On October 25, 2017, the Rural Housing Service (RHS) published a Final Rule in the Federal Register, “Multi-Family Housing Program Requirements to Reduce Financial Reporting Requirements.” This rule is effective on November 24, 2017.
The purpose of this rule is to align RHS requirements with those of the Department of Housing and Urban Development (HUD) with regard to the financial reporting requirements of federally assisted housing projects. The rule will utilize a “risk-based threshold” reporting which is intended to reduce the burden on owners of smaller properties.
Programs affected by this rule are the Farm Labor Housing Loans and Grants (Section 514 and 516) and the Rural Rental Housing Program (Section 515).
Background
RHS believes that high-risk properties should receive more stringent evaluation of financial performance and that such evaluation can be accomplished in a more cost-effective manner than the current requirements. This new rule will also meet HUD requirements so that RHS properties with HUD Section 8 will now have uniform financial reporting requirements.
High-risk properties are those with combined federal financial assistance of $750,000 or more for non-profit entities and $500,000 or more for for-profit entities. The new rule also requires that all owners of RHS properties use the accrual method of accounting, regardless of the size of the projects, and must describe their accounting, bookkeeping, budget preparation, and financial reporting procedures in the property management plan.
Annual Financial Reports
For-profit borrowers that receive $500,000 or more in combined Federal financial assistance must include an independent auditor’s report that complies with generally accepted accounting principles (GAAP).
Non-profit borrowers that receive $750,000 or more in combined Federal financial assistance must meet Federal Audit requirements relating to non-profit reporting.
Non-profit borrowers that receive less than $750,000 and for-profit entities that receive less than $500,000 in combined Federal financial assistance will submit annual owner certified prescribed forms on the accrual method of accounting. Borrowers may (but are not required to) use a CPA to prepare this compilation report of the prescribed forms. The required submission will include:
- A statement that there has been no change in project ownership other than those approved by the Agency and identified in the certification;
- Documentation that real estate taxes are paid in accordance with state and/or local requirements and are current; and
- Documentation that replacement reserve accounts have been used for only authorized purposes.
While this rule is effective on November 24, 2017, it will essentially be effective for borrowers with fiscal years beginning January 1, 2018 and thereafter.