HUD Relaxes Annual Financial Statement Requirements for Small Multifamily Sites

For tax credit sites that also receive less than $500,000 in combined federal financial assistance, HUD recently issued Notice 2013-23 that revised the financial reporting requirements for small multifamily housing developments. Specifically, the notice eliminates the audit requirements for small entities (defined as receiving less than $500,000 in combined federal awards) regardless of existing regulatory agreement requirements. Owners of these projects will be permitted to submit owner-certified financial statements. Combined federal awards is defined as federal grants, loans, loan guarantees, property, cooperative agreements, interest subsidies, insurance, food commodities, direct appropriations, and other assistance.

In recent years, HUD has made an effort to streamline administrative processes and reduce costs. To achieve that goal, HUD participates in the Rental Policy Working Group, along with a number of other federal agencies. The working group’s goal is to align the financial reporting requirements of HUD and the U.S. Department of Agriculture’s multifamily housing programs, and otherwise find ways to reduce overlap and duplication.

HUD believes this policy will affect more than 2,100 projects currently filing audited financial statements (534 with FHA-insured mortgages and 1,640 with Section 8 subsidies). This initiative will affect owners having a fiscal year-end of Dec. 31, 2013, and thereafter. Owners will continue to file owner-certified statements, which include cash flow and a full set of footnotes, with REAC, and it’s anticipated that these engagements will convert from audits to compilations or reviews. REAC will continue to track overdue financial statements in the same manner as audited statements.

HUD estimates that once implemented, this directive could save owners of small sites between $2,000 and $10,000 per year in annual financial reporting costs. The cost savings realized from this policy will free up dollars to be used for additional maintenance, operating costs, or owner distributions. And that’s expected to encourage owners to renew existing Section 8 housing assistance payment, or HAP, contracts.