Understanding HUD Audit and Reporting Issues for 2011 Audits of Supervised Mortgagees A Governmental Audit Quality Center Web Event January 6, 2012 Administrative Notes Troubleshooting Tips No Audio? • Ensure that your computer speakers are turned on and turned up. • Check to ensure that audio streaming is enabled on your computer. If the presentation slides stop advancing during the presentation, you should: • Hit the red “Exit” button located to the right of the main screen; this will close out of the presentation and re-launch the webcast. If you are still having audio or other technical difficulty… • Check with your IT personnel at your firm. • Click on the “Support” tab on the lower right-hand side of your screen. • Finally, call the AICPA Service Center at 888.777.7077. Governmental Audit Quality Center 2 Administrative Notes We encourage you to submit your technical questions – please limit your questions to the content of today’s program You can submit your questions at any time during this Web event by clicking on the “Q & A” tab on the lower right-hand side of your screen You can also download slides in PDF or PowerPoint by clicking on “Handouts” tab This event is being recorded and will be posted in an archived format to the GAQC Web site Governmental Audit Quality Center 3 Continuing Professional Education To document your participation and obtain CPE, you must click “OK” on 75% of pop-up markers There will be a total of 8 pop-up markers during the event (i.e., about 1 every 15 minutes) At end of today’s presentation we will provide steps for obtaining your CPE certificate Contact the Service Center for help with obtain CPE at 888.777.7077 or service@aicpa.org If you are not receiving CPE for this event, ignore the pop-up markers if they appear. Governmental Audit Quality Center 4 Presenters Jean M. Joy, CPA Wolf & Company, P.C. & Amanda Nelson, CPA KPMG LLP Governmental Audit Quality Center 5 What We Will Cover HUD Audit Requirements and Related Updates GAGAS Financial Statement Audit • Financial Statements and Supplementary Information • SAS 119, Supplementary Information in Relation to the Financial Statements as a Whole Compliance Audit • HUD OIG Handbook 2000.04,REV-2, Consolidated Audit Guide for Audits of HUD Programs (HUD Audit Guide) LASS Electronic Submission/Challenges Annual Filing Requirements – Mortgagee Letter (ML) 2011-25 Resources Governmental Audit Quality Center 6 HUD Audit Requirements – Who? Who is Subject to the HUD Audit Requirements? • Supervised and nonsupervised HUD approved mortgagees and lenders regardless of the number of loans made. Loan Correspondents/TPOs Reminders • Loan correspondents are no longer approved participants in FHA programs but will continue to have the opportunity to participate in FHA programs as third-party originators (TPOs) through sponsorship by FHA-approved mortgagees, as is currently the case, or through application to be approved as an FHA-approved mortgagee. • FHA-approved mortgagees assume full responsibility to ensure that a TPO adheres to FHA’s loan origination and processing requirements. • TPOs are not subject to annual recertification and reporting requirements of FHA. Governmental Audit Quality Center 7 HUD Audit Requirements – Where? Where Can You Find Further Guidance on HUD Audit Requirements? • HUD Audit Guide http://www.hudoig.gov/reports/consolidated.php • Various HUD Handbooks (e.g., 4060.1) as referenced through this presentation • AICPA Governmental Audit Quality Center (GAQC) HUD information http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/Resou rces/HUDInformation/Pages/default.aspx Governmental Audit Quality Center 8 HUD Audit Guide – Which Chapters Apply? Auditors of supervised mortgagees need to refer to various chapters of the HUD Audit Guide, as appropriate Chapter 1 - General Audit Guidance (always applies) Chapter 2 - Reporting Requirements and Sample Reports (always applies) Chapter 6 - Ginnie Mae Issuers of Mortgage-Backed Securities Audit Guidance Chapter 7 - HUD-Approved Title II Nonsupervised Mortgagees and Loan Correspondents Audit Guidance Chapter 8 - HUD-Approved Title I Nonsupervised Mortgagees and Loan Correspondents Audit Guidance Today’s presentation will focus on: Chapters 1, 2, and 7 Governmental Audit Quality Center 9 HUD Audit Requirements – What? What are the Audit Requirements? • HUD Title I