On August 6, the Rural Housing Service (“RHS”) agency of the USDA proposed a rule change affecting the reporting requirements for entities that have either 514 or 515 loans. In the proposal, RHS states that it wants to move the reporting requirements from a unit-based determining factor to a risk-based requirement. The threshold for requiring an audit for borrowers will change from a threshold of all borrowers with 16 units or more to those who receive combined federal financial assistance of $500,000 or higher. Combined federal financial assistance is defined in the proposal as a combination of any or all of the following:
- The outstanding principal balance of the USDA mortgage
- Any USDA Rental Assistance or Project-based Section 8 received during the fiscal year
- Interest reduction payments received during the fiscal year
- Federal grant funds received during the year
The audits required must contain an independent auditor’s report, financial statements and notes to the statements, supplemental information containing the agency-approved forms for project budgets and borrower balance sheets, report on internal controls and compliance, schedule of current and prior findings, and if applicable, corrective actions related to the findings.
Borrowers that receive combined federal financial assistance of less than $500,000 must submit annual owner-certified financial statements that may be prepared by a CPA, according to the proposal.
You can view the proposed rule in its entirety, and learn about how you can offer comments on it. Comments on the proposed rule change must be received by the Agency on or before October 5, 2015. If you have any questions pertaining to the proposed rule, please contact your CSH advisor.
