mortgagor/grantee’s audit guide · virginia housing development authority (vhda) to meet its...

VIRGINIA HOUSING DEVELOPMENT AUTHORITY

MULTIFAMILY PROGRAMS

MORTGAGOR/GRANTEE’S AUDIT GUIDE

Effective: 10/86 Revised: 10/97, 05/01, 11/04, 11/06, 11/07, 11/08, 12/09, 12/10, 12/11, 12/13, 12/15, 12/16, 12/17, 12/18, 12/19Revised: 11/4/19 for Fiscal Years Ending On or After 12/31/19

i

TABLE OF CONTENTS

TABLE OF CONTENTS i

FOREWORD iii

MORTGAGOR / GRANTEE’S AUDIT GUIDE Control and Management of the Development 1 Organizational Relationships 1 Reference Material 3 Submission 6 Audit Scope and Approach 7 Definitions 9 Contents of Annual Financial Statements 12

APPENDICES

APPENDIX A SAMPLE AUDITED FINANCIAL STATEMENTS A-1

Appendix A, A-1a MORTGAGOR / GRANTEE CERTIFICATION A-2

Appendix A, A-1b MANAGEMENT AGENT CERTIFICATION A-3

Appendix A, A-2 REPORT ON AUDITED FINANCIAL STATEMENTS AND OTHER VHDA INFORMATION

A-4

Appendix A, A-3 BALANCE SHEET A-6

Appendix A, A-4 STATEMENT OF PROFIT AND LOSS A-9

Appendix A, A-5 STATEMENT OF CHANGES IN OWNER EQUITY A-12

Appendix A, A-6 STATEMENT OF CASH FLOWS A-13

Appendix A, A-7 NOTES TO FINANCIAL STATEMENTS Organization Summary of Significant Accounting Policies Notes Payable and Due To Mortgagor / Grantee Entity Risks and Uncertainties Identity-of-Interest/Related Party Transactions Master Tenant Master Lease(s) & Commercial Space(s)

A-16

Appendix A, A-8 OTHER VHDA INFORMATION Accrued Expenses A-18Accounts and Notes Receivable (Other Than From Tenants) A-19Delinquent Tenant Accounts Receivable A-20

ii

Appendix A, A-8 OTHER VHDA INFORMATION (Continued) Mortgage Reserve Funds (Schedule) Reserve for Replacements Mortgage Reserve Funds (Schedule) Operating Reserve

A-21 A-22

Mortgage Reserve Funds (Schedule) Miscellaneous Reserve A-23 Mortgage Reserve Funds (Schedule) Development-Held Reserve A-24 Schedule of Funds in Financial Institutions A-25 Changes in Fixed Asset Accounts A-26 Accounts Payable (Other Than Trade Creditors & Trade Creditors) A-27 Statement of Surplus Cash / Residual Receipts and Distributions A-28 Instructions for Statement of Surplus Cash / Residual Receipts and

Distributions A-29

Ownership Entity Identification of Engagement Auditor Audit Compliance and Internal Control Questionnaire

A-31 A-32 A-33

Appendix A, A-9

CORRECTIVE ACTION PLAN

A-37

APPENDIX B VHDA CHART OF ACCOUNTS B-1

APPENDIX C VHDA AUDIT GUIDE APPLICABILITY C-1

APPENDIX D SCHEDULES AND REPORTS REQUIRED D-1

APPENDIX E QUICK REFERENCE CHART E-1

iii

FOREWORD

Audited financial statements are one of the primary tools used by the Virginia Housing Development Authority (VHDA) to meet its fiduciary responsibility in overseeing housing programs and assuring the integrity of its financed multifamily portfolio. Asset Managers, as appropriate, will address the areas of noncompliance and internal control weaknesses noted in these statements.

The VHDA Mortgagor/Grantee’s Audit Guide (VHDA Audit Guide) is

neither intended to be a complete manual of procedures, nor is it intended to supplant the auditor’s judgment of audit work required. Suggested formats and requested levels of detail contained herein may not cover all circumstances or conditions encountered in an audit. The auditor should use professional judgment to add supplemental information and to determine the extent of testing necessary to support the opinion in the financial statements. The auditor must address all applicable compliance requirements in the VHDA Audit Guide.

Any substantial deviation from VHDA’s Audit Guide, including formatting changes to schedules and reports, must receive prior written approval of VHDA. Note: The Balance Sheet, Statement of Profit and Loss, and Statement of Cash Flows are required in the VHDA formats. In addition to submission in the audited financial statements, the Balance Sheet and Statement of Profit and Loss must be submitted electronically using the form and associated instructions found at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServi cing/Pages/MFAuditGuide.aspx.

The auditor should contact the Multifamily Servicing or Asset Management staffs of Virginia Housing at (804) 782-1986 if technical assistance is needed pertaining to programs, regulations or operations of VHDA, DHCD, HUD or any other organization with contractual relationships. Appendix E provides a quick reference list to assist in directing calls. In addition the most current version of VHDA’s Audit Guide is available, with all forms in an interactive format, at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServi cing/Pages/MFAuditGuide.aspx. Future updates will be posted on this site.

http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pages/MFAuditGuide.aspx




1 of 22

VIRGINIA HOUSING DEVELOPMENT AUTHORITY MULTIFAMILY PROGRAMS

MORTGAGOR/GRANTEE’S AUDIT GUIDE

Control and Management of the Development

As an inducement to the Virginia Housing Development Authority (VHDA) or the Department of Housing and Community Development (DHCD) to provide financing for a housing development, the Mortgagor/Grantee agrees to be regulated in the manner set forth in a Deed of Trust, Regulatory Agreement, Grant Agreement and/or other regulatory documents. These documents are incorporated in and made a part of the mortgage/grant security. In addition, the Mortgagor/Grantee and the Management Agent agree to conduct the operation and management of the development in accordance with the provisions of the regulatory documents.

Organizational Relationships

VHDA has formal relationships with several federal and state agencies that affect the monitoring of those loans/grants with which these agencies are affiliated and the regulations that are imposed. Often there is more than one type of funding or agency involvement in VHDA loans. Generally, the most stringent requirements for each program are used for compliance purposes.

It is important that auditors determine the nature of the financing and the relationship VHDA has with any other agency involved in the financings of the development(s) of the Mortgagor/Grantee being audited. This will enable the auditor to determine which agency’s rules take precedence not only in program requirements but also for audit purposes. Some basic information on VHDA financing and affiliated agencies follows.

Virginia Housing Development Authority (VHDA) - VHDA provides direct financing of multifamily developments through various programs and financing sources.

Department of Housing and Community Development (DHCD) - VHDA services loan and grant programs for the Commonwealth Priority Housing Fund (CPHF), the HOME program, and the Virginia Housing Trust Fund in coordination with the Department of Housing and Community Development. VHDA has also assisted with the Virginia Housing Partnership Revolving Fund (VHPRF). The VHPRF financed the Affordable Housing Production Program, as well as several individual programs including the Multifamily Rehabilitation, Multifamily Production, SHARE Energy, SHARE Expansion, and Congregate programs. VHDA monitors compliance with DHCD program guidelines, including rent and occupancy restrictions, services the mortgages and

2 of 22

grants, and analyzes financial data (monthly and/or annually). All findings are reported directly to DHCD.

Department of Housing and Urban Development (HUD) - VHDA is the mortgagee for HUD-insured and uninsured loans under several programs.

VHDA has a number of HUD-insured loans in its portfolio. For the majority of

these developments, HUD approves rents, authorizes reserve releases, determines audit procedures, and contracts subsidy administration to a third party vendor. The servicing of HUD-insured loans is either handled directly by VHDA or through a servicing company approved by VHDA. VHDA performs asset management reviews and monitors the financial performance of these developments in its role as a mortgagee.

VHDA is also the mortgagee of Section 236 and Section 8 uninsured loans that were financed through the Housing Finance Agency Set-Aside program. Virginia Housing conducts all servicing of these mortgages/grants in-house. VHDA also serves as the contract administrator for many of its Section 236 and Section 8 uninsured loan portfolio. As mortgagee and contract administrator, VHDA authorizes rent increases and reserve releases, monitors compliance with program requirements, and monitors compliance with the terms of the regulatory documents. The Asset Management staff performs asset management reviews and financial monitoring of the developments. When VHDA is the contract administrator, VHDA pays Housing Assistance Payments (HAP) to the Section 8 developments based on data supplied through the TRACS automated system.

VHDA also administers through administrative agents the Section 8 Mod Rehab and Housing Choice Voucher programs for many localities throughout the Commonwealth of Virginia. The Housing Choice Voucher staff of Virginia Housing handles these programs.

Internal Revenue Service - Section 42 Tax Credits - VHDA is the housing credit agency for Virginia and issues Federal Low-Income Housing Tax Credits under Section 42 of the IRS code. After allocation of tax credits to a development, VHDA staff conducts record and physical inspections to ensure compliance with the IRS monitoring regulations. Discrepancies are reported directly to the IRS.

Department of Behavioral Health and Developmental Services (DBHDS) (formerly DMHMRSAS) - VHDA offers various programs for special needs populations. For these programs, funding is provided in conjunction with Memoranda of Understanding that provide for financial commitments by that agency to ensure the continued viability of the loan. These programs include both assisted and unassisted financing.

3 of 22

Reference Material

The following documents and subsequent addenda, where applicable, are necessary in order to conduct the audit and should be obtained from the Mortgagor/Grantee and/or Management Agent prior to starting the examination.

1. Regulatory Agreement.

2. Deed(s) of Trust.

3. Deed of Trust Note(s) and Note Agreement, if applicable.

4. Housing Management Agreement.

5. Grant Agreement(s).

6. Extended Use Agreement (EUA).

7. Any subsidy contracts (and amendments thereto) in force at the development(s), including, where applicable, Housing Assistance Payments Contract, Rental Assistance Payments Contract, Interest Reduction Payments Contract, etc.

8. Rent schedule(s) in effect during the audited year. For HUD- assisted developments, the signed HUD 92458, Rent Schedule must be obtained. The Management Agent should provide schedules for unassisted developments.

9. Fair Market Rents (FMR’s) and Income Limits applicable to the

audited development(s). FMR’s and Income Limits are available from HUD User at http://www.huduser.org.

10. Final Closing Determinations (CD: 1500) or other closing settlement statements.

11. Notices of default, acceleration, or other regulatory noncompliance.

12. Any mortgage or grant instruments including modification, forbearance, pre-workout, and workout agreements and arrangements.

13. Any contracts for services or supplies executed on behalf of the development(s).

http://www.huduser.org/

4 of 22

14. Confirmation of loan, escrow and reserve balances, principal, interest, escrows, and reserves paid, etc. (VHDA Account Summary Status and Reserve History Report(s)). These reports are available online from VHDA’s Borrower Inquiry application at https://vhd.mfsasp.com/BorrowerInquiryWeb/common/login.jsp. Inquiries regarding access to the application should be directed to (804) 343-5687.

15. Any correspondence related to the latest asset management review and occupancy audit reports (Report of Occupancy Audit Findings, Occupancy Review, and Conclusion) issued by VHDA’s staff. On HUD assisted developments, a copy of the latest HUD- 9834, Management Review for Multifamily Housing Projects, commonly called the MOR (Management Occupancy Review), must be obtained. The Management Agent’s response and supplemental follow-up to any of these reports, if any, must be obtained.

16. On HUD assisted developments, a copy of the Inspection Summary Report, from the most recent physical inspection using the REAC protocol. Attention should be given to the final REAC score, located on the first page of the report, particularly to those scores below 60. Any correspondence related to the inspection or subsequent follow-up or appeal should be obtained.

17. Any applicable HUD Handbooks (and all subsequent updates), including but not limited to HUD 4350.1, Multifamily Asset Management and Project Servicing, HUD 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD 4370.1, Reviewing Annual and Monthly Financial Statements, HUD 4370.2, Financial Operations and Accounting Procedures for Insured Multifamily Projects, HUD 4381.5, The Management Agent Handbook, and HUD Section 8 Renewal Policy Guidebook. Note: Directives, including handbooks, notices, interim notices, and special instructions should be downloaded as needed from several Internet sites, including http://www.gpo.gov, http://www.huduser.org, or http://www.hud.gov. In addition, VHDA instructions for implementing occupancy changes are available at each development. Questions should be addressed to VHDA’s Regional Portfolio Manager contacts in Appendix E.