and Title II approved lenders and mortgagees are required to have an annual audit and submit their audited financial statements and compliance reports electronically through the Lender Assessment Subsystem (LASS) within 90 days of the end of their fiscal year • The audit should be performed in accordance with Generally Accepted Government Auditing Standards (GAGAS) and Generally Accepted Auditing Standards (GAAS) or Public Company Accounting Oversight Board (PCAOB) Standards, as appropriate Governmental Audit Quality Center 10 HUD Audit Requirements: Reports ■ What are the required reports? A. Financial Statement Audit: Opinion on the financial statements Report on internal control over financial reporting (no opinion is issued) An opinion on supplementary information in relation to the financial statements as a whole: consolidating schedules (if required), schedule of adjusted net worth, and Financial Data Templates B. HUD Compliance Audit: Report on internal control over compliance with HUD requirements (no opinion is issued) Report on compliance with applicable laws and regulations related to HUD-assisted programs Major program (opinion is issued) Non major program ■ Refer to Chapter 2, Reporting Requirements and Sample Reports, of the HUD Audit Guide for more information Governmental Audit Quality Center 11 Update to Requirements: Small Lenders ML 2011-25 (7/28/11): Alternative Reporting Requirements for Small Supervised Lenders and Clarification of Requirements for Supervised Lenders in Parent-Subsidiary Relationships FHA-approved supervised lenders that are regulated by the FDIC, OTS, or NCUA whose consolidated assets do not meet the threshold (currently $500MM) required by those agencies for submitting audited F/S are not required to submit audited F/S to FHA, nor an audited computation of net worth. (Expires on April 7, 2012) The Q4 Call Report that aligns with the supervised lender’s fiscal year-end is required to be submitted. Governmental Audit Quality Center 12 Update to Requirements: Small Lenders (continued) Small lenders are still required to submit an independent auditor's report on: internal control as it relates to administering HUDassisted programs; and compliance with specific requirements applicable to major and non-major HUD programs. The auditors’ report on compliance for non-major programs is a negative assurance report based on a financial statement audit and can only be issued when auditors are engaged to perform the financial statement audit. Governmental Audit Quality Center 13 Update to Requirements: Consolidated Lenders Per ML 2011-25, FHA-approved supervised lenders that submit audited consolidated financial statements of a parent company are no longer required to submit internally prepared consolidating schedules. Net worth and liquidity requirements must be met by the FHA-approved lender regardless of the lender’s financial reporting documentation. Related FAQ Governmental Audit Quality Center 14 Update to Requirements: Adjusted Net Worth Requirements New Net Worth Requirements – ML 2010-20 (June 2010): Required effective 5/20/11 (for lenders w/FHA approval as of 5/20/10): - Small business - >$500K - Not a small business - >$1MM A supervised lender is considered a small business if average assets are <$175MM. Additional changes effective 5/20/13 Governmental Audit Quality Center 15 Government Auditing Standards (GAGAS) Governmental Audit Quality Center 16 Overview of GAGAS Requirements (2007) GAGAS are published by the Comptroller General of the United States http://www.gao.gov/new.items/d07731g.pdf Terms GAGAS, GAS, and Yellow Book often used interchangeably 2007 Revision of GAGAS to be used for 2011 audits (see hyperlink above) As an FYI – GAO has issued a new 2011 Edition of GAGAS that will not be effective until periods ending on or after 12/15/2012 Governmental Audit Quality Center 17 Overview of GAGAS Requirements (continued) General standards generally does not incorporate AICPA standards Field work standards incorporates AICPA standards Reporting standards incorporates AICPA standards (Chapter 3) (Chapter 4) (Chapter 5) Note: GAGAS can be used in conjunction with other auditing standards such as those issued by the PCAOB Governmental Audit Quality Center 18 General Standards – Independence ■ Overarching principles: Audit organizations must not Provide nonaudit services