Help with the New HUD Audit Rules
Sacher, Stephen B., The CPA Journal
Conducting HUD audits is not for all practitioners. CPAs performing HUD audits follow special complex audit, reporting, and disclosure rules. Auditors are required to opine on their clients' compliance with various laws and regulations, report noncompliance when material to the financial statements, test certain internal controls, and disclose details about their audit findings. Certain suggested compliance tests entail that HUD auditors determine if rent charges and maintenance costs are excessive. To perform such tests, auditors need to acquire relevant knowledge or engage a specialist. Typically, in financial audits, practitioners focus on existence and completeness of income and expenses and do not ordinarily determine whether a client charged rents competitively and purchased goods and services economically. If requested, audit workpapers must be made available for examination by the Secretary of HUD, the Government Accounting Office, and the HUD Inspector General. If the Office of Inspector General determines that an audit report and working papers are substandard or contain major inadequacies, a complaint may be filed with the State Board of Accountancy and the practitioner may be barred from further participation in Federal programs. If auditors become aware of clients' illegal acts or potentially illegal acts that could result in criminal prosecution, they must disclose such acts to the HUD Inspector General.
The U.S. Department of Housing and Urban Development, Office of Inspector General issued Handbook 2000.04 Rev 1 dated July 1993 entitled, Consolidated Audit Guide for Audits of Programs. The handbook assists independent auditors in performing audits of certain HUD and GNMA programs and is effective for audits of programs with fiscal years ending September 30, 13, and thereafter. The new handbook is a complete revision of Handbook IG2000.4 dated October 1991.
GENERAL AUDIT GUIDANCE
The audit guidance provided in the handbook is not intended to be a complete manual of audit procedures. Auditors are expected to consider Government Auditing Standards and GAAS as well as their professional judgment in designing procedures to meet audit objectives. However, auditors must address all applicable compliance retirements contained in the handbook.
When planning an audit, pursuant to SAS No. 55, Consideration of the Internal Control Structure in a Financial Statement Audit, auditors may assess control risk at maximum and not perform tests of controls. However, HUD requires that auditors test controls to evaluate the effectiveness of the design and operation of the internal control structure policies and procedures that they consida relevant to preventing and detecting noncompliance. Auditors are also required to test and report on the project's compliance with HUD laws and regulations. Furthermore, SAS No. 68, Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Assistance, extends this compliance requirement to any other applicable laws and regulations that may have a material effect on the financial statements.
The new handbook reiterates the Government Auditing Standards requirement that all material instances of noncompliance be reported. SAS No. 68 defines material instances of noncompliance "as failures to follow requirements, or violations of prohibitions, contained in statutes, regulations, contracts, or grants that cause the auditor to conclude the aggregation of misstatements...resulting from those failures or violations is material to the financial statements." Accordingly, auditors may need to estimate the potential dollar effect of instances of noncompliance.
While performing compliance and other auditing procedures, auditors may become aware of illegal acts or indications of acts which could result in criminal prosecution. In these instances, HUD requires that auditors communicate all such acts including related questioned costs immediately and in writing to the Inspector General. …