Statement of Elizabeth Hanson
June 26, 2002
Real Estate Assessment Center
before the US House of Representatives
Committee on Government Reform
Subcommittee on Government Efficiency,
Financial Management, and Intergovernmental Relations
you for the opportunity to appear before you today.
and compliance audits - including audits of State and local governments
and non-profit entities under the Single Audit Act - are an essential
element of the US Department of Housing and Urban Development's
(HUD) management control and oversight of its housing and community
Office of Public and Indian Housing's Real Estate Assessment Center
is responsible for collecting and assessing audit reports from housing
providers receiving financial assistance from either the Office
of Public and Indian Housing or the Office of Multifamily Housing.
Thus, each of the approximately 3,200 Public Housing Authorities
(PHAs) and each owner of about 21,000 insured/assisted multifamily
properties is required to electronically submit an annual financial
statement audit to the Real Estate Assessment Center for a financial
and regulatory compliance assessment.
the approximately 3,200 PHAs and the 8,700 nonprofit owners of multifamily
projects this means an audit in accordance with the Single Audit
Act and OMB Circular No. A-133. The Real Estate Assessment Center
uses the financial submissions to assess the financial condition
and regulatory compliance of the property or the PHA, and assigns
the property or PHA to one of three risk categories, depending on
whether the property is a good, marginal or troubled performer.
The financial submissions and assessment results are referred to
program staff in HUD's Office of Public and Indian Housing and Office
of Multifamily Housing for use in risk-based targeting of technical
assistance, on-site monitoring and enforcement activity to improve
program compliance and performance.
determine if the financial audit information being assessed is reliable,
the Real Estate Assessment Center has set up a division to assure
the quality of the audits.
The Quality Assurance Subsystem (QASS) consists of a staff of auditors,
whose primary purpose is to conduct Quality Assurance Reviews (QAR)
of Certified Public Accounting firms that perform financial statement
audits of HUD housing program participants. The staff is supported
by the QASS system, software used to monitor the performance of
CPA firms that conduct audits of HUD program participants.
Based on several factors, the QASS team selects "high risk" firms
for quality assurance reviews annually. The QAR selection criteria
includes outstanding referrals from both financial analysts at the
Real Estate Assessment Center and HUD program offices, total assets
audited by the firm among all HUD related engagements, and total
revenues audited by the firm for HUD related engagements. Also,
if a firm audited ten or more entities during the previous fiscal
year, but identified no audit findings, that is considered a factor
team of QASS auditors visits selected firms' offices and reviews
a sample of audits and the associated working papers for compliance
with professional auditing standards and HUD requirements.
substandard work is identified, the QASS team recommends administrative
sanctions which could include one or more of the following: Referral
to one or more of the state boards of accountancy in the states
where the CPA firm practices; referral to HUD's Departmental Enforcement
Center for potential debarment proceedings; and referral to the
American Institute of Certified Accountants.
has determined that for PHAs, there are approximately 340 CPA firms
auditing about 2,150 PHAs and that the top ten percent of the firms
audit about 68 percent of the population. Many of these firms are
either sole practitioners or firms with three or fewer CPAs on staff.
The average number of audits performed by the top ten percent of
firms is 44 audits per year, with a range between 35 and 114 audits.
Seven sole practitioners do more than 50 audits annually, with one
CPA doing 98 audits by himself. A firm with only three CPAs audited
8 of the 33 largest PHAs in the country.
of referrals that QASS has received, as well as QARs already completed,
indicate that several high volume practitioners do not have the
resources to perform PHA audit engagements in accordance with professional
auditing standards or within timeframes required by the Department.
The combination of high volume and limited staff resources means
that audit quality suffers. With fees being directly related to
the time spent on an audit engagement, fewer staff hours not only
results in a lower fee but also a lower quality of work.
the 25 PHA auditors reviewed during the 12 months ended February
2002, QAR results indicate that 20 firms were not in compliance
with professional auditing standards. Among those 20 firms, it was
not uncommon for firms to violate seven, eight, or nine of the ten
professional auditing standards. QASS has made 18 referrals for
administrative sanctions and has an additional ten referrals pending.
The majority of these are to the state boards of accountancy where
the CPAs practice, however there are four debarment actions pending
at the Departmental Enforcement Center.
Multifamily housing projects, regardless of whether it is a nonprofit
or profit motivated owner, QASS has determined that there are approximately
2,260 CPA firms providing audit services to the population of owners
required to submit audits to HUD. For this program, the top ten
percent of firms audit about 55 percent of the population. In FY
2001, QASS reviewed 87 firms that performed multifamily audits;
both A-133 and program type audits, though primarily profit motivated
owners. QASS identified only one firm with severe performance problems.
In general, the firms that perform the most multifamily audits are
regional, large local or national firms with adequate staffing for
on the work of the Real Estate Assessment Center Quality Assurance
staff, the quality of A-133 audits of Housing Authorities is of
concern, while the audits of Multifamily housing projects are generally
of a higher quality.
is concerned about the quality of Single Audits and has dedicated
staff resources to the quality review process for the past three
years. The Department supports the concept of a task force to review
the quality of Single Audits and is ready to lend what we have learned
from our experience to the task force.
HUD grant programs, such as those administered by the Office of
Community Planning and Development, are also reliant on audits under
the Single Audit Act as an essential component of their program
management control and oversight. In these areas, HUD's program
field staff are responsible for obtaining and acting on Single Audits
to ascertain the financial condition and compliance of their program
participants. However, a recent review by the US General Accounting
Office cited that these HUD program areas do not have a central
system to better assure that Single Audits are properly received
and acted upon. HUD has plans in place to better assure that all
required Single Audits are properly received and acted upon in all
HUD program areas.
you for the opportunity to appear today.
Content Archived: June 25, 2010