that involve performing management functions or making management decisions Audit their own work or provide nonaudit services in situations in which the nonaudit services are significant or material to the subject matter of the audits ■ Categories of nonaudit services ■ Supplemental safeguards when providing nonaudit services Governmental Audit Quality Center 19 General Standards – CPE Auditors performing work under GAGAS should maintain their professional competence through CPE, as follows: 24-hour requirement topics • The government environment • Standards used in government auditing • The specific or unique environment of the audited entity Remainder of the 80-hour requirement • Broad array of topics including courses on firm’s audit methodology 80-hour total requirement Governmental Audit Quality Center 20 General Standards – CPE (continued) ■ All professionals working on an engagement where the report states that the engagement was conducted in accordance with GAGAS are required to meet the GAGAS CPE requirements, including: - Audit professionals - Internal specialists that are part of the engagement team - Internal auditors and subcontractors ■ Consider the team member’s responsibilities when determining whether or not a certain course qualifies for GAGAS CPE Governmental Audit Quality Center 21 General Standards – CPE (continued) ■ Auditors who are only involved in performing field work but not involved in planning, directing, or reporting on the audit or attest engagement, and who charge less than 20% of their time annually to audits and attestations conducted in accordance with GAGAS should comply with the 24 hour requirement but are exempt from the remainder of the 80 hour requirement ■ Exemptions from all GAGAS CPE requirements: - Individuals performing support services, such as administrative assistants - Interns - External specialists - Internal specialists who have a consultative role Governmental Audit Quality Center 22 Field Work Standards – Financial Audits Auditor Communication • GAGAS broaden the parties included in the communication and the matters we communicate to those parties Results of Previous Audits & Attestation Engagements • Auditors are required to evaluate whether the audited entity has taken appropriate corrective action to address findings and recommendations from previous engagements Governmental Audit Quality Center Violations of Provisions of Contracts or Grant Agreements or From Abuse • Auditors are required to design the audit to provide reasonable assurance of detecting material misstatements resulting from violations of provisions of contracts and grant agreements 23 Reporting Standards – Financial Audits Report on internal control over financial reporting Report on compliance with laws, regulations, and provisions of contracts and grant agreements • Report significant deficiencies and material weaknesses in internal control • At the financial statement level • Report all instances of fraud and illegal acts, unless inconsequential; and violations of provisions of contracts or grant agreements, and abuse that could have a material effect on the financial statements • At the financial statement level Report compliance with GAGAS Report views of responsible officials for findings Governmental Audit Quality Center 24 Reporting Standards – Financial Audits (continued) Elements of a Finding Criteria Condition • The specific laws, regulations, contracts, or internal control procedure, against which performance is compared or evaluated • The nature of the deficiencies, e.g., a regulation not being followed, a control procedure not followed Cause • Why the condition exists Effect • What happened as a result of the condition Recommendation Views of Responsible Officials Governmental Audit Quality Center • What the auditee should do to correct the condition • Provided by management 25 Financial Statement Audit Governmental Audit Quality Center 26 Financial Statements and Supplementary Information Scenario Level of financial statements Audited consolidating schedules Financial Data Templates Net worth schedule (in LASS) Net worth schedule (audited) Stand-alone bank Bank N/A Bank Bank Bank Bank ≥ 40% of consolidated entity; No guarantee by parent Consolidated Not required (ML 2011-25) Consolidated Consolidated Bank Consolidated Consolidated Bank Bank <40% of consolidated entity; Guarantee