18. Additional program information, including HUD policy, procedures, and notices are available at HUD Internet sites including http://www.hud.gov and http://www.hud.gov/reac. OMB circulars, forms and compliance supplements can be located on the Internet

https://vhd.mfsasp.com/BorrowerInquiryWeb/common/login.jsp

http://www.gpo.gov/



http://www.hud.gov/

http://www.hud.gov/

http://www.hud.gov/

http://www.hud.gov/reac

5 of 22

at http://www.whitehouse.gov/omb. HUD reference material may be ordered from HUD’s direct distribution system by calling (800) 767-7468, by addressing a letter to: HUD, Customer Service Center, Room B-100, 451 Seventh Street, SW, Washington DC 20410, or by fax at (202) 708-2313.

19. Information on tax credit topics can be found at http://www.huduser.org and http://www.vhda.com.

20. The most current version of any applicable auditing directives and standards, including but not limited to the VHDA Mortgagor/Grantee’s Audit Guide (VHDA Audit Guide), located at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/ MFLoanServicing/Pages/MFAuditGuide.aspx, the U. S. Inspector General’s (U. S. Department of Housing & Urban Development) Audit Guide (Handbook 2000.04 Consolidated Audit Guide for Audits of HUD Programs) available at http://www.hudoig.gov/reports-publications/audit- guides/consolidated-audit-guides, Government Auditing Standards (the Yellow Book) available at http://www.gao.gov/govaud/ybk01.htm, and OMB circulars and subsequent compliance supplements available at http://www.whitehouse.gov/omb.REAC’s Summary of Financial Reporting and Auditing Guidance for HUD Multifamily Program Participants and Independent Auditors (FRAG) is available at https://www.hud.gov/sites/documents/DOC_26323.PDF. Note: Applicability of IG’s Consolidated Audit Guide is referenced in Appendix C.

HUD strongly encourages agencies, owners, accountants, and industry organizations to subscribe to its Multifamily RHIIP listserv email system. The system provides email notification of reference guide revisions and updates as well as important industry announcements. HUD has been recently been relying on listserv to provide information to multifamily owners in lieu of official notification.

21. Virginia Residential Landlord Tenant Act, available at http://www.landlord.com/landlord_law_virginia.htm.

22. All other agreements or correspondence considered pertinent. Particular attention should be given to any correspondence affecting the terms of the Regulatory Agreement or loan documents.

http://www.whitehouse.gov/omb



http://www.vhda.com/




http://www.hudoig.gov/reports-publications/audit-guides/consolidated-audit-guides




http://www.gao.gov/govaud/ybk01.htm

http://www.gao.gov/govaud/ybk01.htm



https://www.hud.gov/sites/documents/DOC_26323.PDF

https://www.hud.gov/sites/documents/DOC_26323.PDF

http://www.landlord.com/landlord_law_virginia.htm

6 of 22

Submission

All audits must be conducted in accordance with generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). VHDA will allow departures from GAAP only for the treatment of depreciation, amortization, and syndication costs. Note: Any such departure must be indicated in the Auditor’s Opinion letter. Virginia Housing will not accept income tax basis audits. Appendices C and D address Audit Guide applicability and reporting requirements of the various programs in VHDA’s portfolio.

VHDA requires that financial statements be prepared and certified by an

independent Certified Public Accountant, unless otherwise excepted by specific programs. The CPA must have no business relationship with the Mortgagor/Grantee except for the performance of the audit, accounting systems work, and tax preparation. An individual who performs manual or automated bookkeeping services and/or maintains the official accounting records is prohibited from performing the audit of a Mortgagor/Grantee. Where Government Auditing Standards apply, the auditor must meet the auditor qualifications of Government Auditing Standards, including the qualifications relating to independence and continuing professional education. Additionally, the audit organization must meet the quality control standards of Government Auditing Standards.

The audit engagement letter or arrangements for the audit between the auditor and Mortgagor/Grantee must allow duly authorized agents of VHDA to examine the auditor’s working papers supporting the audit report. One copy of the complete annual financial statements, including the signed Mortgagor/Grantee and Management Agent Certifications, must be emailed or submitted to the Asset Manager assigned to the development(s) at the following address:

Virginia Housing Development Authority Compliance & Asset Management Department

601 South Belvidere Street Richmond, Virginia 23220

Additionally, the Balance Sheet and Statement of Profit and Loss must be submitted electronically to the asset manager assigned to the development(s). These forms that must be sent to VHDA by email and their associated instructions may be found at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pa ges/MFAuditGuide.aspx.

Submission is required within ninety (90) days after the end of each fiscal year. Extensions must specify extenuating circumstances and must be requested by the Mortgagor/Grantee, in writing, from the assigned Asset Manager. Note: Financial statements for HUD-insured, HUD-decoupled 236 developments, and most Section 8 properties that have gone through an assumption (transfer of physical assets) must be submitted electronically to HUD within the filing deadlines established by HUD. Detailed requirements for transmitting financial statements electronically to HUD are available at http://www.hud.gov/reac. Any questions regarding REAC and their Financial



http://www.hud.gov/reac

7 of 22

Assessment Subsystem (FASS) should be referred to REAC’s technical assistance center at (888) 245-4860. Note: A paper or electronic copy of the audit must be submitted to VHDA within ninety (90) days after the end of the fiscal year.

On developments with construction financing provided by VHDA or DHCD, the initial audit period should cover the date of initial occupancy through the end of the fiscal year of the development(s). On acquisition, bond refunding and rehab financings, the initial audit period should cover from the date of construction (initial) closing (permanent closing if no construction closing) through the end of the fiscal year of the development(s). Typically, the initial audit submission reflects the fiscal year end when the permanent closing occurred. A multi-year audit (i.e., less than 24 months) is acceptable to VHDA. If a multi-year audit is presented, two Statements of Profit and Loss and Statements of Cash Flows must be included (one the partial year; the other a full fiscalyear).

Audit Scope and Approach

The primary purpose of the audit is to report to the Mortgagor/Grantee and VHDA on the financial aspects of the operations of the development(s). The auditor must also report on any failure to comply with VHDA’s and other regulatory requirements. VHDA is interested in the financial solvency of the Mortgagor/Grantee, its ability to meet operating expenses and debt service requirements, and, ultimately, to avoid mortgage default. If there is a master tenant, schedules must be provided to allow VHDA to assess the financial aspects of the development’s operations. Should the auditor during the course of the review have concerns about the solvency of the mortgagor trading as the development(s), such concerns and an evaluation of the extent of the credit risk must be reported in the audit report.

The objectives of the audit are to determine:

1. Whether the financial statements fairly present the financial position of the Mortgagor/Grantee trading as the development(s) and the results of its operations;and

2. Whether operating practices and controls comply with the HUD or VHDA requirements contained in Appendix A, A-8, Other VHDA Information, pages A-18 through A-32, Audit Compliance and Internal Control Questionnaire (Appendix A, A-8, Other VHDA Information, pages A-33 through A-36) and Government Auditing Standards, where applicable.

The audit must be sufficiently comprehensive in scope to permit the expression of an opinion on the financial statements and other VHDA information in the report, and it must be performed in accordance with generally accepted accounting principles and Government Auditing Standards, where applicable, in addition to audit requirements set forth in the VHDA Audit Guide. "Expression of Opinion" includes an unmodified opinion or

8 of 22

a modified opinion. If anything other than an unmodified opinion is given, the reasons for such must be stated and explained in detail.

The opinion must state whether the basic financial statements present fairly the

financial position of the Mortgagor/Grantee trading as the development(s) as of the audit date, and the results of its operations, its cash flows, and its changes in owners’ equity for the period then ended in accordance with generally accepted accounting principles. In addition, the opinion must state that the other VHDA information has been subjected to the audit procedures applied in the audit of the basic financial statements, and whether it is fairly stated in all material respects in relationship to the financial statements taken as a whole. Note: For VHDA purposes, no amounts are considered immaterial.

The auditor must assess the risk of material misstatement of the financial

statements due to fraud and must consider such in designing the audit procedures to be performed. The auditor should consider fraud risk factors contained in the Statement on Auditing Standards (SAS) No. 99, “Consideration of Fraud in a Financial Statement Audit.” If the auditor becomes aware of illegal acts or fraud that have occurred, the auditor must prepare a separate written report and include all questioned costs. The report must be submitted in accordance with Government Auditing Standards, if applicable. A copy of the report must be provided to the VHDA Asset Manager assigned to the development(s).

Where applicable, the auditor is required: 1) to perform tests of controls to evaluate the effectiveness of the design and operation of internal control policy and procedures; 2) to test, review, evaluate and comment on the adequacy of the accounting records and procedures as well as the system of internal controls maintained, including the handling of funds; and 3) to test and report on the Mortgagor/Grantee's compliance with certain specific provisions of the Regulatory Agreement, Housing Management Agreement, and VHDA, DHCD, and HUD regulations and procedures applicable to the operation of the development(s) in order to comply with Government Auditing Standards. Note: The VHDA Audit Compliance and Internal Control Questionnaire is required to be included in all financial statements.

Internal control and compliance reporting is required as specified in Appendix D. Where applicable, compliance reporting in adherence with Government Auditing Standards is required. Compliance requirements and suggested audit procedures detailed in HUD’s audit guide should be used as guidance in performing internal control and compliance reporting. Further, in order that the Mortgagor/Grantee and VHDA may be assured of the effectiveness of the development(s) in meeting its program objectives, an Audit Compliance and Internal Control Questionnaire is provided to guide the auditor in the review of compliance and internal control matters that are of particular interest to VHDA. The auditing firm should examine the following areas: mortgage status, books and records, cash activities, management activities, rents and occupancy, and subsidy payments. The Questionnaire has been designed so that "No" answers may be indicative of an adverse condition that must be described in the audit report. Appendix A, A-9 provides a sample format to be used to respond to all “No” answers. The auditor must also cite alternative conditions that mitigate weaknesses as disclosed by the

9 of 22

Questionnaire. The Audit Compliance and Internal Control Questionnaire must be submitted to VHDA with all financial statements. Note: The mortgagor and auditor determine who will complete the Questionnaire.

Definitions

1. Total Rental Income Potential at 100% Occupancy - The total rent potential shown on the rent roll prior to adjustments for concessions or additional charges such as pet fees, washer/dryers, carports, etc. Rent potential should not exceed the rents for all units based on full occupancy and should exclude any “unrealized potential” such as “loss to old leases” and “street rent” vs. actual rent per lease agreement. Rent potential should delineate residential income from other sources such as commercial spaces.

2. Concessions - Money uncollected because of marketing discounts, promotions, or incentives, including the state tax credit program. Note: Non-income-producing units should be expensed under the appropriate category.

3. Distribution - Any withdrawal or taking of cash or other assets of

the development(s), excluding payment for reasonable expenses necessary and essential to the operation and maintenance of the development(s) (including repayment of owner advances). Distributions include cash or assets segregated for subsequent withdrawal (including funds transferred to mortgagor entity-held accounts), asset management fees, incentive management fees, development fees, or other corporate or mortgagor entity expenses. Distributions are subject to the terms of the Regulatory Agreement or other governing documents. Distribution earnings (return on equity investment) commence upon the permanent (final) closing of the loan, unless otherwise specified in the regulatory documents. The amount of equity investment and the maximum allowable return thereon are initially determined at permanent (final) closing. The maximum allowable distribution may be amended during the term of the mortgage. The auditor must verify any changes to the initial equity determination with the assigned Asset Manager.

Distributions should not be made: 1) from borrowed funds, 2) prior to permanent (final) closing of the mortgage loan/grant, 3) when the development(s) is not in good repair or condition based on VHDA’s or other regulatory entity’s physical inspection or asset management review and subsequent notification by VHDA or its representatives, 4) when the development(s) is in a non-

10 of 22

surplus cash position as defined hereunder, 5) when restricted by a modification agreement, 6) when there is any default under the Regulatory Agreement, Deed of Trust Note and/or other regulatory documents, or 7) when there are any notices of noncompliance issued by VHDA or its representatives. Note: The requirement of a development(s) to be in a surplus cash position prior to making a distribution may have been modified by separate written correspondence from VHDA.

