USDA Rural Development Revises Audit Requirement Determination
By Nathaniel Jordan, CPA
In early November 2019, the United States Department of Agriculture released the long-awaited update to its Rural Development (“USDA RD”) multifamily housing asset management handbook HB-2-3560. The update, which changes and modifies many sections of Chapter 4 – Financial Management, brings about some potentially significant reporting changes for multifamily borrowers utilizing USDA RD mortgage loans, interest subsidies, and rental assistance.
One of the more significant changes to the handbook from its previous version is the guidance on determination of whether or not a USDA RD borrower is required to have an annual audit. USDA RD for-profit borrowers that have more than $500,000 in combined federal financial assistance are now required to have an audit performed by an independent CPA. Previously, the determination as to whether or not a property was required to have an audit was directly correlated with the number of units in the property. Smaller properties with greater than $500,000 in federal financial assistance will step up to an audit engagement. All properties that require audits are subject to the updated audit guide, which expands required compliance procedures and reporting. Alternatively, some properties are no longer required to submit annual audits to USDA RD based on the borrower having less than $500,000 in federal financial assistance. USDA RD defines federal financial assistance as the combination of any of the following sources:
- Outstanding principal balance and deferred principal balance at the beginning of the fiscal year of a:
- United States Department of Agriculture (USDA) mortgage
- Mortgage insured by the Federal Housing Administration (FHA)
- U.S. Department of Housing and Urban Development (HUD) held mortgage
- Other government insured loan (Including but not limited to HOME and Community Development Block Grant loans);
- Any USDA Rental Assistance or Project based Section 8 assistance received during the fiscal year;
- Interest reduction payments received during the year (interest subsidy);
- Federal grant funds received during the year and/or;
- Outstanding principal balance at the beginning of the fiscal year of an existing USDA Section 538 Guaranteed Rural Rental Housing loan.
For-profit USDA RD borrowers with less than $500,000 in combined federal financial assistance and without any audit requirements from other agencies or agreements are required to submit a compilation of prescribed forms – namely Forms RD 3560-10 and 3560-7 – along with the supporting documentation for those forms.
Please consult USDA RD’s revised handbook Chapter 4 and reach out to your CPA or accounting advisor to discuss these and other changes that may impact your financial management and reporting requirements.
Nathaniel Jordan Principal, CPA
Nate is a principal in our Firm’s Greensboro office with 12 years of audit experience. He is responsible for the planning, performance, supervision, and review of audit work to ensure engagements meet professional standards. Nate works extensively with clients in the affordable housing, non-profit, and governmental industries. He is also heavily involved in the […]