by parent Consolidated Not required (ML 2011-25) Bank <40% of consolidated entity; No guarantee by parent Consolidated Required Bank Bank Bank Multiple banks, each <40% of consolidated entity; No guarantee by parent Consolidated Required Each bank Each bank Each bank Governmental Audit Quality Center 27 SAS 119, Supplementary Information in Relation to the Financial Statements as a Whole Effective for periods beginning on or after December 15, 2010 Addresses auditor’s responsibility when reporting on supplementary information (“SI”) in relation to financial statements as a whole Governmental Audit Quality Center 28 SAS 119, Supplementary Information in Relation to the Financial Statements as a Whole (continued) Auditor should perform the following procedures: Inquire of management regarding the purpose of the SI and the criteria to prepare the SI Determine if the form and content comply with the criteria Obtain an understanding of the methods used to prepare the SI Reconcile the SI to the accounting records or financial statements Inquire of management regarding significant assumptions/interpretations Evaluate the appropriateness and completeness of the SI Obtain written representations from management Governmental Audit Quality Center 29 SAS 119, Supplementary Information in Relation to the Financial Statements as a Whole (continued) Other considerations: Auditor has no responsibility for subsequent events Reporting Adds language to the opinion: Responsibility of management Derived from, and relates directly to, the underlying accounting records SAS includes examples of the opinion (both separate and part of audit opinion) Auditor is precluded from expressing an opinion on SI when the audited financial statements contain an adverse opinion or a disclaimer of opinion Governmental Audit Quality Center 30 A Word of Caution HUD Audit Guide Illustrative Report, Example A, not yet updated for SAS 119 in-relation-to wording AICPA will be working with HUD to assist them with updating report language for SAS 119 in the HUD illustration In the meantime, look to SAS 119 to assist you in modifying in-relation-to wording Governmental Audit Quality Center 31 Compliance Audit Governmental Audit Quality Center 32 Compliance Audit – Applicable Guidance Auditing Standard - AU 801, Compliance Audits (SAS 117) • http://www.aicpa.org/Research/Standards/AuditAttest/Download ableDocuments/AU-00801.pdf HUD Audit Guide (see slide 8 for hyperlink to access Guide) AICPA Audit Guide, Government Auditing Standards and Circular A-133 Audits • Chapters 1-4 may be useful for the Government Auditing Standards portion of the engagement • http://www.cpa2biz.com/AST/AICPA_CPA2BIZ_Specials/MostP opularProductGroups/AuditAccountingGuides/PRD~PC012743/PC-012743.jsp Governmental Audit Quality Center 33 Compliance Audit Materiality ■ Establish and apply materiality levels for the compliance audit based on the HUD audit requirement ■ Consideration of materiality is in relation to the lender’s HUD program activities taken as a whole Materiality is affected by: ■ The nature of the compliance requirements which may not be quantifiable in monetary terms ■ Qualitative considerations, such as the needs and expectations of HUD American Institute of CPAs 34 Compliance Audit (continued) Performing Risk Assessment Procedures Obtain an understanding of the applicable HUD requirements and the entity's internal control over compliance with HUD requirements Use the information obtained during risk assessment to determine the nature, timing, and extent of the audit procedures for the HUD compliance audit Example risk assessment procedures include Inquiring of management about whether there are findings and recommendations in reports or other written communications resulting from other audits or external monitoring that directly relate to the objectives of the HUD compliance audit Gaining an understanding of management's response to findings and recommendations that could have a material effect on the entity's compliance with HUD requirements (for example, taking corrective action) American Institute of CPAs 35 Compliance Audit (continued) Risk of Material Noncompliance Inherent Risk Control Risk Risk of Material Noncompliance Inherent risk and control risk may be assessed separately or combined Governmental Audit Quality Center 36 Compliance Audit (continued) Tests