federal Housing Administration (FHA) insurance programs for Title I property improvement and manufactured housing loans and for Title II single family and multifamily mortgages. A new Chapter 7, FHA-Approved Lenders Audit Guidance, was issued that merged the content of the previous chapter 8 of the HUD Guide with chapter 7 and eliminated chapter 8 from the HUD Guide. The requirements in chapter 7 apply to audits of profit-motivated FHA-approved lenders with fiscal years ending on or after December 31, 2012. The significant changes to the chapter include:
- Applies to all approved supervised and nonsupervised lenders;
- Removed references to loan correspondents and inserted information on third-party originators;
- Uses the terminology of “lender” and borrower” instead of “mortgagee” and “mortgagor;”
- Added paragraph 7-2 to differentiate the reporting requirements for the various types of lenders approved to participate in FHA programs;
- Added revised audited financial statement reporting requirements for supervised lenders in parent-subsidiary structures (paragraph 7-3);
- Paragraph 7-4 discusses lender responsibility for the electronic submission of the audited financial statements and compliance data and auditors’ involvement in the electronic submission process;
- The compliance requirements and suggested audit procedures were restructured to set forth requirements and procedures relating to:
- Both Title I and Title II lenders (paragraph 7-5)
- Title I lenders (paragraph 7-6);
- Includes financial reporting requirements for multifamily lenders that were added as paragraph 7-7.
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