4. Surplus Cash - Cash remaining as of the last day of the fiscal year of the development(s) after all reasonable expenses necessary and essential to the operation of the development(s) have been paid or funds have been set aside for such payment and all reserve requirements have been met. Note: Mortgagor entity cash and obligations must be excluded from the calculation. It includes all funds received by the Mortgagor/Grantee in connection with the operation of the development(s) and remaining after:

a. The payment of:

(1) All sums due under the terms of the Note(s), Deed(s) of Trust, Regulatory Agreement, or other regulatory documents as of the last day of the fiscal year of the development(s);

(2) All amounts required to be deposited in the

Replacement, Miscellaneous and/or Operating Reserves as of the last day of the fiscal year of the development(s); and

(3) All other obligations of the development(s) except to the extent that funds for payment of any such obligations are set aside or deferment of payment has been approved by an Authorized Officer of VHDA; and

b. The segregation of:

(1) An amount equal to the aggregate of all special funds required to be maintained by or with respect to the development(s); and

(2) Resident security deposit liability, including

accrued interest as of the last day of the fiscal year of the development(s).

11 of 22

The surplus cash calculation is specified on the Statement of Surplus Cash/Residual Receipts and Distributions, Appendix A, A-8, page A-28.

5. Identity-of-Interest – Includes a Management Agent and other parties having business relationships with a development(s) owner or any officer, director, partner, member or manager of the Mortgagor/Grantee. Transactions with identity-of-interest relationships occur when there are common controlling equity interests and/or management control between the entities. Such a relationship should be construed to exist when the owner and the Management Agent are not the same person but 1) the development owner; or 2) any officer or director of the development owner; or 3) any person who directly or indirectly controls 10 percent or more of the development owner’s voting rights or directly or indirectly owns 10 percent or more of the development owner; is also 1) an officer or director of the Management Agent; or 2) a person who directly or indirectly controls 10 percent or more of the Management Agent’s voting rights or directly or indirectly owns 10 percent or more of the Management Agent. For purposes of this definition, the term “person” includes any individual, member of the Board of Directors, partnership, corporation, or other business entity. Any ownership, control or interest held or possessed by a person’s spouse, parent, child, grandchild, brother or sister is attributed to that person.

6. Essential, Necessary and Reasonable Expenses - Limited to those obligations specifically incurred directly by the operations and maintenance of the development(s). The auditor will have to make a judgment as to the propriety of development(s) disbursements. However, some expenditures, such as for expenses incurred by the mortgagor entity, the fee for the preparation of a partner's, shareholder's or individual's federal, state or local income tax returns, or the payment for advice to an owner on the tax consequences of foreclosure, clearly are not expenses essential, necessary and reasonable to the operations of the development(s) and, therefore, constitute distributions of development(s) income. Also not allowed as a development(s) expense is the cost of a fidelity bond (other than for on-site staff) or letter of credit required of the agent or Mortgagor/Grantee. The fee for preparation of the federal, state or local income tax returns of the mortgagor entity or corporation is an expense necessary and reasonable to the operations of the development(s).

12 of 22

7. Tenant Eligibility - Each program contains specific eligibility requirements based on income, family size and similar criteria. The criteria, for the most part, are contained on the application forms for tenant eligibility maintained at the development and/or managing agent’s office. The auditor should also have access to the applicable HUD, DHCD, VHDA, and/or other contractual organization handbooks and directives. The auditor should also be familiar with the Fair Market Rents (FMR’s) and Income Limits applicable on the audited development(s). Any tenant eligibility questions that cannot be resolved through these resources should be directed to VHDA’s Occupancy and Program Compliance contacts in Exhibit E.

8. Exit Conference - At the conclusion of the audit, an exit conference is to be held with the Mortgagor/Grantee to discuss the audit findings and obtain comments from the Mortgagor/Grantee on: 1) the accuracy and completeness of the facts presented and whether they agree with the audit conclusions; and 2) any action the Mortgagor/Grantee plans to take or reasons for not taking action. A Corrective Action Plan, if applicable, is required to be submitted by the Mortgagor/Grantee with the financial statements (Appendix A, A-9, pages A-37 and A-38).

Contents of Annual Financial Statements

Please pay particular attention to the requirements for submitting the Statement of Profit And Loss and Balance Sheet. In addition to submission in the audited financial statements, the Balance Sheet and Statement of Profit and Loss must be submitted electronically using the form and associated instructions found at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Page s/MFAuditGuide.aspx. The audited financial statements delivered to VHDA must conform to the contents of the VHDA Audit Guide and must include all schedules and reports as specified in Appendix D. These reports and schedules are defined below and illustrative examples are shown in Appendix A. These examples exhibit preferred formats and requested levels of detail in the presentations. The sample statements presented in the VHDA Audit Guide are designed for a profit-motivated mortgagor/grantee entity. Note: Financial statements for not-for-profit mortgagors/grantees subject to the IG’s Consolidated Audit Guide should follow OMB Circular A-133 Compliance Supplement/Uniform Guidance Compliance Requirements. Financial statements on not- for-profit mortgagors/grantees not subject to IG’s Consolidated Audit Guide must follow the VHDA Audit Guide. Financial Statements on all mortgagors/grantees (profit-motivated and not-for-profit) are required to be in accordance with GAAP.





13 of 22

1. Mortgagor/Grantee Certification. The report must include a certification signed by an authorized official of the Mortgagor/Grantee entity as to the completeness and accuracy of the financial statements and other VHDA information. The official must also 1) indicate whether or not there have been changes in the ownership during the reported year and 2) certify that no additions, deletions and/or changes were made to the electronically submitted formats for the VHDA Balance Sheet and Statement of Profit and Loss. (Appendix A, A-1a, page A-2).

2. Management Agent Certification. The report must include a certification signed by an authorized official of the Management Agent as to the completeness and accuracy of the financial statements and other VHDA information. (Appendix A, A-1b, page A-3).

3. Report On Audited Financial Statements And Other VHDA Information (Independent Auditor’s Report). Appendix A, A-2, pages A-4 and A-5 includes a sample format to be included in the statement. The auditor’s opinion (see pages 7 - 8 of this Audit Guide) must be included in the report.

4. Balance Sheet. This form must be submitted electronically using the form and associated instructions found at http://www.vhda.com/BusinessPartners/PropertyOwnersManag ers/MFLoanServicing/Pages/MFAuditGuide.aspx. The Balance Sheet must reflect all prepaid and deferred items. The security deposit asset must reflect the reconciled cash balance held, and the liability should include accrued interest. A separate Balance Sheet should be included for a master tenant, if appropriate. The VHDA Balance Sheet is required (Appendix A, A-3, pages A-7 and A-8). Note: Mortgagor/Grantee entity related entries must be detailed separately from those of the development(s). (Appendix A, A-3, pages A-7 and A-8).

5. Statement of Profit And Loss. This form must be submitted

electronically using the form and instructions found at http://www.vhda.com/BusinessPartners/PropertyOwnersManag ers/MFLoanServicing/Pages/MFAuditGuide.aspx. A separate Statement of Profit and Loss should be included for a master tenant, if appropriate. The VHDA Statement of Profit and Loss is required (Appendix A, A-4, pages A-10 through A-11). Note: Statement of Profit and Loss account numbers and titles must not be altered.








14 of 22

Appendix B provides descriptive information on VHDA’s prescribed chart of accounts. Note: VHDA has not adopted the revised HUD Chart of Accounts.

The Statement of Profit and Loss must conform to the following requirements:

a. It must be on an accrual basis.

b. It must show total rent revenue potential less vacancies and concessions for both residential units and commercial space(s) to arrive at a net rental income. Net rental income should not include “loss to old leases” or “street rent” vs. actual rent per lease agreement. On Section 8 developments, vacancy loss should be net of vacancy payments made by VHDA. Utility allowances received from VHDA must not be reflected as either an income or expense on the Statement of Profit and Loss. All other income (Account 5990) items must be identified as to type or source if they exceed the account groupings by 10% or more.

c. Any apartments or commercial space occupied but not

producing income must be shown as an expense under the applicable expense classification. Supporting information that identifies such occupants and their connection with the development(s) should be included in the Notes or Other VHDA Information. If no such expense applies, it should be so indicated on the statement.

d. Concessions must be reflected in Account 5280.

e. Any expenses reported as salaries or other compensation to supervisory or administrative employees, officers, directors or stockholders of the Mortgagor/Grantee or Management Agent must be supported by a schedule showing duties and salaries paid.

f. Any receipts from charges for facilities or services other than reimbursement for breakage or damage by tenants must be scheduled if they exceed the account groupings by 10% or more.

15 of 22

g. Amortization expenses related to organizational costs, including loan fees, organizational expenses, etc. must be reflected in Account 6600 rather than Account 6890.

h. All monthly payments required to the Replacement, Operating, and/or Miscellaneous reserves should be shown on Part II, 2. Residual Receipts deposits should be excluded.

i. As the Statement of Profit and Loss is prepared on an accrual basis, items expensed on Part II, 3 should be for those incurred during the year covered by the financial statement. Reimbursements for prior periods (even if paid during the audit year) should be excluded.

j. If a multi-year audit is presented, two Statements of Profit and Loss must be included.

k. Mortgagor/Grantee entity related items can only be

reflected in the 7100 accounts on the Statement of Profit and Loss.

6. Statement Of Changes In Owner's Equity. This should include an explanation of changes in the account other than profit or loss for the operating period. (Appendix A, A-5, page A-12).

7. Statement Of Cash Flows. This statement must be presented using the direct method and must include the reconciled cash at the beginning and the end of the year. Changes in cash flows must differentiate between operating and Mortgagor/Grantee- related activities. Beginning and ending balances for operating and mortgagor entity accounts must be detailed in the Cash and Cash Equivalents portion of the statement. A separate Statement of Cash Flows should be included for a master tenant, if appropriate. The VHDA Statement of Cash Flows is required (include two if multi-year audit) (Appendix A, A-6, pages A-14 and A-15). If a facsimile format is used, it must be identical to the VHDA template. Note: Mortgagor entity distributions and/or contributions must be reflected in the Cash Flows from Financing Activities section on the Statement of Cash Flows. (Appendix A, A-6, pages A-14 and A-15).

8. Notes To Financial Statements. A suggested format is given in the sample report (Appendix A, A-7, pages A-16 and A-17). The notes must address the development(s), program(s), number of units, DHCD/HUD/VHDA relationship, all identity of

16 of 22

interest/related party transactions, maximum distribution, surplus cash, undistributed amount and cumulative distributable to date, handling of depreciation, and loan costs. Funds moved from operating to mortgagor entity accounts are considered distributions and should be reflected in the notes. All notes payable should be covered, including those to VHDA/DHCD (the mortgagee/grantor), to other mortgagees, if any, to the Mortgagor/Grantee entity and to the management company and the method of repayment. A distinction must be made between obligations incurred against syndication proceeds/mortgagor entity advances and those due from development(s) operating funds. The auditor must consider the effect of risks and uncertainties on the financial statement presentation in the notes.

A list should be included of all related parties and/or identity-of- interest companies (per definition cited on page 11 of the VHDA Audit Guide) that have provided, during the last year, labor, materials or services to the development(s). The schedule should include the related firm, the amount paid under contract, and the nature of the contracted business.

Identification of and details relating to a Master Tenant must be specified. Sufficient documentation must be provided to allow an assessment of the financial aspects of the development’s operations.

A list should be included of all commercial tenants and master leases. The tenant, the service provided, and the lease term should be specified for master leases.

The Mortgagor/Grantee and Management Agent have agreed to obtain contract materials, supplies and services at the best possible cost and on the terms most advantageous to the development(s) and to secure and credit to the development(s) all discounts, rebates or commissions obtainable with respect to purchases, service contracts and other transactions on behalf of the development(s). The Mortgagor/Grantee and the Management Agent have agreed that all goods and services purchased from individuals or companies having a related party and/or an identity-of-interest with the Agent, Mortgagor/Grantee or Management Agent should be purchased at costs not in excess of those that would be incurred in making arms-length purchases on the open market.

When required by the loan documents, the Management Agent should have solicited written cost estimates (i.e., bids) from at

17 of 22

least three contractors or suppliers for any work and/or contract, ongoing supply or service arrangement in accordance with the provisions of the Management Agreement. The Management Agent agreed to accept the bid that represented the best price, taking into consideration the bidder's reputation for quality of workmanship or materials and timely performance, and the time frame within which the goods or service was needed. For any contract, ongoing supply or service arrangement obtainable from more than one source, the Management Agent should have solicited oral or written cost estimates, as necessary to assure that the development(s) was obtaining services, supplies and purchases at the best possible cost in accordance with the provisions of the Management Agreement. The Management Agent must have a written record of any oral estimate obtained.