of Controls vs. Tests of Compliance Control What did the client do to ensure that compliance was achieved? Compliance Was the compliance objective achieved? American Institute of CPAs 37 HUD OIG Handbook 2000.04, REV-2, Consolidated Audit Guide for Audits of HUD Programs (HUD Audit Guide) - Chapter 1 – General Audit Guidance (April 2011 update) Governmental Audit Quality Center 38 HUD Audit Guide - Chapter 1 – General Audit Guidance Some key elements in April 2011 transmittal letter include: Paragraph 1 - 4 displays the value to be used in making major program determinations for each program covered by this guide. Update: Increased major program threshold from $300,000 to $2,000,000 Paragraph 1 - 5 requires attribute sampling as the appropriate sampling methodology. Minimum sample sizes are established and are mandatory to provide sufficient audit evidence and adequate audit coverage. Update: Made the attribute sampling requirements in Appendix A of Chapter 1 applicable to all audits performed in accordance with the HUD Audit Guide Governmental Audit Quality Center 39 HUD Audit Guide - Chapter 1 – General Audit Guidance (continued) Paragraph 1-5 (continued) The table below illustrates the minimum sample sizes in Appendix A for testing compliance with HUD requirements. The minimum sample sizes assume no exceptions are expected. Importance/ Significance of the Attribute Being Tested Confidence Level Tolerable Rate Minimum Sample Size for Populations over 200 Low 90% 5% 50 Low 90% 10% 25 High 95% 5% 65 High 95% 10% 35 For population ≤ 200, minimum sample sizes generally range from 5-20 items. Governmental Audit Quality Center 40 HUD Audit Guide - Chapter 1 – General Audit Guidance (continued) Paragraph 1-6 requires the auditor to telephonically contact the HUD OIG single audit coordinator if he/she becomes aware of fraud or illegal acts. Paragraph 1 -7 requires information to be included in engagement letters for all audits of HUD programs so that the auditor and the client are in agreement and the client grants permission for the auditor to obtain information from the prior auditor and report fraud as provided for in the HUD Audit Guide. Effective date: Chapter can be used upon issuance; requirements apply to audits of years ended on or after 9/30/11. Governmental Audit Quality Center 41 Chapter 7 – HUD-Approved Title II Nonsupervised Mortgagees and Loan Correspondents Audit Guidance (April 2007) Programs Related to Single-family and Multi-family Homes [Currently under revision by HUD] Governmental Audit Quality Center 42 HUD Audit Guide - Chapter 7 ■ Compliance Requirements: Maintaining a quality control plan; Maintaining branch operations; Loan origination; Loan settlement; Loan servicing; Escrow accounts; Section 235 assistance payments; Federal financial and activity reports; Kickbacks; and, Mortgagee approval requirements (including maintaining an acceptable adjusted net worth) Governmental Audit Quality Center 43 HUD Audit Guide - Chapter 7 (continued) ■ Example HUD Compliance Procedures – Chapter 7 Quality Control Plan – Each mortgagee is required to establish and maintain a written quality control plan. • Obtain a copy of the quality control plan and compare to HUD Handbook 4060.1 requirements • • • • • For example, sample size and loan selection requirements Determine procedures are in place to ensure that all employees involved in origination and servicing understand quality control policies and procedures Assess competence of quality control reviewers Determine corrective actions for all deficiencies were promptly initiated Determine whether employees were notified of any deficiencies and provided instructions to prevent reoccurrence Governmental Audit Quality Center 44 HUD Audit Guide - Chapter 7 (continued) Branch Office Operations – Each branch office must be registered by HUD. The mortgagee is fully responsible to HUD for the actions of its branch offices. Brach office Facilities and Staffing Requirements can be found in HUD Handbook 4060, Chapter 2. • Determine whether all branches are registered with HUD • Only branches that the audited entity uses to conduct FHA related mortgage operations are required to be registered with HUD • Determine whether the branch is a true branch and is not a subsidiary, independent contractor or separate entity • Mortgagee Letter 2011-34 rescinded the “ branch