Use Checklist to Prepare Documents for Annual Audit
Over 20,000 multifamily housing program participants are required to submit annual electronic financial statement data to HUD for assessing the financial condition of multifamily housing sites. On Feb. 14, 2014, the Real Estate Assessment Center updated its Financial Assessment Sub-System to allow profit-motivated and limited distribution owners receiving less than $500,000 in federal financial assistance to submit owner-certified financial statements instead of audited financial statements. This change was made in accordance with Housing Notice H2013-23.
However, you may find that if your site is required to get annual financial statements audited and submitted to HUD, this process is often a race against time. If you don’t have copies of the necessary documents ready to give to your CPA and have other documents ready for inspection, you’ll have to scramble to look for them as HUD’s financial submission deadline approaches. And if you can’t unearth the necessary documents, you may waste even more time explaining your site’s policies or financial decisions to the CPA.
Every delay adds to the risk that you’ll miss HUD’s submission deadline. And if you don’t submit your statements by the required deadline, you face stiff fines and other penalties—including getting barred from doing further business with HUD.
To help you dig out and copy the necessary paperwork before your CPA asks for it, we’ll give you a Model Form: Pre-Audit Checklist. You can use this checklist to speed up your annual audit process.
How Checklist Helps
By using a pre-audit checklist, you can:
Avoid last-minute rush during audit. With a pre-audit checklist, you know which documents you must gather and copy or set aside so you don’t have to spend the first days of the audit looking for them, says CPA and affordable housing expert Stewart A. Grubman. If you’re using the same CPA you used last year, some documents should already be in the CPA’s “permanent” file for your site, says Grubman. But your CPA will also need many “current” accounting and financial documents that relate to this year’s audit. The checklist can help you avoid a last-minute scramble to find documents that may be tough to locate, especially if they’re in the owner’s or site manager’s office.
If you’ve changed CPAs, the checklist can help you avoid a last-minute search for past audits, which you may have trouble putting your hands on. If you worked with a different CPA last year, you’ll need to give the new one a copy of last year’s audit to confirm how you responded to any audit findings by your prior CPA. And the new CPA will certainly want to create his own permanent file.
Cut conference time with CPA. Part of your CPA’s job is to ensure that you’re complying with HUD accounting and occupancy regulations, such as those that apply to management fee calculations or resident selection and waiting lists. By telling you what documents and written policies to give to your CPA, our checklist lowers the risk that you’ll have to have extended meetings with the CPA to explain certain items in your books or your site policies.
Remind you of last-minute accounting tasks. The checklist can also remind you about accounting tasks that might otherwise slip your mind—for example, closing out certain ledger accounts or calculating depreciation. Unfinished year-end accounting can bring your audit to a standstill.
How to Use Checklist
The checklist separates the documents you’re most likely to need for your CPA into five categories. The first four categories include documents that you’ll need to copy and give to the CPA. The last category lists documents to have available for the CPA’s inspection.
Regulatory documents. These spell out the basics of the site’s ownership and management entities, says Grubman. A CPA will need to have copies of these documents to keep in her permanent audit file for the site. They give the CPA crucial details about the site’s administrative, financial, and reporting requirements, including its eligibility restrictions, debt requirements, sale and transfer restrictions, security deposit and other special account requirements, its duty to keep in good repair and condition, and to comply with all HUD rules.
If you’re using the same CPA as last year, she’ll probably have most of these documents. But if you’re changing CPAs, make sure to give the new CPA copies for her permanent file and make a note that you’ve done this, says Grubman. Then, in future years, you can mark off which ones the CPA already has.
Financial documents. These are the bulk of the documents you’ll need to copy so that the CPA can do the current audit. We’ve itemized this part of the checklist into smaller categories based on the most common types of financial documents and accounts that sites use. This is a good opportunity to make sure that you have sufficient backup to support the numbers in your books and records.
Tax documents. CPAs want copies of all tax-related documents. We’ve included this category in the checklist to make sure that you’ve made copies of them.
Other documents. This is a catchall category for a number of occupancy and other site-related documents that CPAs will usually need copies of to complete their audits. Beyond testing the accuracy and soundness of the financial statements, CPAs must test the site’s compliance with HUD occupancy regulations and management performance. The documents in this category contain information CPAs need to do this.
Documents to have available. Obviously, your CPA doesn’t want his own copies of all your resident files or stacks and stacks of vendor invoices. But while conducting his audit, he’ll want access to these documents so he can examine a fair number to make sure you’re complying with HUD’s financial and occupancy rules. The last section of the checklist includes documents that CPAs often want to inspect when they visit your site.
Adjust Checklist to Your Needs
You won’t necessarily need every document on our checklist for your audit. If a document doesn’t apply to your site, you can delete it from your site’s checklist. In addition, there may be other documents you won’t have or need this year (such as documents that are already in the CPA’s permanent file), so you can just strike a line through those items.
Also, it’s a good idea to send a copy of the checklist to your CPA before the audit. He may want to add items or tell you not to bother with others. For instance, some CPAs may want a list of all your site’s staff training expenses because the local HUD office has a policy of verifying all training expenses. We’ve left a couple of blank lines for “other” documents in each category so you can add any additional ones not covered by the checklist.
Stewart A. Grubman, CPA: Grubman Anand, PC, 7272 Wisconsin Ave., Bethesda, MD 20814; www.grubmancpas.com.
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