Copies of all required bids and documentation of all other written or oral cost comparisons made by the Management Agent should have been made part of the records of the development(s) and should be retained for three years from the date the work was completed. This documentation is subject to inspection by VHDA, and the Management Agent has agreed to submit such documentation upon request

9. Other VHDA Information. Other VHDA information in the form of explanatory comments or appropriate schedules (Appendix A, A-8, pages A-18 through A-36) must include the following:

a. Accrued Expenses - A statement should be

attached supporting any accrued expenses shown, including description, date(s) due, and amount(s) accrued (separated by development(s) and mortgagor entity). (Appendix A, A-8, Other VHDA Information, page A-18).

b. Accounts And Notes Receivable (Other Than From Tenants) - A complete detailed analysis should be included of any accounts or notes receivable other than tenant accounts, including name of borrower and balance due. Receivables due to the development(s) must be separate from those due to the mortgagor/grantee. (Appendix A, A-8, Other VHDA Information, page A-19).

c. Delinquent Tenant Accounts Receivable - A summary analysis should be made of delinquent tenant accounts, segregated by current and former

18 of 22

tenants. This should include the amounts delinquent for 30 days, 31-60 days, 61-90 days and over 90 days. (Appendix A, A-8, Other VHDA Information, page A-20).

d. Mortgage Reserve Funds Schedules (Replacement, Operating, Miscellaneous and Development-Held) - An analysis (Appendix A, A-8, Other VHDA Information, pages A-21 through A-24) should be made of all required reserve funds including the following:

(1) A statement as to any payments required to the account. If establishment of more than one fund is required, a separate statement must be submitted for each fund. If more than one development is covered in a combined financial statement, there must be individual schedules by reserve per development;

(2) A statement as to interest earned on the reserve during the audit year;

(3) A statement of total withdrawals per

reserve account during the year. The withdrawals must be grouped by those capitalized (as shown on the Changes in Fixed Asset Accounts Report, Appendix A, A-8, Other VHDA Information, page A-26), and those expensed; and

(4) Investment details on reserves not maintained by VHDA must be scheduled including depository and amount. The investment schedule is not required for funds held by VHDA. Confirmation of balances and account activity for reserve funds held by VHDA are available to multifamily customers from VHDA’s online Borrower Inquiry application at https://vhd.mfsasp.com/BorrowerInquiry Web/common/login.jsp.

e. Schedule Of Funds In Financial Institutions - A schedule specifying the financial institution name and account balance must be included in the statement.




19 of 22

Operating and mortgagor entity accounts must be segregated and detailed separately. The year end balance(s) must be the reconciled amount(s). Note: Do not include escrow and reserve funds maintained by VHDA. (Appendix A, A-8, Other VHDA Information, page A-25).

f. Changes In Fixed Asset Accounts - A schedule should be included showing full details and explanations of any changes in fixed asset accounts. (Appendix A, A-8, Other VHDA Information, page A- 26).

g. Accounts Payable (Other Than Trade Creditors & Trade Creditors) - A list of other than trade accounts payable, segregated by those payable within 30 days and more than 30 days must be included. The list should segregate those due to the Mortgagor/Grantee entity, Management Agent, and Others. The amount of accounts payable at least 30 days past due should be specified. Accrued expenses should be shown separately from accounts payable. (Appendix A, A-8, Other VHDA Information, page A-27).

A list of trade accounts payable, segregated by those payable within 30 days and more than 30 days must be included. The amount of accounts payable at least 30 days past due should be specified. Accrued expenses should be shown separately from accounts payable. The list should segregate those payables incurred by the development(s) from those of the Mortgagor/Grantee entity. Note: Any trade creditors that have an identity-of-interest with the Mortgagor/Grantee and/or Management Agent must be identified in the Notes. (Appendix A, A-8, Other VHDA Information, page A-27).

h. Statement Of Surplus Cash / Residual Receipts

and Distributions - A computation in the format shown in the sample statement (Appendix A, A-8, Other VHDA Information, page A-28) showing the amount of surplus cash at the end of the fiscal year, a tabulation of limited distribution payments paid and unpaid, distributions allowed per the regulatory documents and any remaining funds (i.e., Residual Receipts) to be deposited to the Operating Reserve

20 of 22

account, if applicable, is required. Note: Residual Receipts deposits should not be included with the financial statements submission. Deposits are due to VHDA within thirty days after the mortgagee’s written request for such deposit.

Note: Statement of Surplus Cash / Residual Receipts and Distributions (Appendix A, A-8, Other VHDA Information, page A-28) must be used. Instructions (Appendix A, A-8. Other VHDA Information, pages A- 29 and A-30) are attached to the sample form. Do not use HUD Form 93486, Computation of Surplus Cash, Distributions and Residual Receipts, unless the development(s) is HUD-Insured.

i. Unauthorized Distribution Of Development Revenue - If any unauthorized distribution of development(s) revenue is revealed during the audit, a separate schedule must be prepared detailing the amounts involved, date of distributions, and any other relevant information.

j. Ownership Entity - Full details should be included in the initial report concerning the issuance of all stock and/or investments including names of stockholders or investors, proportionate interest of each and whatever consideration is received by corporate or non-corporate developments (considerations should be itemized to show amount of cash, land, services, etc.). Initially, a list should be furnished by the mortgagor/grantee entity consisting of officers, directors and individuals having a financial interest in the development(s). Thereafter, as required by the Regulatory Agreement and/or other loan/grant documents, details should be furnished of any changes in ownership interests and/or positions occurring during the year. Generally, changes in ownership interests would involve any sale, transfer, assignment or substitution of limited partnership interests which in any twelve month period constitute in the aggregate 50% or more of the partnership interests in the Mortgagor/Grantee (the foregoing shall include any sale, transfer, assignment or substitution of ownership interests in any limited partner in the Mortgagor which in any twelve month period constitute in the aggregate 50%

21 of 22

or more of the ownership interests in such limited partner). Note: If no changes have occurred, it should be so noted. (Appendix A, A-8, Other VHDA Information, page A-31).

k. Identification Of Engagement Auditor - A statement specifying the name, mailing address, telephone and fax numbers, and email address of the lead auditor on the engagement must be included in the statements. This contact should be the individual to whom questions on the report can be addressed. (Appendix A, A-8, Other VHDA Information, page A-32).

l. Audit Compliance And Internal Control Questionnaire - The questionnaire shown in Appendix A, A-8, Other VHDA Information, pages A- 33 through A-36, must be completed and must be included in all financial statements submitted to VHDA. The decision who will complete the document is left to the mortgagor/grantee and his/her auditor. If completed by the agent, Management must certify to the completeness and accuracy of the questionnaire in the Management Agent Certification, Appendix A, A-1b. As “no” responses in the questionnaire may be indicative of an adverse condition, management’s plan of action to address such conditions must be included in the Corrective Action Plan, Appendix A, A- 9, pages 37 – 38. Note: Language used in the questionnaire must not be altered.

m. Other - Comments on, and explanations of, all other

Balance Sheet items not fully explained by the title of the account should be a part of the report.

10. Internal Control and Compliance. See pages 8 and 9 of the VHDA Audit Guide. In order to comply with Government Auditing Standards, reports in addition to those specified in this Audit Guide may be required. In addition, a recommended format for use by the Mortgagor/Grantee in completing a Corrective Action Plan, if necessary, is included in Appendix A, A-9, pages A-37 and A-38. Auditors should exercise professional judgment in tailoring their reports to the circumstances of individual audits. VHDA’s Compliance and Internal Control Questionnaire (Appendix A, A-8, Other VHDA Information, pages A-33 through A-36) must be included with all audited financial statements submitted to VHDA.

22 of 22

11. Auditor's Certification. The auditor may be requested by VHDA to justify any material departure from the language in Appendix A, A-2, Independent Auditor’s Report.

APPENDICES

APPENDIX A SAMPLE AUDITED FINANCIAL STATEMENTS

A-1 of 38

MORTGAGOR/GRANTEE ENTITY

t/a DEVELOPMENT NAME(S)

VHDA / DHCD NUMBER(S)

FINANCIAL STATEMENTS

DATE

XYZ and Company

Certified Public Accountants

A-2 of 38

Appendix A, A-1a

MORTGAGOR/GRANTEE CERTIFICATION

We hereby certify that we have examined the accompanying financial statements and other VHDA information of (Mortgagor/Grantee Entity), and to the best of our knowledge and belief, the same is complete and accurate. Additionally, we certify that no additions, deletions, and/or changes were made to the electronically submitted formats for the VHDA Balance Sheet and Statement of Profit and Loss.

There were changes in ownership during the year ended as noted in Other VHDA Information, Ownership Entity.

There were no changes in ownership during the year ended .

(MORTGAGOR/GRANTEE ENTITY)

BY:

Name

Title Date

Name

Title Date

Mortgagor/Grantee Employer/Taxpayer (EIN/TIN) Identification Number:

Mortgagor/Grantee Mailing Address:

Mortgagor/Grantee Telephone:

Mortgagor/Grantee Fax:

Mortgagor/Grantee E-Mail Address:

A-3 of 38

Appendix A, A-1b

MANAGEMENT AGENT CERTIFICATION

We hereby certify that we have examined the accompanying financial statements and other VHDA information of (Mortgagor/Grantee Entity), and to the best of our knowledge and belief, the same is complete and accurate. Additionally, any “No” answers on the Audit Compliance and Internal Control Questionnaire are detailed in the Corrective Action Plan.

(MANAGEMENT AGENT)

BY:

Name

Title Date

Management Agent Employer/Taxpayer (EIN/TIN) Identification Number:

Management Agent Mailing Address:

Management Agent Telephone:

Management Agent Fax:

Management Agent E-Mail Address:

A-4 of 38

Appendix A, A-2

REPORT ON AUDITED FINANCIAL STATEMENTS AND OTHER VHDA INFORMATION

Independent Auditor’s Report

To the Mortgagor/Grantee Entity Mortgagor/Grantee Address Anytown, USA

Virginia Housing Development Authority 601 South Belvidere Street Richmond, VA 23220

Report on the Financial Statements

We have audited the accompanying financial statements of (Mortgagor/Grantee Entity), VHDA / DHCD No(s). , which comprise the balance sheet as of (date), and the related statements of profit and loss, cash flows, and changes in owner’s equity for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial

statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards (if applicable), issued by the Comptroller General of the United States, and the Virginia Housing Development Authority’s Mortgagor/Grantee’s Audit Guide (Guide). Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

A-5 of 38

Report on Audited Financial Statements and Other VHDA Information

Page 2

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of (Mortgagor/Grantee Entity) as of (date), and the results of its operations, its cash flows, and its changes in owners’ equity for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Other VHDA Information

Our audit was conducted for the purpose of forming an opinion on the financial statements as

a whole. The accompanying other information shown on pages to is presented for purposes of additional analysis as required by the Guide and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U. S. Department of Housing and Urban Development, Office of the Inspector General (the Guides) and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

Report Issued in Accordance with Government Auditing Standards.

In accordance with Government Auditing Standards (if applicable), we have also issued a report(s) dated (date) on our consideration of (Mortgagor/Grantee Entity’s) internal control over financial reporting and on our test of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. Also, in accordance with Government Auditing Standards (if applicable) and the Guides, we have also issued a report dated , on (Mortgagor/Grantee Entity’s) internal control over compliance and an opinion on its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters that could have a direct and material effect on a major HUD-assisted program (if applicable). Those reports are an integral part of an audit performed in accordance with Government Auditing Standards (if applicable) and the Guides in considering the entity’s internal control over financial reporting and compliance.

XYZ and Company Certified Public Accountants

Anytown, USA Date

A-6 of 38

Appendix A, A-3

BALANCE SHEET

Note: The VHDA Balance Sheet is accessible at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pa ges/MFAuditGuide.aspx and is required to be emailed to the assigned Asset Manager. A paper copy must be included in the financial statements submission.