office facilities” requirements Update: Mortgagee Letter 2011-34 –Paragraphs 2.11.A through 2.11.D and 3.2.A.9 of Handbook 4060.1 related to office facilities requirements have been rescinded Governmental Audit Quality Center 45 HUD Audit Guide - Chapter 7 (continued) Loan Origination – Loans should be originated with the same care that would be exercised in originating a non-insured loan entirely dependent on the property as security to protect investment. • Applicant’s personal information should be submitted directly to the HUD registrant and not passed through any interested party (e.g., realtor) • For a sample of loans, review loan files to obtain evidence that applicant’s information was verified as required by HUD Handbook 4000.2 • For a sample of rejected loans, determine whether the rejection was made based on established criteria and the reason was provided to the applicant FOLLOW THE NEW SAMPLING GUIDANCE Governmental Audit Quality Center 46 HUD Audit Guide - Chapter 7 (continued) Loan Settlement – HUD has specified the types and amounts of additional charges and fees. Up-front mortgage insurance premiums should be remitted to HUD promptly. Select a sample of HUD loans settled during the audit period and perform the following: • Test the mathematical accuracy of Form HUD-1 • Review appropriateness of fees and charges collected • Review supporting data to establish escrow accounts • Examine canceled checks to ensure the mortgagee remitted mortgage insurance premiums to HUD Governmental Audit Quality Center 47 HUD Audit Guide - Chapter 7 (continued) Loan Servicing - Loan servicing procedures are to be followed consistently and should not vary. The lender should have an organized means of periodically identifying the payment status of delinquent loans. • For a sample of delinquent and defaulted loans, determine whether loan file documentation reflects the delinquent status • Review evidence that mortgagee made a reasonable effort to communicate with mortgagor and determine the cause of default • Review procedures for handling partial payments • Determine compliance with HUD’s Loss Mitigation program and Foreclosure Relief Program • Determine procedures for paying mortgagee insurance premiums to HUD • Test insurance claim amounts on a sample basis Governmental Audit Quality Center 48 HUD Audit Guide - Chapter 7 (continued) Section 235 Assistance Payments – HUD sends assistance payments to the mortgagee; mortgagee must meet other continuing eligibility criteria; the mortgagee must secure re-certifications of income, family composition and other items. Instances of mortgages under this program should be rare! Governmental Audit Quality Center 49 HUD Audit Guide - Chapter 7 (continued) Federal Financial and Activity Reports – Mortgagees are required to ensure that financial status, single-family default monitoring and reports required under the Home Mortgage Disclosure Act (HMDA) contain reliable data and are presented in accordance with the terms of the agreement between the entity and HUD. • Understand the process of preparing financial and activity reports • For a sample of reports, determine if the reports were prepared in accordance with HUD instructions • Trace significant data to supporting documentation on a sample basis • Review significant adjustments to general ledger balances affected by HUD-assisted program activity REPORTS REQUIRED TO BE FILED BY MORTGAGEES CAN BE FOUND IN HUD HANDBOOK 4330.1, CHAPTER 7, 41552.1 CHAPTER 3, AND ML 95-3 Governmental Audit Quality Center 50 HUD Audit Guide - Chapter 7 (continued) Kickbacks – kickbacks and similar payments are prohibited. ♦ On a sample basis, test whether disbursements are supported by invoices and were not for an unreasonable amount ♦ Determine whether any fees or compensation paid are prohibited by the Real Estate Settlement Procedures Act ♦ Consider whether fees paid or other type of payments, observed during the review of loan origination and loan settlement documents, represent kickbacks ♦ Determine if other suggested procedures in the HUD Audit Guide are applicable to your circumstances Governmental Audit Quality Center 51 HUD Audit Guide - Chapter 7 (continued) Mortgagee Approval Requirements – A mortgagee should have and maintain required adjusted net worth in eligible assets. • Test whether the levels of adjusted net worth, liquid