Rural Development (RD) is changing their handbook at the end of 2018, and its new guidelines will affect property owners and their CPA firms dramatically. You can find more information about these rule changes and how early adopting may save your property money on our previous blog posts about this topic. For any property financed in part by RD loans, here are the changes from the old rules to the new ones, effective as early as fiscal year (FY) 2018.

Audit Requirements

Only for-profit RD properties will undergo changes in the audit threshold; not-for-profit RD properties will continue to evaluate their federal contributions according to the $750,000 threshold.

Old Rule New Rule
For-profit properties Based on number of units

  • 1-15 units: No Financial Statements (F/S) required
  • 16-23 units: Compilation of prescribed forms (see below)
  • 24 units and up: Audit
For-profit properties Based on federal awards

  • Under $500,000: Compilation of prescribed forms
  • Over $500,000: Audit
Non-profit properties Based on federal awards

  • Under $750,000: Compilation of prescribed forms
  • Over $750,000: Audit
Non-profit properties Based on federal awards

  • Under $750,000: Compilation of prescribed forms
  • Over $750,000: Audit

 

Method of Accounting

Under the new rule, all RD properties will be required to use the accrual method of accounting, even when completing RD’s compilation of prescribed forms, though it remains the property’s decision whether to hire a CPA firm to do this.

Compilation* of Prescribed Forms

Old Rule New Rule
Prescribed forms include AUP report, RD forms 3560-07 and 3560-10, borrower certification, and supporting schedules performed by CPA. Prescribed forms include RD forms 3560-07 and 3560-10, borrower certification, and supporting schedules. May or may not need to be performed by CPA firm.

*Note: This “compilation” is not the same as a compilation performed by a CPA firm; it simply refers to this specific collection of forms.

Agreed-Upon Procedures

No RD properties will have to perform agreed-upon procedures (AUPs). This means for-profit properties with 16 or more units no longer have to submit an AUP report to RD each year.

Independent Audit Report on Compliance

Effectively taking the place of the assurance provided by AUPs are two new reports: the Independent Auditor Report on Compliance and the Internal Control over Compliance report.

Old Rule New Rule
N/A For-profit properties Key areas of testing include:

  • Mortgage
  • Replacement Reserves
  • Return to Owners
  • Equity Skimming
  • Cash Receipts and Disbursements
  • Tenant Security Deposits
  • Management Functions
  • Changes of Ownership
  • Unauthorized Loans of Project Funds
N/A Not-for-profit properties: Testing is based on Single Audit requirements, in accordance with Uniform Guidance

 

Streamlining Procedures Within RD

Beyond those mentioned here, a large number of changes to RD’s handbook deal with internal controls, operational policies, and compliance requirements that directly affect project managers and owners. The changes mentioned in this post are a high-level view of the adjustments to financial reporting requirements for RD property owners.

If you have questions about any of these alterations or about how adopting these rules early could save your property money and hassle, please reach out to us. We helped proofread and correct these changes with RD officials, so we know what’s coming down the pipe in 2018. Give us a call or contact us online and we’d be happy to help.