The template is available at: http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pa

ges/MFAuditGuide.aspx





A-7 of 38 Form updated 03/25/2011 See Notes to Financial Statements

Appendix A, A-3

BALANCE SHEET

DEVELOPMENT NAME VHDA / DHCD NUMBER(S)

AS OF

A S S E T S

CURRENT ASSETS

Cash on Hand $ -

Cash in Bank $ -

Cash - Investments $ -

Cash - Mortgagor Entity $ -

Accounts Receivable - Tenant $ -

Accounts Receivable - Net HAP $ -

Accounts Receivable - Other $ -

Prepaid Expenses

Property Insurance $ -

Mortgage Insurance $ -

Taxes $ -

Miscellaneous (Attach detail in Other VHDA Information) $ - $ -

DEPOSITS HELD IN TRUST - FUNDED

Tenant Security Deposits $ -

Other Deposits $ - $ -

RESTRICTED DEPOSITS & FUNDED RESERVES

Mortgage Escrow Deposits (Attach detail in Other VHDA Information) $ -

Replacement Reserve $ -

Miscellaneous Reserve $ -

Operating/Residual Receipts Reserve $ -

Development-Held Reserve $ - $ -

FIXED ASSETS

Net Book Value

Land $ -

Land Improvements $ -

Buildings $ -

Equipment $ -

Furniture and Fixtures $ -

Other $ - $ -

OTHER ASSETS

(Attach detail in Other VHDA Information) $ - $ -

TOTAL ASSETS

$ -

A-8 of 38 Form updated 03/25/2011 See Notes to Financial Statements

Balance Sheet

Page 2

LIABILITY & OWNER EQUITY

L I A B I L I T I E S

CURRENT LIABILITIES

Accounts Payable - 30 Days $ -

Accounts Payable - Over 30 Days $ -

Accrued Mortgage Interest Payable - VHDA $ -

Accrued Mortgage Interest Payable - Other $ -

Accrued Interest Payable - Other $ -

Accrued Expenses Not Escrowed $ -

Net HAP Payable $ -

Notes Payable - Short Term $ -

Rent Deferred Credits $ -

VHDA Mortgage Payable $ -

Non-VHDA Mortgage Payable $ -

Miscellaneous Current Liabilites (Attach detail in Other VHDA Information) $ - $ -

DEPOSIT & PREPAYMENT LIABILITIES

Tenant Security Deposits $ -

Other Deposits $ -

Interest Deferred Credit $ - $ -

LONG TERM LIABILITIES

VHDA Mortgage Payable $ -

Non-VHDA Mortgage Payable $ -

Notes Payable (Attach detail in Other VHDA Information) $ - $ -

OTHER LIABILITIES

(Attach detail in Other VHDA Information) $ - $ -

TOTAL LIABILITIES

$ -

O W N E R E Q U I T Y

TOTAL OWNER EQUITY/PARTNERS CAPITAL (DEFICIT)

$ -

TOTAL LIABILITIES & OWNER EQUITY

$ -

Appendix A, A-4

STATEMENT OF PROFIT AND LOSS

Note: The VHDA Statement of Profit and Loss is accessible at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pa ges/MFAuditGuide.aspx and is required to be emailed to the assigned Asset Manager. A paper copy must be included in the financial statements submission.

The template is available at: http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pa

ges/MFAuditGuide.aspx

A-9 of 38





A-10 of 38

Month/Period

VIRGINIA HOUSING DEVELOPMENT AUTHORITY

STATEMENT OF PROFIT AND LOSS

Beginning: Ending:

Development Name

VHDA/DHCD Numbers:

Part I Description of Account Acct. No. Amount

Apartments 5120 $ -

Tenant Assistance Payments 5121 $ -

Rental Furniture and Equipment 5130 $ -

Income Stores and Commercial 5140 $ -

5100 Garage and Parking Spaces 5170 $ -

Flexible Subsidy Income 5180 $ - Miscellaneous Income (attach detail in Other VHDA Information) 5190 $ -

Total Rental Income Potential at 100% Occupancy $ -

Apartments 5220 $ -

Furniture and Equipment 5230 $ -

Vacancies Stores and Commercial 5240 $ -

5200 Garage and Parking Spaces 5270 $ - Concessions 5280 $ -

Miscellaneous (attach detail in Other VHDA Information) 5290 $ -

Total Vacancies $ -

Net Rental Income - Rental Income Less Vacancies $ -

Elderly and Congregate Services Income -- 5300

5300

$ -

$ - Total Service Income (attach detail in Other VHDA Information)

Interest Income--Development Operations 5410 $ -

Financial Income from Investments--Residual Receipts 5430 $ -

Income Income from Investments--Reserve for Replacements 5440 $ -

5400 Income from Investments--Miscellaneous 5490 $ - Total Financial Income $ -

Laundry and Vending 5910 $ -

NSF and Late Charges 5920 $ -

Other Damages and Cleaning Fees 5930 $ -

Income Forfeited Tenant Security Deposits 5940 $ -

5900 Other Income (attach detail in Other VHDA Information) 5990 $ - Total Other Income $ -

Total Income $ -

Advertising 6210 $ -

Other Administrative Expenses 6250 $ -

Office Salaries 6310 $ -

Office Supplies 6311 $ - Office or Model Apartment Rent 6312 $ -

Administrative Management Fee 6320 $ -

Expenses Manager's or Superintendent's Salaries 6330 $ -

6200/6300 Manager's or Superintendent's Rent Free Unit 6331 $ -

Legal Expenses (Development) 6340 $ -

Auditing Expenses (Development) 6350 $ - Bookkeeping Fees/Accounting Services 6351 $ -

Telephone and Answering Service 6360 $ -

Bad Debts 6370 $ - Miscellaneous Administrative Expenses (attach detail in Other VHDA Information) 6390 $ -

Total Administrative Expenses $ -

Fuel Oil/Coal 6420 $ -

Utilities Electricity (Light and Miscellaneous Power) 6450 $ -

Expense Water 6451 $ -

6400 Gas 6452 $ - Sewer 6453 $ -

Total Utilities Expense $ -

A-11 of 38

Janitor and Cleaning Payroll 6510 $ -

Janitor and Cleaning Supplies 6515 $ -

Janitor and Cleaning Contract 6517 $ - Exterminating Payroll/Contract 6519 $ -

Exterminating Supplies 6520 $ -

Operating and Garbage and Trash Removal 6525 $ -

Maintenance Security Payroll/Contract 6530 $ -

Expenses Grounds Payroll 6535 $ -

6500 Grounds Supplies 6536 $ - Grounds Contract 6537 $ -

Repairs Payroll 6540 $ -

Repairs Materials 6541 $ - Repairs Contract 6542 $ -

Elevator Maintenance/Contract 6545 $ -

Heating/Cooling Repairs and Maintenance 6546 $ - Swimming Pool Maintenance/Contract 6547 $ -

Snow Removal 6548 $ -

Decorating Payroll/Contract 6560 $ - Decorating Supplies 6561 $ -

Vehicle and Maintenance Equipment Operation and Repairs 6570 $ -

Miscellaneous Operating and Maintenance Expenses 6590 $ - Total Operating and Maintenance Expenses $ -

Real Estate Taxes 6710 $ -

Payroll Taxes (Development's Share) 6711 $ - Miscellaneous Taxes, Licenses and Permits 6719 $ -

Taxes Property and Liability Insurance (Hazard) 6720 $ -

and Fidelity Bond Insurance 6721 $ -

Insurance Workmen's Compensation 6722 $ -

6700 Health Insurance and Other Employee Benefits 6723 $ -

Other Insurance (attach detail in Other VHDA Information) 6729 $ - Total Taxes and Insurance $ -

Interest on Bonds Payable 6810 $ -

Interest on Mortgages Payable - VHDA 6820 $ - Interest on Mortgages Payable - Other 6825 $ -

Financial Interest on Notes Payable (Short -Term) 6830 $ -

Expenses Interest on Notes Payable (Long -Term) 6840 $ -

6800 Mortgage Insurance Premium/Service Charges 6850 $ -

Miscellaneous Financial Expenses 6890 $ -

Total Financial Expenses $ -

Services Total Services Expenses (attach detail in Other VHDA Information) 6900 $ - $ -

Expenses Total Cost of Operations Before Depreciation $ -

6900 Profit (Loss) Before Depreciation $ -

Depreciation Depreciation (Total)---6600 6600 $ - $ -

6600 Operating Profit or (Loss) $ -

Officer Salaries 7110 $ -

Corporate or Legal Expenses (Entity) 7120 $ -

Mortgagor Taxes (Federal - State - Entity) 7130-32 $ -

Entity Other Expenses (Entity) 7190 $ -

Expenses Total Corporate Expenses $ -

7100 Net Profit or (Loss) $ -

Miscellaneous or Other Income and Expense Sub-account Groups. If Miscellaneous or Other Income and/or Expense Sub-accounts (5190, 5290, 5490, 5990,

6390, 6590, 6729, 6890 and 7190) exceed the Account Groupings by 10% or more, attach Other VHDA Information describing or explaining the Miscellaneous

Income or Expense.

Part II

1a. Total principal payments required under the VHDA mortgage(s), even if payments under a Workout Agreement are $ -

less or more than those required under the mortgage(s).

1b. Total principal payments required under non-VHDA mortgage(s), even if payments under a Workout Agreement are $ -

less or more than those required under the mortgage(s).

2. Replacement, Miscellaneous and Operating Reserve deposits required by the Regulatory Agreement or Amendments $ -

thereto, even if payments may be temporarily suspended or waived.

3. Replacement, Miscellaneous or Operating Reserve releases included as expense items on this Profit and Loss Statement. $ -

4. Development Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on $ -

this Profit and Loss Statement.

Appendix A, A-5

STATEMENT OF CHANGES IN OWNER'S EQUITY


AS OF

Beginning of Year

$0.00

Add:

Net Income $0.00

Contributions $0.00

Other $0.00 $0.00

Deduct:

Distributions $0.00

End of Year

$0.00

See Notes to Financial Statements

A-12 of 38

Appendix A, A-6

STATEMENT OF CASH FLOWS

Note: An identical facsimile format of the following document is required to be included in the audited financial statements.

The template is available at

http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServi cing/Pages/MFAuditGuide.aspx

A-13 of 38



A-12 of 51

Appendix A, A-6

STATEMENT OF CASH FLOWSDEVELOPMENT NAME

VHDA / DHCD NUMBER(S)AS OF ______________

Cash Flows From Operating Activities:Revenue: Rental Receipts Interest Receipts Other Receipts

Total Revenue $0.00

Expenditures: Administrative Management Fees Utilities Salaries and Wages Operating and Maintenance Real Estate Taxes and Escrow Deposits Property Insurance Miscellaneous Taxes and Insurance Tenant Security and Other Deposits Interest on Mortgage

Total Expenditures $0.00

Net Cash Provided By (Used In) Operating Activities $0.00

Cash Flows From Investing Activities: Deposits to Replacement Reserve Withdrawals from Replacement Reserve Deposits to Miscellaneous Reserve Withdrawals from Miscellaneous Reserve Deposits to Operating Reserve Withdrawals from Operating Reserve Purchase of Property and Equipment Deposits to Development-Held Reserve Withdrawals from Development-Held Reserve Other (Schedule)

Net Cash Used In Investing Activities $0.00


A-13 of 51

Statement of Cash FlowsPage 2

Cash Flows From Financing Activities: Mortgage Principal Payments Distribution from Operating Account(s) Distribution from Mortgagor Entity Account(s) Contributions from Mortgagor Entity Other (Schedule) Net Cash Used In Financing Activities $0.00

Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash $0.00

Cash, Cash Equivalents and Restricted Cash: Beginning of Period Operating Account(s) _____________________ Mortgagor Entity Account(s) _____________________ Restricted Cash _____________________ End of Period $0.00 Operating Account(s) _____________________ Mortgagor Entity Account(s) _____________________ Restricted Cash _____________________

Cash Flows From Operating Activities:

Net Profit (Loss)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation Amortization Bad Debt Provision Other (Schedule) (Increase) Decrease in Accounts Receivable - Tenant (Increase) Decrease in Prepaid Insurance (Increase) Decrease in Prepaid Mortgage Payments (Increase) Decrease in Cash Restricted for Tenant Security Deposits (Increase) Decrease in Accounts Receivable - Other (Increase) Decrease in Tax and Insurance Escrow Increase (Decrease) in Accounts Payable Increase (Decrease) in Accrued Liabilities Increase (Decrease) in Excess Rent Due to HUD Increase (Decrease) in Tenant Security Deposits Increase (Decrease) in Deferred Revenue

Total $0.00

Net Cash Provided By (Used In) Operating Activities $0.00


A-16 of 38

Appendix A, A-7

NOTES TO FINANCIAL STATEMENTS SAMPLE

DEVELOPMENT NAME VHDA / DHCD NUMBER(S) AS OF

1. Organization

The (Mortgagor/Grantee entity) is organized as a (type of organization) formed (date) to acquire an interest in real property in (city, state) and to construct and operate thereon an apartment complex of units/beds under Section of the National Housing Act (if applicable). Such developments are regulated by (indicate regulatory organization) as to rent charges and operating methods. The regulatory documents limit/do not limit distributions of net operating receipts to % (indicate applicable limitation) of approved equity.

