If you own or manage Rural Development (RD) properties, chances are you’ve heard about the changes that have shaken up which properties need audits, and therefore how much you pay for annual assurance services from a CPA firm. (See the whole Handbook and chapter on Financial Management on RD’s website.)
Though the changes only apply to for-profit properties, owners may be able to save money by early adopting these new rules, which will be mandatory starting FY 2019.
Cost Reductions in RD Changes
In an effort to make Rural Development guidelines more aligned to the Department of Housing and Urban Development (HUD), RD administrators have switched from a unit threshold to a federal award threshold.
Previously, any for-profit RD property with more than 24 units needed to have an annual audit. Under the new rules, properties only need an audit if their total federal grants are greater than $500,000. This means any properties that have more than 24 units but receive less than $500,000 from the government no longer induce an annual audit fee, saving you money.
New Rule Form Submission Requirements
Instead of filing an audit, for-profit properties that don’t meet the threshold will instead submit several forms and attached schedules to certify their properties. These forms include:
- Accrual-based financial statements
- Owner-certified and complete 3560-07 and 3560-10
- Schedules of:
- Accounts receivable by type (resident, rental assistance, other)
- Accounts payable by type (operating, accrued real estate taxes)
- Detail of amounts owed to partners
- Miscellaneous expense line detail
- Accrual to cash adjustments
So just because these properties no longer need to file an annual audit, they may still need to work with a CPA to prepare financial statements on the accrual basis of accounting. An experienced Rural Development CPA can also help your organization strategize how to make the most of these new rule changes, saving you time, money, and hassle.
No More Agreed-Upon Procedures
It’s also worth mentioning that for-profit RD audits will no longer have to perform agreed-upon procedures (AUPs), though it may not result in a cost reduction to owners of these properties. Instead of AUPs, auditors will instead perform a longer series of tests and create a new report on compliance to cover the assurance previously provided by AUPs.
Cost Increases in RD Changes
Because the threshold has changed for determining which for-profit RD properties need annual audits, it’s possible owners will discover that previously un-audited projects now require audits under the new RD rules. However, the overall costs to your organization may not increase.
If you own multiple properties, consider the cost savings on those that no longer require audits vs. the cost increase of new audits. Especially for companies that own many small- to mid-size RD properties with low mortgage balances, the savings may outweigh the costs.
Analyzing Properties’ Statuses Under New Rules
To determine if your for-profit RD property will or will not need an audit when these rules become mandatory, you will need to look at the total amount of federal financial assistance each property receives. This amount includes, but is not limited to:
- Mortgage Balance
- Rental Assistance
- Interest Subsidy
- Other Government Loans
- Other Government Subsidies
If the amounts from the previous year financial statements under these categories total more than $500,000, you will need to file an audit the following year. If the amount is less than $500,000, you simply need to submit the forms mentioned above.
Forming a Strategy That Works for You
Whether you own a single apartment complex or a hundred RD properties, these rule changes affect how you report financial information to the government through MINC.
The changes mentioned here are now in effect, becoming mandatory in FY 2019. If you have any questions about the impact of RD’s new handbook, feel free to give us a call and we’ll be happy to serve you.