IN THIS ISSUE:

• HUD Issues Revisions to Chapters One and Two of the Audit Guide
• Annual AHACPA PHA Conference Scheduled for June 18-19 in Las Vegas

Today, the HUD Office of Inspector General (OIG) issued revision to chapters 1 and 2 of the Guide. These revisions include changes to reports, reporting of findings and questioned costs, reporting of prior audit findings and client's corrective action plans (CAP).

• Audit Guide Chapter 1 (page 1-5) 
• Audit Guide Chapter 1 (page 1-5) transmittal letter 
• Audit Guide Chapter 2 
• Audit Guide Chapter 2 transmittal letter 

The effective date for both chapters is audits ending on or after March 31, 2013. However, earlier application is allowed. December 31, 2012 audits are specifically mentioned. Details of the changes are included below.

What's Included:

Reports

HUD has formally announced the change to the reporting model. These changes to the Guide formally announce HUD's move to a reporting model similar to A-133. Required reports will now include the following:

• Independent Auditor's Report
• Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards
• Independent Auditor's Report on Compliance With Requirements That Could Have a Direct and Material Effect on Each Major HUD-Assisted Program and on Internal Control Over Compliance in Accordance With Consolidated Audit Guide For Audits of HUD Programs

As you can see, HUD has removed the requirements for non-major program reporting and fair housing. Example financial statements are NOT included in the release, but will be added when such reports are approved.

The Schedule of Findings and Questioned Costs (Findings)

This schedule is to be included in each report package. If there are no findings, there schedule is to be included with the following language "Our audit disclosed no findings that are required to be reported herein under the HUD Consolidated Audit Guide." Findings are to be segregated between findings for which corrective actions are not started or in process and findings for which corrective action is complete. Special guidelines are listed for reporting findings when using the group project-based sampling method. Finding contents should include:

1. Numbering the findings
2. Questioned costs
3. Information on universe and populations size
4. Sample size information
5. Noncompliance information (number of instances and dollar amount)
6. Condition
7. Criteria
8. Cause
9. Effect or potential effect
10. Recommendations
11. Reporting Views of Responsible Officials

Schedule of the Status of Prior audit Findings, Questioned Costs and Recommendations

Corrective Action Plan

A corrective action plan (CAP) is to be prepared by the auditee, and it should be transmitted to HUD as a separate part of the audit report package. The CAP is to be a separate and distinct document from the views of responsible officials included with each finding in the schedule of findings, questioned costs, and recommendations.

Reporting on Fraud or Equity Skimming

On occasion during the course of an audit performed in accordance with this audit guide, the auditor may conclude that fraud either has occurred or is likely to have occurred. In the case of an audit performed under chapter 3 or 4 of this audit guide, fraud could include equity skimming, which is the willful misuse of any part of the rent, assets, proceeds, income, or other funds derived from the project covered by the mortgage, business agreement, regulatory agreement, or other type of agreement for any purpose other than to meet actual or necessary expenses of the project. For a common understanding of what equity skimming is, please refer to appendix B of chapter 3.

When such acts are noted, the auditor should follow the requirements of GAGAS in considering what to report and the extent to which information should be included in publicly available reports.

However, many entities subject to audit under this audit guide lack an appropriate governance structure, and the auditor may, in effect, be reporting management's failure to the same individuals responsible for the fraud. In such cases, the auditor is required to report the matter directly to HUD by contacting the single audit coordinator, preferably before the auditor leaves the audit site.

Changes to Chapter 1 Major Program Determination

Paragraph 1-4 sets forth the audit scope and approach and includes thresholds for determining a major program.  

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