The maximum distributable amount for the year ended (date) was $ and surplus cash amounted to $ . Of the distributable amount, operating cash was decreased by $ for the current audit year, and operating cash was decreased by $ for prior year(s). Undistributed amounts are/are not cumulative and may/may not be distributed in subsequent years if future operations provide surplus cash in excess of current requirements. If applicable, the cumulative amount distributable at (date) was $ .

2. Summary Of Significant Accounting Policies

The following significant accounting policies have been followed in the preparation of the financial statements:

Depreciation is provided using the straight-line method over the estimated useful lives of the assets.

Deferred loan costs consist of fees for obtaining the VHDA mortgage loan and are being amortized on the straight-line method over the life of the mortgage loan.

(Optional) Income or loss of the Mortgagor/Grantee entity is allocated at % to (general partners, limited partners, stockholders, others, etc.). No income tax

provision has been included in the financial statements since income or loss of the Mortgagor/Grantee entity is required to be reported by the corporation, etc.) on their/its income tax return(s).

(partners,

A-17 of 38

Notes To Financial Statements Page 2

3. Notes Payable And Due To Mortgagor/Grantee Entity

The % mortgage note is payable in monthly installments of $ (including interest) through (date). The apartment development is pledged as collateral for the note.

The amount due to the principals of the Mortgagor/Grantee represents temporary advances, which in accordance with provisions of the Mortgagor/Grantee’s organizational documents, are non-interest/interest bearing obligations reimbursable by the Mortgagor/Grantee entity from cash flow beginning in (year) if permitted by VHDA; otherwise, from proceeds of refinancing or sale of the development.

4. Risks And Uncertainties

Financial instruments that potentially subject the Mortgagor/Grantee entity to concentration of credit risk consist principally of temporary cash investments and restricted deposits and funded reserves held by the mortgagee. The Mortgagor/Grantee entity places its temporary cash investments with high credit quality financial institutions, and limits the amount of temporary cash investments held at any one financial institution. At

(date), the Mortgagor/Grantee entity had cash investments in one bank in excess of FDIC limits. Restricted deposits and funded reserves of $ are administered by the mortgagee.

5. Identity-of-Interest/Related Party Transactions

, an affiliate of the (Mortgagor/Grantee), provided (specify type) services for (enter amount).

As of (date), (enter amount) had been paid and (enter amount) was accrued and unpaid.

6. Master Tenant

Name of Master Tenant Relationship with Mortgagor

7. Master Lease(s) and Commercial Space(s)

The following is a list of commercial tenants and master leases associated with the development.

Tenant(s) Service(s) Provided Lease Term(s)

A-18 of 38

Appendix A, A-8

OTHER VHDA INFORMATION

ACCRUED EXPENSES - DEVELOPMENT NAME

Description Date Due Amount Accrued

Total $0.00

ACCRUED EXPENSES - MORTGAGOR ENTITY

Description Date Due Amount Accrued

Total $0.00

Appendix A, A-8


ACCOUNTS AND NOTES RECEIVABLE - DEVELOPMENT NAME

(OTHER THAN FROM TENANTS)

Name of Borrower Balance Due

Total $0.00

ACCOUNTS AND NOTES RECEIVABLE - MORTGAGOR ENTITY (OTHER THAN FROM TENANTS)

Name of Borrower Balance Due

Total $0.00

A-19 of 38

A ppendix A, A- 8


DELINQUENT TENANT ACCOUNTS RECEIVABLE

DE VELOPMENT N AME

Days

Amount Past Due

Amount Past Due

Delinquent Current Tenants Former Tenants

30 Days

31 - 60 Days

61 - 90 Days

Over 90 Days

Total

$0.00

$0.00

A-20 of 38

A-21 of 38

Appendix A, A-8


MORTGAGE RESERVE FUNDS - DEVELOPMENT NAME

(SCHEDULE)

Reserve for Replacements

In accordance with the provisions of the Regulatory Agreement or other regulatory documents, restricted cash is held by VHDA

to be used for replacement of property with the approval of VHDA, as follows:

Balance As of (Prior Fiscal Year End Date) $0.00

Monthly Deposits $0.00 X Months + $0.00 X Months $0.00

Interest Earned (Current Year) $0.00

Total $0.00

Withdrawals (Capitalized) $0.00

Withdrawals (Expensed) $0.00

Total $0.00

Balance as of (Fiscal Year End Date)

Confirmed by Mortgagee/Grantor

$0.00

SCHEDULE OF REPLACEMENT RESERVE FUNDS IN FINANCIALINSTITUTIONS (Reserves Not Held by VHDA)

Financial Institution Amount

$0.00

$0.00

$0.00 $0.00

$0.00

Total $0.00

Note: If more than one development is covered in a combined financial statement, there must be individual schedules by reserve

by development.

A-22 of 38

Appendix A, A-8



(SCHEDULE)

Operating Reserve

Operating Reserves are held by VHDA in a restricted account and may be disbursed only as provided in the Regulatory Agreement

or other regulatory documents with the approval of VHDA, as follows:




Total $0.00



Total $0.00



$0.00

SCHEDULE OF OPERATING RESERVE FUNDS IN FINANCIAL INSTITUTIONS (Reserves Not Held by VHDA)


$0.00

$0.00

$0.00

$0.00 $0.00

Total $0.00


by development.

A-23 of 38

Appendix A, A-8



(SCHEDULE)

Miscellaneous Reserve

Miscellaneous Reserves are from time to time established by VHDA to address specific recurring needs of the development not

covered by the Reserve for Replacements. The restricted cash is held by VHDA and release of funds is subject to the approval

of VHDA, as follows:




Total $0.00



Total $0.00



$0.00

SCHEDULE OF MISCELLANEOUS RESERVE FUNDS INFINANCIAL INSTITUTIONS (Reserves Not Held by VHDA)


$0.00 $0.00

$0.00

$0.00 $0.00

Total $0.00


by development.

A-24 of 38

Appendix A, A-8



(SCHEDULE)

Development-Held Reserve

From time to time, VHDA will allow a portion of reserves to be held by the development. Use of the reserves is subject to

predetermined terms between the mortgagor, management agent and VHDA, as follows:




Total $0.00



Total $0.00



$0.00

SCHEDULE OF DEVELOPMENT-HELD RESERVE FUNDS IN FINANCIAL INSTITUTIONS (Reserves Not Held by VHDA)


$0.00 $0.00 $0.00 $0.00 $0.00

Total

$0.00


by development.

Appendix A, A-8

OTHER VHDA INFORMATION SAMPLE

SCHEDULE OF FUNDS IN FINANCIAL INSTITUTIONS

DEVELOPMENT NAME

Financial Institution

Amount

$0.00

A-25 of 38

Appendix A, A-8


CHANGES IN FIXED ASSET ACCOUNTS - DEVELOPMENT NAME

ASSETS ACCUMULATED DEPRECIATION

Net

Book

Balance Balance Balance Current Balance Value

(Date) Additions Deductions (Date) (Date) Provisions Deductions (Date) (Date)

Land $0.00 $0.00 $0.00

Land Improvements $0.00 $0.00 $0.00

Buildings $0.00 $0.00 $0.00

Equipment $0.00 $0.00 $0.00

Furniture and Fixtures $0.00 $0.00 $0.00

Other $0.00 $0.00 $0.00

TOTALS $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

A-26 of 38

Appendix A, A-8


ACCOUNTS PAYABLE OTHER THAN TRADE CREDITORS DEVELOPMENT NAME

Due Mortgagor/Grantee

Payable Within 30 Days * $0.00 *

Payable in More Than 30 Days $0.00

Balance $0.00

* Of this amount, $ is past due.

Due Management Agent



Balance $0.00


Due Others



Balance $0.00


ACCOUNTS PAYABLE TRADE CREDITORS

DEVELOPMENT NAME

Payable Within 30 Days *

$0.00

*


Balance $0.00


A-27 of 38

Appendix A, A-8


STATEMENT OF SURPLUS CASH / RESIDUAL RECEIPTS AND DISTRIBUTIONS

DEVELOPMENT NAME

Cash

Operating Account - Cash in Bank $0.00 Operating Account - Investments $0.00 Operating Account - Cash On Hand $0.00

Security Deposit Account $0.00

Net HAP Receivable $0.00

Other (Attach detail in Other VHDA Information) $0.00

TOTAL CASH

$0.00 Current Obligations

Mortgage Interest Payable First of Next Month $0.00 Accounts Payable (Due Within 30 Days) $0.00 Accrued Expenses Not Escrowed $0.00

Tenant Security Deposits $0.00

Net HAP Payable $0.00

Prepaid Rent $0.00

Other (Attach detail in Other VHDA Information) $0.00

TOTAL CURRENT OBLIGATIONS $0.00

Surplus Cash $0.00

Distribution / Residual Receipts (Limited Distribution Developments Only)

Beginning Balance: Accrued Distributions From Prior Year(s) Unpaid $0.00 Distribution Earned During Audit Year $0.00 Distribution Paid During Audit Year Against Audit Year $0.00

Distribution Paid During Audit Year Against Prior Year(s) $0.00

Ending Balance: Distributions Unpaid From Audit Year and Prior $0.00

Year(s) at Audit Year End

Allowable Distribution to be Paid From Audit Year $0.00

Allowable Distribution to be Paid From Prior Year(s) $0.00

Total Allowable Distributions to be Paid as of Audit Year End $0.00

Residual Receipts to be Deposited into Operating Reserve Account $0.00

Revised 11/10 A-28 of 38

A-29 of 38

INSTRUCTIONS FOR STATEMENT OF SURPLUS CASH / RESIDUAL RECEIPTS AND DISTRIBUTIONS

NOTE: The Statement of Surplus Cash / Residual Receipts and Distributions should only reflect assets of and

liabilities against operational funds. Mortgagor Entity expenses and accounts must not be reflected herein.

CASH

Operating Account - Cash in Bank Reconciled balance in operating account at fiscal year end. Exclude mortgagor entity and construction accounts not available for operations.

Operating Account - Investments Invested operating cash not included in above balance available for operations. Do not include VHDA or Mortgagor/Grantee - held operating reserve accounts. Exclude mortgagor entity and construction accounts not available for operations.

Operating Account - Cash On Hand Petty cash.

Security Deposit Account Amount in security deposit account.

Net HAP Receivable Subsidy due development at year end after deduction of mortgage payment, if applicable.

Other (Schedule) Specify details and amounts of other cash available for operations.

CURRENT OBLIGATIONS

Mortgage Interest Payable First of Next Month Interest accrued for last month of fiscal year per Balance Sheet.

Accounts Payable (Due Within 30 Days) Per Balance Sheet. Include all past due accounts as well as those due within 30 days. Include any deferred management fees.

Accrued Expenses Not Escrowed Accrued wages, taxes and other expenses not escrowed per Balance Sheet. Escrow overdrafts (i.e., negative balances confirmed by Mortgagee/Grantor) may be included in this line item. Note: Do not include projected escrow shortages.

Tenant Security Deposits Per Balance Sheet.

Net HAP Payable Refund due VHDA of subsidy shortfall resulting from deduction of mortgage payment at year end, if applicable.

Prepaid Rent Amount of rent received that applies to future accounting periods.

Other (Attach detail in Other VHDA Information) Specify details and amounts of other current obligations.

Surplus Cash Total Cash less Total Current Obligations.

A-30 of 38

Statement of Surplus Cash/Residual Receipts and Distributions Page 2

DISTRIBUTIONS / RESIDUAL RECEIPTS (LIMITED DISTRIBUTION DEVELOPMENTS ONLY)

Beginning Balance: Accrued Distribution From Prior Year(s) Unpaid

Reference prior year ending balance as adjusted by VHDA, if applicable.

Distribution Earned During Audit Year Limited distributions are initially determined on the Final Closing Determinations (VHDA Form No. CD:1500) and can range from 6% to 20% of approved equity. It is essential that auditors review both the Final Closing Determinations and the Regulatory Agreement and subsequent amendments prior to completing this line item.

Distribution Paid During Audit Year Against Audit Year Total amount of distribution paid during the audit year against amount of distribution earned during audit year.

Distribution Paid During Audit Year Against Prior Year(s)

Total amount of distribution paid during the audit year against accrued distributions from prior year(s).

Ending Balance: Distributions Unpaid From Audit Year and Prior Year(s) at Audit Year End

Total amount of distributions earned but unpaid during audit and prior year(s).

Allowable Distribution to be Paid From Audit Year Total amount of distribution earned but unpaid during audit year.

Allowable Distribution to be Paid From Prior Year(s) If applicable, the lesser of: 1) two percent (2%) of VHDA approved equity or 2) total accrued distributions from prior year(s) unpaid, unless otherwise stated in the Regulatory Agreement.

