You’ve approved this year’s audit, submitted the information to the Real Estate Assessment Center (REAC), and wiped your hands clean of this year’s audit process! But just as you get used to life without an auditor, you get an email, or a letter, or a phone call from the department of Housing and Urban Development (HUD) asking you for more information.
Though frustrating, this happens to property owners more often than you may think. Even after your numbers enter the Financial Assessment Subsystem (FASSUB), there are a series of checks and confirmations they must pass in order for the government to accept your financial statements for the year.
These checks occur in three different levels, and all of HUD’s questions can be resolved by communicating and working with your auditor.
REAC System Questions
When you first enter your information into FASSUB, REAC will automatically run cross-checks based on properties with similar characteristics to yours in its database. For example:
- How do your numbers compare to other HUD properties in the area?
- How do your numbers compare to properties with a similar number of units?
- How do your numbers compare to other non- or for-profit properties, depending on your status?
The system also checks that you made the correct mortgage payment, contributions to the replacement reserve account, and to verify that any reported loans were properly authorized.
About 10–15 days after your submission to REAC, the system will generate an automatic email and send it to the contact listed in the submission. Often, the email simply says that your information has been approved, but may ask for further information.
This system is best at identifying if the numbers reveal that there are additional findings that need to be reported in the financial statements, or if the findings that have been reported need more information.
Make sure to read any emails generated from the REAC system carefully, as there may be other responses needed besides those mentioned here. Get in touch with your auditor if you receive anything other than an acceptance email.
HUD Field Office Questions
Once the REAC submission is accepted, your data is passed on to the assigned personnel in the HUD field office assigned to your property. If they have any questions about the resolution of findings, clarification of certain accounts, or questions about the footnotes, you may receive a letter from them.
You can respond to these requests by providing more information about the nature of related party transactions, what certain accounts were used for, and more details on the footnotes. As before, ask your auditor to help you resolve any of these questions as soon as you hear from HUD.
The Departmental Enforcement Center (DEC) is no joke. It consists of analysts within HUD that handle serious issues with the use of government funds given through HUD. Their goal is to identify major concerns and help push properties back into compliance with HUD’s regulations. Among the most common causes for DEC notifications are:
- Unauthorized distributions from the property
- Unauthorized loans
- Unresolved tenant health or safety issues
- Late or missing REAC submissions
The reason you should take these calls and notifications seriously is because the DEC can enforce $27,500 fines for each violation the property doesn’t amend by a certain deadline. In addition, HUD will flag the owner’s information in their system, which may make it harder for that person to be approved for future HUD agreements.
No News is Good News
Though notifications from HUD and its related entities aren’t the end of the world, they do require your speedy response. When your financial statements are prepared by an experienced HUD auditor who uses clear, compliance-ready footnotes, you may not have to deal with these questions and letters at all. If you are getting notices from HUD year after year, it may be time to think about choosing a new CPA firm to handle your HUD audit.