assets, fidelity bond coverage and errors and omissions bond coverage meet the applicable requirements of HUD Handbook 4060.1 and ML 2010-20 . Governmental Audit Quality Center 52 LASS Electronic Submission Governmental Audit Quality Center 53 LASS Electronic Submission See HUD Audit Guide Chapter 7 (7-4B and 7-4C) for LASS electronic submission requirement Not Relevant for small supervised lenders LASS collects the following information: 1. Financial Data Template (FDT) – Data from the balance sheet, operations and equity statement, cash flow statement, net worth statement, and liquidity statement Governmental Audit Quality Center 54 LASS Electronic Submission (continued) LASS collects the following information: 2. Data Collection Form (DCF) – Basic information regarding the lender’s recertification such as fiscal year end data, audit period covered, lender and auditor information, and the type and details of the audit opinions and findings Signed audit opinion report, internal control report, and compliance reports must be attached as portable documents in a PDF file format Governmental Audit Quality Center 55 LASS Electronic Submission (continued) LASS collects the following information: 3. Notes and Findings – Collection of the lender’s footnotes accompanying the financial statements, and if applicable, the schedule of findings and questioned costs and lender’s corrective action plan. These documents must be attached as portable documents in a PDF file format. Governmental Audit Quality Center 56 LASS Electronic Submission (continued) Single Family Housing Lender Assessment Subsystem (LASS) User's Manual (updated as of October 2009) Section 5.10 – For Independent Public Accountants, Completing Agreed-upon Procedures (Online) http://portal.hud.gov/hudportal/HUD?src=/program_of fices/housing/sfh/lass/lass_usermanual Governmental Audit Quality Center 57 LASS Electronic Submission (continued) The responsibility for the electronic submission rests with the lender. To assure the accuracy and completeness of the data within LASS, auditors are required to perform a separate agreed-upon procedure engagement. In general, the auditor must compare the electronic data in LASS to the hard copy of the basic financial statements, footnotes, audit reports, and FDT. This procedure should be performed under AICPA SSAE No. 10. Governmental Audit Quality Center 58 LASS Electronic Submission (continued) To assure the accuracy and completeness of the data within LASS, auditors are required to perform a separate agreed-upon procedure engagement. To perform these procedures, auditors must register with HUD’s Secure Connection system for a user ID and password, as well as obtain a Unique Independent Public Accountant (IPA) Identifier (UII). For further information about obtaining a user ID, passwords, and UII, refer to the LASS User Manual Governmental Audit Quality Center 59 LASS Challenges The LASS template has not been formatted for a supervised lender. Supervised lenders and many independent auditors are not familiar with the LASS template. New requirements include submitting the Q4 Call Report; should be labeled to indicate that it is not subject to audit or agreed-upon procedures. Auditors are required to issue an agreed-upon procedure report related to LASS template data (embedded in LASS and issued in hard copy). As a result of the above, significant amounts of time are expended by supervised lenders and their auditors. Governmental Audit Quality Center 60 LASS Challenges (continued) Key issues to consider when trying to format the LASS FDT for supervised mortgagees: Several changes to GAAP have evolved since the LASS template was formatted. The FDT reflects a classified balance sheet; assets and liabilities are classified as either current or noncurrent. The primary liabilities of a supervised generally include deposits and borrowings, for which the FDT does not include specific line items. As a result, “other assets” and “other liabilities” will be significant (current/longterm?). Governmental Audit Quality Center 61 LASS Challenges (continued) Cash Flow Data FDT is based on changes in current and non-current assets and liabilities. The cash flow data also does not reflect certain significant sources and uses of cash flows for a supervised mortgage. Many cash flow auto-fills do not correspond to a GAAP presentation. To the extent