Total Allowable Distributions to be Paid as of Audit Year End

The lesser of: 1) allowable distribution to be paid from audit year plus allowable distribution to be paid from prior year(s) or 2) the amount of surplus cash at audit year end.

Note: For all developments, distributable surplus cash may be limited due to outstanding mortgagor advances, workout agreements, non-compliance with the regulatory documents or other agreement between the Mortgagor/Grantee and VHDA. Such exceptions should be included in the Notes to Financial Statements.

Residual Receipts to be Deposited into Operating Reserve Account

Surplus Cash less Total Allowable Distribution to be Paid as of Audit Year End. Deposits are due within thirty days after the Mortgagee/Grantor’s written request for such deposit.

Appendix A, A-8


OWNERSHIP ENTITY

DEVELOPMENT NAME

There were no changes in ownership interests during the year ended .

OR

The following changes in ownership interests occurred during the year ended :

(detail changes)

Note: If this is the initial report, please provide ownership entity details as specified on page 20 in the Guide.

A-31 of 38

A-32 of 38

Appendix A, A-8


IDENTIFICATION OF ENGAGEMENT AUDITOR DEVELOPMENT NAME

Auditing Firm:

Lead Auditor:

*Primary Contact:

Office Mailing Address:

Office Telephone Number:

Office Fax Number:

E-mail Address:

*Note:This contact should be the individual to whom questions on the report can be addressed. If theLead Auditor is not the appropriate person to contact, please indicate the primary contact person.

A-33 of 38

Appendix A, A-8


SAMPLE

AUDIT COMPLIANCE AND INTERNAL CONTROL QUESTIONNAIRE

DEVELOPMENT NAME

VHDA/DHCD NUMBER(S)

FOR YEAR ENDED

Answers to the questions below are complete and accurate to the best of the preparer’s knowledge and belief. "No" answers may be indicative of an adverse condition. Management’s response and a plan of action to any adverse findings must be included in Appendix A, A-13, Corrective Action Plan.

Examination Item Reference

Yes, No Or N/A

1. Mortgage Status

a. Are payments on the mortgage current?

b. Has the Mortgagor/Grantee complied with the terms and conditions of the modification, forbearance and/or workout agreement?

c. If the workout agreement or subsequent correspondence

requires periodic deposits of surplus cash, were such deposits made within thirty days after the end of the specified period?

2. Books and Records

a. Are a complete set of books and records maintained in a satisfactory manner?

b. Does the Mortgagor/Grantee make frequent postings (at least monthly) to the ledger accounts?

3. Cash Activities

a. Are the cash receipts deposited in an account in the name of the development?

b. Are all account balances federally insured?

c. If a centralized account is used, can all deposits and disbursements be reconciled to the audited development?

A-34 of 38


Yes, No Or N/A

d. On assisted developments, are security deposits kept in an account separate and apart from all other funds of the development?

e. On assisted developments, does the balance in the security

deposit account equal or exceed the liability? Note: The liability should include the accrued interest payable.

f. If required by the VHDA Housing Management Agreement, does a fidelity bond exist in an amount at least equal to potential collections for two months (one month on Section 8 uninsured developments) that provides coverage for all employees handling cash?

g. Did cash disbursements exclude payments for items listed below:

(1) Legal expenses incurred in the sale of ownership interest?

(2) The fee for the preparation of a mortgagor’s (partner’s,

shareholder’s, individual’s. etc.) federal, state or local income tax returns?

(3) Expenses for advice to a mortgagor on tax consequences of foreclosure?

(4) Reimbursement to the mortgagor or affiliates for prior advances, capital expenditures and/or development acquisition costs while the mortgage/grant is in default, under modification, forbearance or provisional workout arrangements?

(5) Were all disbursements from the operating account(s) made exclusively for operations or obligations of the development?

h. Were distributions made to, or on behalf of, the mortgagor limited to those authorized by the Regulatory Agreement or were the distributions made in accordance with prior written approval of VHDA, while the development was in a "surplus cash" position?

A-35 of 38


(1) If development was operating under a modification or forbearance agreement and/or a provisional workout arrangement, is it not in a "surplus cash" position for the

Yes, No Or N/A

purposes of distributions?

(2) In the use of rental proceeds to pay for costs included in the Mortgagor/Grantee's costs certification, are there no unauthorized distributions of development income?

i. Were residual receipts deposited with the mortgagee within thirty days after mortgagee’s request for such deposit?

j. Were excess rental collections in Section 236 developments remitted to HUD each month?

k. Does the Mortgagor/Grantee have a formal rent collection policy?

l. Is the collection policy uniformly enforced?

m. Is there a formal procedure for the write-off of bad debts?

n. Have write-offs of tenants' accounts been less than five percent of the gross rent?

o. Are accounts receivable other than tenants' receivables composed exclusively of amounts due from unrelated persons or firms?

p. Were there indications that payments for services, supplies or materials were not substantially in excess of amounts normally paid for such services in order to assure the most advantageous terms for the development?

q. Were accounts payables remitted in a timely manner as not to incur late charges/penalties?

4. Management Compensation

a. Was compensation to the Management Agent limited to the amounts prescribed in the Management Agreement?

b. Did Management Agent not charge development for expenses that the Management Agreement requires them to pay?

A-36 of 38


Yes, No Or N/A

5. Rents and Occupancy

a. On unassisted developments, is the gross potential rental income from apartments equal to or less than that shown on the most recent rent schedule(s), if applicable, maintained by the Management Agent?

b. On an unassisted development with federal tax credits, are rents in conformance with Federal Low Income Housing Tax Credit (IRS Section 42) program guidelines and the Extended Use Agreement (EUA)?

c. On assisted developments, are dwelling unit rents the same as those approved by VHDA on the most recent Rent Schedule, HUD No. 92458?

6. VHDA/HUD Subsidy Payments (Section 8/RAP Developments Only)

a. Were the amounts requested from VHDA/HUD adequately supported by the accounting records?

b. Were subsidy receipts recorded in the proper accounts?

c. Were utility allowance payments paid to residents within five business days of receipt from VHDA and in an amount equal to the corresponding utility allowance subsidy amounts received?

d. Were all uncashed utility allowance payments refunded to

VHDA (via a Part II adjustment to the monthly Housing Assistance Payment) within six months of initial issuance by VHDA?

Prepared By: Company

A-37 of 38

Appendix A, A-9

CORRECTIVE ACTION PLAN (Recommended Format to be Followed

by the Mortgagor/Grantee)


AUDITOR / AUDIT FIRM FOR YEAR ENDED

Section I: Internal Control Review

A. Comments on Findings and Recommendations

The Mortgagor/Grantee should provide a statement of concurrence or nonconcurrence with the findings and recommendations. If the Mortgagor/Grantee does not agree with a finding, specific information should be provided by the Mortgagor/Grantee to support its position. If the information is voluminous, an appendix may be attached to the submission.

B. Actions Taken or Planned

The Mortgagor/Grantee should detail actions taken or planned to correct deficiencies identified in the report. Appropriate documentation should be submitted for actions taken. For planned actions, Mortgagors/Grantees should provide projected dates for completion of major tasks. Individuals responsible for completing the proposed actions should also be identified. If the Mortgagor/Grantee believes a corrective action is not required, a statement describing the reasons should be included.

C. Status of Corrective Actions on Prior Findings

The Mortgagor/Grantee must comment on all prior findings whether or not corrective action has been completed. The Mortgagor/Grantee should provide a report on the status of corrective actions taken on prior findings that remain open. An update should be included on dates for completion of major tasks and responsible individuals for any actions not completed. In addition, documentation should be submitted for any actions the mortgagor/grantee considers completed.

A-38 of 38

Corrective Action Plan Page 2

Section II: Compliance Review

A. Comments on Findings and Recommendations

The Mortgagor/Grantee should provide a statement of concurrence or nonconcurrence with the findings and recommendations. If the Mortgagor/Grantee does not agree with a finding, specific information should be provided by the Mortgagor/Grantee to support its position. An appendix may be attached to the submission, as necessary.

B. Actions Taken or Planned

The Mortgagor/Grantee should detail actions taken or planned to correct deficiencies identified in the report. Appropriate documentation should be submitted for actions taken. For planned actions, Mortgagors/Grantees should provide projected dates for completion of major tasks. Individuals responsible for completing the proposed actions should also be identified. If the Mortgagor/Grantee believes a corrective action is not required, a statement describing the reasons should be included.

C. Status of Corrective Actions on Prior Findings

The Mortgagor/Grantee must comment on all prior findings whether or not corrective actions have been completed. The Mortgagor/Grantee should provide a report on the status of corrective actions taken on prior findings that remain open. An update should be included on dates for completion of major tasks and responsible individuals for any actions not completed. In addition, documentation should be submitted for any actions the Mortgagor/Grantee considers completed.

APPENDIX B

VHDA CHART OF ACCOUNTS

B-1 of 22

VIRGINIA HOUSING DEVELOPMENT AUTHORITY MULTIFAMILY PROGRAMS

CHART OF ACCOUNTS

Introduction

This appendix lists and defines the prescribed uniform chart of accounts used by owners of all VHDA direct loan developments. To assure that development accounting transactions are properly recorded and classified, development bookkeepers must familiarize themselves with the account definitions contained in this section.

Organization of the Chart of Accounts

The VHDA Chart of Accounts uses account categories prescribed by generally accepted accounting principles.

A. The VHDA Chart of Accounts is organized to provide complete and comprehensive development records. Since the development’s annual financial statements are prepared on an accrual basis, VHDA encourages owners/Management Agents to keep development books and records on an accrual basis. Owners/Management Agents are responsible for making any necessary year-end adjusting entries before the annual development audit using the accounts described in the VHDA Chart of Accounts.

B. Additional accounts not included in the VHDA Chart of Accounts should be established as needed, following generally accepted accounting principles and classified under the appropriate groupings in the VHDA Chart of Accounts. If accounts are added, they must be rolled into the appropriate grouping on the Profit and Loss Statement as the template cannot be modified to reflect these added subaccounts.

C. An explanation of the Chart of Accounts follows.

B-2 of 22

VHDA CHART OF ACCOUNTS

Account # Account Description

1000 ASSET ACCOUNTS

1100 CURRENT ASSETS

1110 Petty Cash / Cash on Hand This account represents the established size of the imprest fund used to make small cash payments for items such as postage and small amounts of supplies. The account is debited with the amount of the disbursement establishing or increasing the size of the fund. As cash is used, agents place receipts for the amount withdrawn in the cash drawer. Disbursements made to replenish the petty cash fund are debited directly to the appropriate development expense accounts at the time the reimbursement check is recorded in the Cash Disbursement Journal. At all times, total petty cash on hand plus the receipts for the

bills paid must equal the amount of the established fund.

1120 Cash in Bank This account reflects the balance of cash in the development’s bank account(s). Debits to the account are posted at least monthly from the Cash Receipts Journal and credits are posted at

least monthly from the Cash Disbursements Journal.

1130 Tenant Accounts Receivable This account reflects the total rents receivable from tenants. The account balance is supported by the Tenant Accounts Receivable subsidiary ledger. The account is debited by journal entry at the end of each month for the total rent roll from the following month. The off-setting credit is made to the Rental Revenue accounts in the 5000 series. Agents must make an additional credit for Section 236 developments to Account 2115, Accounts Payable – HUD, for any rents due from tenants in excess of the basic monthly rent. Credits to the Tenant Accounts Receivable accounts come from the Cash Receipts Journal or

from journal entries which record concessions to tenants in lieu of rent (See Account 6250).

1140 Accounts Receivable - Other This account represents amounts due the development other than tenant rents receivable and accrued revenue. It is a controlling account supported by a subsidiary ledger. When there are other accounts receivable, agents should record each type separately in accounts numbered 1141 to 1149. For example, Accounts Receivable - Rent Supplement may be numbered Account 1143; Accounts Receivable, Section 8 Assistance

Payment, Account 1144; Fire Loss Draft Receivable, Account 1145, etc.

B-3 of 22

Account # Account Description 1150 Notes Receivable This account records all notes receivable as they

are acquired through debits to the General Journal. Credits to the account come from the Cash Receipts Journal when payment is received. When there are several types of notes receivable, agents should record each type separately in accounts numbered from 1151 to 1159.

1160 Accrued Receivables This account reflects any accrued revenue, other than from rent. The account is established by year end journal entry debiting the account for income earned but not received. The offsetting credit is to the appropriate revenue account. After the books are closed, the adjusting entry is reversed. Agents

may subdivide the account into accounts 1161, 1162, etc., as necessary.

