The United States Department of Agriculture (USDA) is making changes to the Rural Development (RD) Handbook. These changes are currently being drafted and will affect financial reporting beginning in 2018. Though we have yet to see the final versions of the new regulations, we have a pretty clear understanding of what they will mean for RD properties and management companies.

Upcoming Rural Development Auditing Requirements

According to RD’s Multi-Family Housing Program final rule, published in October 2017, we can expect several shifts in Rural Housing financial reporting requirements to ease the burden on properties. These changes in policies reflect the USDA’s effort to better align their housing standards with those of the Department of Housing and Urban Development (HUD).

Starting in 2018, RD properties will adhere to new rules, including:

  • Audit requirement threshold based on amount of federal awards received, not number of units
  • Elimination of Agreed-Upon-Procedures (AUPs)
  • Elimination of RD tenant file testing
  • Additional certification to ensure reserve accounts are used appropriately

For guidance on these new standards, see the RD office’s Unnumbered Letter for a full financial statement template.

Reason for Implementing Changes

As stated in the overview of the new standards, RD is changing these reporting guidelines to help reduce the cost of filing financial statements, apply more strict standards to high-risk properties, and eliminate duplicate paperwork between government organizations.

By implementing the above guidelines, properties will no longer have to deal with AUPs, and only high-risk properties that meet the threshold for financial reporting requirements will need to have an audit done.

Impact of Rural Development Changes

All RD projects will no longer have to do AUPs, beginning 2018. Low-risk properties, whether for-profit or not-for-profit, are no longer required to submit audited financial statements. Instead, they must submit owner-certified statements. The threshold for high-risk properties is now the same as HUD’s requirements, laid out in the table below.

Loan Amount For-Profit Properties Not-For-Profit Properties
<$500,000 Owner-certified prescribed forms* Owner-certified prescribed forms*
$500,000 – $750,000 Audited Financial Statement Owner-certified prescribed forms*
>$750,000 Audited Financial Statement Audited Financial Statement

*These include RD forms 3560-07 and 3560-10, along with the applicable supporting schedules, as well as the borrower’s Certification of Performance Standards.

Some property owners and management companies may expect their accounting fees to drop in 2018 as they adopt RD’s new rules. However, this may not be the case. Because AUPs filled in part of the assurance service provided by the audit, auditors will have to make up for its absence by doing additional testing.

Though the overall process becomes simpler for everyone, the total time and cost of the audit may or may not change. Check with your CPA firm before the 2018 audit begins to discuss your expectations for fees and services. Remember that if you’re unhappy with your quality of service, you always have the option of switching CPA firms.

Financial Guidance from Lemler Group

We understand your property or management company may want a bottom-line determination of how much these changes could cost. We’re happy to provide a free analysis on submission requirements to aid your property’s budgeting process. All we need is FY 2017’s financial statements and RD forms 3560-07 and 3560-10. Give us a call and we’ll start the process.

If you have more questions about what these rules mean for your property, don’t hesitate to ask! Contact us online or give us a call. We’d love to hear from you and learn alongside you as we navigate these changes together.