NEW 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.
NEW 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 originations 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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