that a supervised mortgagee’s assets, liabilities or cash flows do not fit a specifically identified line item in the FDT, a supervised mortgagee is required to make judgments as to how to report such assets, liabilities or cash flows. Governmental Audit Quality Center 62 LASS Challenges (continued) HUD Financial Data Template Line Definitions Guide Find at: http://portal.hud.gov/hudportal/documents/huddoc?i d=DOC_12651.pdf Governmental Audit Quality Center 63 Annual Filing Requirements - ML 2011-25 Governmental Audit Quality Center 64 Annual Filing Requirements - ML 2011-25 Due to logistical issues relating to filing electronically on LASS without financial statements or an agreed-upon procedures report, HUD will accept manual filing from small supervised lenders: • Two copies of each report must be submitted. • Cover letter with FHA lender/mortgagee ID number that claims the exemption for supervised lenders under the April 7, 2011 waiver must be included. • FHA lender/mortgagee ID number must be written on the upper righthand corner of each separate document. • All lenders must pay the annual fee and submit the annual certification online via the FHA Connection. • Lender's recertification will be considered "submitted" from the date of receipt of mailed reports by FHA's Office of Lender Activities and Program Compliance. • HUD is revisiting the manual process in early January 2012. Governmental Audit Quality Center 65 Annual Filing Requirements – ML 2011-25 (continued) • Mail to (USPS): Office of Lender Activities and Program Compliance Attention: Jason Boldin 490 L'Enfant Plaza East, S.W. Suite 3214 Washington D.C. 20024 • Courier address: Office of Lender Activities and Program Compliance Attention: Jason Boldin 451 7th Street, S.W. Room B-133 – P3214 Washington D.C. 20024 Governmental Audit Quality Center 66 Resources Governmental Audit Quality Center 67 RESOURCES HUD.GOV GAO Government Auditing Standards (The Yellow Book) http://www.gao.gov/yellowbook AICPA Standards (http://www.aicpa.org/Research/Standards/Pages/def ault.aspx) AICPA Audit Guide, Government Auditing Standards and Circular A-133 Audits AICPA Governmental Audit Quality Center (GAQC) • Main page: www.aicpa.org/GAQC • HUD Information Page: http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/R esources/HUDInformation/Pages/default.aspx Governmental Audit Quality Center 68 What You Will Find on GAQC HUD Information Page AICPA GAQC • HUD Information • GAQC Alerts, Web Events. Links to Illustrative Audit Reports, and Other Resources • HUD News (Current and Archive) • HUD Consolidated Audit Guide • Illustrative HUD Audit Reports • Submission and Audit Requirements for PHAs and Multifamily Program Participants • HUD Offices Relevant to HUD Audits and Related Background on FASS and LASS • AICPA HUD Related CPE • Directory of Helpful Web Sites Governmental Audit Quality Center 69 Archived GAQC Web Event To help you learn more about the Yellow Book in more detail (open to the public) • The 2007 Yellow Book: What a Beginner Needs to Understand • This archived Web event will be helpful to staff working on forprofit audits and dealing with a Yellow Book audit requirement for the first time and other staff working on governmental or notfor-profit organization audits that are new to the Yellow Book or want a refresher. • No CPE available for viewing the archive Governmental Audit Quality Center 70 Questions ????? Governmental Audit Quality Center 71 Thank you for participating! Governmental Audit Quality Center 72 How do I get my CPE certificate? Just follow these steps: 1. Log on to CPA2Biz.com 2. Click on “My Account” tab on the top of the page and enter your username and password 3. Click on “My Online Learning” in the middle of the page 4. Click on “CPE Tracker” (a new window or tab will open) 5. Click on “My Transcript” on the upper left side of the page 6. Find your completed course and click on “Go” to get your certificate. If you cannot find your certificate on CPA2Biz.com, please contact the AICPA Service Center at 888.777.7077 or service@aicpa.org and ask for assistance. Governmental Audit Quality Center 73 Evaluations Please take a few minutes to let us know what you thought about today’s Web event, just click on the link below to begin the evaluation: http://www.zoomerang.com/S urvey/WEB22E9EQSPZLT/ Governmental Audit Quality Center 74