What are the net worth and liquidity requirements for FHA-approved Mortgagees? Supervised, Nonsupervised, and Investing Mortgagees must meet the adjusted net worth and liquidity requirements at all times. The requirements do not apply to Government Mortgagees.
Liquidity: The Mortgagee must hold no less than 20 percent of its required adjusted net worth in liquid assets. This is effective immediately for all Entities applying for FHA approval. FHA-approved Mortgagees must be in compliance by December 31, Chapter 7 of the OIG Audit Guide discloses a list of unacceptable assets to exclude in the calculation of the computation of adjusted net worth. Each of the remaining chapters contains procedures for auditing compliancewith specific HUD program requirements.
Chapters 3 through the remainder of the guide contain references to relevant compliancerequirements that were in effect at the time each chapter was issued. Auditors shouldrecognize that compliance requirements change periodically and that delays will occurbetween such changes and revisions to this audit guide. Accordingly, the auditor should perform reasonable procedures to ensurethat compliance requirements are current and to determine whether there are anyadditional provisions of contracts and grant agreements that should be covered by anaudit under this audit guide.
Reasonable procedures would be inquiry of auditeemanagement and review of the contracts and grant agreements for major programs. Governmental and nonprofit entities also participate in some of theHUD programs covered in chapters 3 through 7 of this audit guide.
However, in instances in which a program is not includedin the OMB Compliance Supplement but is covered in this audit guide, the auditor shoulduse the compliance requirements and suggested audit procedures in this audit guide forpurposes of building an audit program using the guidance in part 7 of the OMBCompliance Supplement.
Audit Scope and Approach. Financial Statement Audit. The financial statement audit should be planned to be sufficiently comprehensive inscope to permit an expression of an opinion on the financial statements and an inrelation-to opinion on the supplementary information of the HUD-assisted activity asreferenced in the relevant chapters in this audit guide. GAAS requires that a sufficient understanding of internal controls be obtained to planthe audit and to determine the nature, timing, and extent of tests to be performed.
Compliance Audit. The auditorshould use the following information to determine whether a program is considered tobe a major program for the type of audit being performed using a specific audit guidechapter. Chapters 3 and 4: A major program is defined as an individual assistanceprogram for which expenditures equaled or exceeded , during theapplicable year or a project or hospital that had an outstanding HUD-insuredor HUD-guaranteed loan balance equal to or exceeding , as of the endof the period under audit.
Chapter 5: No major program designation is needed. However, for lenders havingcombined originations and a servicing portfolio of less than 2 million, theopinion on compliance need cover only the compliance requirements inchapter 7, section A , Quality Control Plan, and G , Lender AnnualRecertification, Adjusted Net Worth, Liquidity, and Licensing.
When auditing HUDprograms, the auditor should perform tests of controls to evaluate the effectiveness ofthe design and operation of internal controls in preventing or detecting materialnoncompliance with the direct and material requirements of the major HUD-assistedprograms.
The auditor should perform these procedures regardless of whether theauditor assesses the internal control risk to be below the maximum. The stepsperformed and conclusions reached should be clearly stated in the auditdocumentation. Tests may be omitted only in areas in which internal controls arelikely to be ineffective in preventing or detecting noncompliance; in which case,instances of the deficiencies are to be reported as findings.
Sample Selection. Audit sampling, when properly applied, can provide sufficient appropriate evidence tosupport the audit opinion. Audit sampling is defined as the application of an auditprocedure to less than percent of the items within a population. The auditor usesprofessional judgment in planning, performing, and evaluating a sample and in relatingthe audit evidence produced by the sample to other audit evidence when forming aconclusion.
It is important that the sample selected be representative of the population. The size of asample necessary to provide sufficient audit evidence depends on both the objectives andthe efficiency of the sample. All participants agreed that attribute sampling isthe appropriate sampling methodology for use in auditing programs using this guide toprovide consistency and ensure adequate coverage to support the audit opinions rendered.
Whenever a sample is selected to test compliance or to test controls over compliance aspart of an audit performed in accordance with this guide, HUD requires that an attributesampling methodology be used. This requirement is to provide consistency and ensureadequate coverage to support the audit opinions rendered.
It provides additional information on attribute sampling and minimum samplesizes. The sample sizes stated in appendix A are mandatory and are the minimum samplesizes to be used for all samples selected. Planning the Audit. Engagement Letter. A written letter of engagement between the auditee and theauditor is required and must contain the following mandatory information The estimated date the audit report will be delivered to the auditee.
Goodcoordination between the auditee and auditor is important to ensure timelydelivery of the audit report, considering that managers from HUD may hold upadvances and other funding approvals, etc.
However, theauditor should consider the causes for any delays to determine whether they formthe basis for an audit finding. Government Accountability Office GAO or their representatives access to audit documentation or any otherdocuments needed to review the audit hardcopy or electronic.
Access to auditdocumentation by HUD and GAO representatives includes making necessaryphotocopies of hardcopy audit documentation or other documents or electroniccopies of electronic audit documentation.
That if the auditor becomes aware of noncompliance with provisions of laws,regulations, contracts, and grant agreements or fraud that has occurred or islikely to occur, the auditor is required to bring such acts to the attention of theappropriate level of management.
In addition, as required in chapter 2 of thisaudit guide, the auditor may be required to contact the HUD single auditcoordinator to discuss matters relating to fraud or equity skimming. Based onthat discussion, the auditor may be requested to prepare a written report on allknown or likely fraud that has occurred. Acceptance of the engagement lettergrants the auditor permission to contact the HUD single audit coordinator anddiscuss the conditions noted.
That if the program being audited requires electronic submission of the financialand compliance data to HUD, the responsibilities of the auditor and the auditeeshould be included as follows:a.
The auditee is responsible for making the electronic submission to HUD. A description of the scope of the planned audit and contents of the report as setforth in chapter 2 of the audit guide. The auditor may also need to discuss with the predecessorauditor matters that are not adequately explained or documented in the auditdocumentation or a preexisting condition the auditor notes in his or her reviewthat was not in the prior audit report.
If the predecessor auditor refuses to allowthe successor auditor access to that information or to discuss such matters, thesuccessor auditor should include in the engagement letter that the auditee grantspermission for the successor auditor to discuss and review the prior auditdocumentation and for the auditee to make the appropriate arrangements. A list of the information the auditor wants the auditee to provide for the auditand the requested delivery date of those items.
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