1170 Investments (Short Term) This account records the amount of development funds invested in short term investments other than those in the Funded Reserves (1300) accounts. When the development has more than one type of short-term investment, agents should record each type separately in accounts numbered 1171 to 1179. The account is credited

when the development disposes of any of the investments.

1190 Miscellaneous Current Assets This account records current assets not otherwise described above. If necessary, agents may

subdivide this account into specific current asset accounts numbered from 1192 to 1199.

1191 Tenant Security Deposits - Held in Trust

This account records tenant security deposits held by the development, in the name of the development and in a separate bank account. Agents may use deposits to pay for tenant damages and delinquent rents when a tenant vacates. Total funds in the account on assisted developments must at all times equal or exceed the corresponding liability account, 2191 - Tenant Security Deposits - Held in Trust (contra).

1200 PREPAID EXPENSES

1210 - 1230 Inventory Accounts Agents record inventory accounts only when the amount on hand at year end is significant when compared to the total expense for the fiscal year. For example, if stored heating fuel at the end of the fiscal year represents 20% of the total fuel expense for the year, agents should debit by a journal entry the value of the fuel on hand to Fuel Inventory (Account 1210) with an offsetting credit to Fuel Expense (Account 6420). Agents reverse

the adjusting entry at the beginning of the next accounting period.

B-4 of 22

Account # Account Description 1240 Prepaid Property and Liability

Insurance This account records the unexpired portion of prepaid insurance policies. The account is debited from the Cash Disbursement Journal when an insurance policy is purchased or when monthly payments are made on the policy with the mortgage payment. At the close of the accounting period, agents make an adjusting journal entry crediting the cost of the expired insurance and

debiting Account 6720, Property and Liability Insurance expense.

1250 Prepaid Mortgage Insurance This account reflects the balance of the mortgage insurance premium (MIP) paid to HUD that is applicable to the following fiscal period. At the close of the accounting period, the account is debited for any prepaid mortgage insurance with an offsetting credit to Account 6850, Mortgage

Insurance Premium. The entry is reversed at the beginning of the next accounting period.

1260 Prepaid Advertising This account reflects the cost of any unused advertising. Similar to the inventory accounts, the unused cost is recorded only when the amount at year end is significant. The account is established by an adjusting journal entry debiting any unused advertising and crediting Account 6210,

Advertising Expense. The entry is reversed at the beginning of the next accounting period.

1270 Prepaid Taxes This account reflects tax payments that apply to future fiscal periods. The account is established by an adjusting journal entry debiting the taxes paid for future periods and crediting Account

6710, Real Estate Taxes. The entry is reversed at the beginning of the next accounting period.

1290 Miscellaneous Prepaid Expenses This account records expenses, other than insurance and taxes, that are paid in advance.

The cost of the asset is distributed by journal entry over the usage period.

1300 FUNDED RESERVES

1310 Mortgagee Escrow Deposits When used, this clearing account transfers monthly payments of taxes, insurance and

reserve escrows to the appropriate expense, prepaid expense or funded reserve account.

1320 Cash - Replacement Reserve This records the monthly payments to the mortgagee or, for Section 202 Developments,

funds are deposited in special bank accounts, as required by the Regulatory Agreement.

B-5 of 22

Account # Account Description 1321 Securities - Replacement Reserve This account records Replacement Reserve funds

that are invested. Section 202 developments deposit Replacement Reserve funds in a special bank account(s). Credits to the account come from the Cash Receipts Journal supported by approved releases from the Replacement Reserve account. Interest earned on the account

is credited to Account 5440, Income from Investments - Replacement Reserve.

1330 Cash - Miscellaneous Reserve This account records all deposits made by the development to the miscellaneous reserve. This account is used to pay costs related to the purpose the account was established. Unless the reserve was specifically established for internal painting, costs related to painting individual tenant

units are charged to Accounts 6560 and 6561, Decorating Payroll and Supplies.

1331 Securities - Miscellaneous Reserve The balance of the account reflects the total funds

held or invested in securities for the miscellaneous reserve account.

1340 Cash – Operating (Residual Receipts) Reserve

This account records any required deposits to the Operating (Residual Receipts) Reserve held by the mortgagee or, in the case of Section 202 developments, in a separate Residual Receipts Account. Mortgagors credit the account for disbursements from the fund in amounts authorized by VHDA/HUD. Interest earned on the account is credited to Account 5430, Revenue

from Investments – Operating (Residual Receipts) Reserve.

1341 Securities – Operating (Residual Receipts) Reserve

The balance of this account reflects total funds held or invested in securities by the mortgagee using funds from the Operating (Residual Receipts) Reserve account or, in the case of

Section 202 developments, funds held in separately identified investments.

1350 Cash - General Reserves This account records amounts paid by the mortgagor for general purposes. Credits to the

account come from disbursements for debt service or other accounts paid from the fund.

1360 Securities - General Reserves These accounts record funds which are held or

invested in securities for general purpose as required by the Certificate of Incorporation.

1365 General Operating Reserve (GOR) This account records monthly deposits made to a special escrow account under the control of the cooperative mortgagor entity. The amount of the required monthly deposit varies by both the GOR account balance and the total amount of monthly member carrying charges. See Paragraph 3 of the HUD cooperative Regulatory Agreement to determine: (1) what percentage of monthly carrying charges the cooperative must deposit to the account; and (2) conditions for withdrawal from the account. The account provides for contingencies that a cooperative

B-6 of 22

Account # Account Description would otherwise meet only through a special

assessment to its members. For example, cooperatives may make disbursements from the account to repurchase stock of withdrawing members or to meet short-term operating deficits because of delinquent receivables from cooperative members. The account is reimbursed (debited) when the cooperative resells the unit or when the cooperative collects the delinquent member carrying charges. Also see Account 3235, General Operating Reserve (contra) and Account 3241, Paid-in Surplus for recording

amounts paid by members in excess of the initial capital value of their membership.

1370 Apartment Rehabilitation Deposits This account records deposits received from tenants who rent units owned by the cooperative.

The offsetting credit is to Account 2230, Apartment Rehabilitation Deposits.

1380 Development Improvement Account Owners must establish this account for all developments receiving Flexible Subsidy assistance. VHDA/HUD may also require owners to establish this account as a condition for approving a workout agreement or transfer of physical assets. The restricted asset account is debited when funds are deposited and is credited when funds are transferred from the account. Sources of funds include owner contributions, releases from reserves, Flexible Subsidy payments, retroactive mortgage relief, etc. When Flexible Subsidy assistance is deposited to the Development Improvement Account, the offsetting credit is into Flexible Subsidy Loan Payable (Account 2340), or Capital Improvement Loan

Payable (Account 2350), or an Owner’s Equity Account (Account 3100).

1400 FIXED ASSETS

1410 Land The purchase price of the land plus the cost of improvements to the land are charged to this account. Costs of excavating for basements and expenses applicable to the buildings are not included. The balance of the account represents the total outlay necessary to obtain the land and to make the improvements to it. In some instances, it may be desirable to charge depreciation on certain land improvements. These are charged to a separate account beginning with Account 1411. This also requires setting up additional accounts in both depreciation reserves and depreciation expenses. Agents should assign

these additional accounts numbers 4110 and 6610, respectively.

B-7 of 22

Account # Account Description 1420 Buildings The total cost of the buildings, exclusive of

building equipment, furniture, and furnishings, is charged to this account. Agents should also charge improvements to the building to this account. When the building is disposed of, credits are made. The balance represents the original cost of the buildings plus enhancements.

1430 Building Equipment - Fixed The balance of this account represents the installed cost of all fixed building equipment in use. When necessary, this account may be subdivided for different groups of assets. For example, Account 1432 may be titled “Building Equipment Fixed - Plumbing Fixtures” and include items such as kitchen sinks, garbage disposals and bathtubs. Account 1433 may be titled “Building Equipment Fixed - Utility Systems” and include development assets such as heating or cooling units and hot water heaters. When this account is subdivided, agents should establish

additional depreciation reserves and expense accounts for each sub-group.

1440 Building Equipment - Portable The balance of this account represents the total cost of the portable equipment in use. Costs include any transportation or installation charges. Assets in this account include items such as stoves, refrigerators and fire extinguishers. The

account is credited as equipment is withdrawn from development use.

1450 Furniture - for Development and Tenant Use

The net cost of all equipment and furniture purchased by the development for use in the development office, lobbies, halls, lawns and sundecks, plus the freight on the furniture is charged to this account. The cost of furniture purchased from development funds for rental to tenants is charged to Account 1451. The account

is credited as furniture is withdrawn for development or tenant use.

1460 Furnishings The cost of furnishings (window shades, blinds, shower curtains, hall carpets, etc.) not charged to the cost of the building is recorded in this account. Credits to the account are made when furnishings are withdrawn from use. The balance of the

account represents the cost of the furnishings in use.

1470 Maintenance Equipment The balance of this account represents the cost of development maintenance equipment in use. The account includes items such as janitor’s tools, vacuum cleaners, lawnmowers or snow blowing

equipment. The cost of equipment is credited when the asset is withdrawn from use.

B-8 of 22

Account # Account Description 1480 Motor Vehicles The cost of buses, trucks, passenger cars, etc., is

recorded in this account. Each vehicle is shown separately and given an account number in the 1480 group. Equipment withdrawn from use is

credited to this account. The balance represents the cost of each vehicle in use.

1490 Miscellaneous Fixed Assets Agents may record fixed assets for which no other provision is made in this account. If necessary,

agents should subdivide this account into specific fixed asset accounts in the 1490 group.

1500 INVESTMENTS This account records long-term investments (those expected to be held for more than one year) other than those included in the Fund Reserves (1300) Series. The account is credited

when the development disposes of the investment.

1600 DEPOSITS RECEIVABLE This account reflects the amount of security and other deposits which are due from tenants, but not

received. The account is credited when deposits are collected.

1700 SUSPENSE ACCOUNT This account reflects charges for items that are temporarily left unadjusted, such as bad checks

from tenants. When the item (check) is cleared, the account is credited.

1800 Not Used n/a

1900 OTHER ASSETS This account records non-current assets that are not otherwise classified above. Agents should

give a descriptive title to any asset in the 1900 Series.

2000 LIABILITY ACCOUNTS

2100 CURRENT LIABILITIES

2110 Accounts Payable This account reflects the total of unpaid bills other than bills to be paid from the Development Improvement Account. (See Accounts 1380 and 2112). The account is a controlling account supported by an Accounts Payable subsidiary ledger or by the file of unpaid vouchers. The account is credited by journal entry for the total of the bills invoiced for payment. Debits to the account come from the Cash Disbursement Journal. After posting, the total of the Accounts Payable ledger or unpaid vouchers in the voucher

file should equal the balance of this controlling account.

2112 Accounts Payable - Development Improvement Items

This account reflects the total of bills vouchered for work items under the Flexible Subsidy Program to be paid from funds transferred from the Development Improvement Account (Account 1380) to the development’s Cash in Bank (Account 1120). Credits to the account come from work items included on Lines 1a through d of Part

II, Section C of the Management Improvement and Operating (MIO) Plan, Form HUD - 9853B.

B-9 of 22

Account # Account Description 2115 Accounts Payable - HUD Used only for Section 236 developments, this

account reflects any amount due HUD for rents collected in excess of the allowable basic rents. The account is credited monthly from the Rent Roll and is debited monthly from the Cash Disbursements Journal when a check for the amount of excess rents is sent to HUD. The amount due HUD for the reporting month is shown on Line 6 of the Form HUD-93104, Monthly Report of Excess Income. When no payment is due HUD for the reporting month (i.e., when Line 7 of the HUD-93104 is a positive amount), the balance in the account is debited

with an offsetting credit to Account 5190, Rental Income Miscellaneous.

2120 Accrued Wages and Payroll Taxes Payable

This account records by journal entry the gross amount of payroll and payroll taxes that has been accrued, but not paid, at the end of the accounting period. If necessary, agents may subdivide the account to accrue for the different types of accrued taxes payable (e.g., Account 2121, Federal Withholding Taxes Payable; Account 2122, FICA Taxes Payable; etc.). This entry is

reversed at the beginning of the next accounting period.

2130 Accrued Interest Payable This account records by adjusting journal entry, interest accrued but unpaid on the mortgage and other interest bearing obligations at the end of the accounting period. For Section 236 developments, agents should include only the mortgagor’s portion of the interest liability on the mortgage. At the beginning of the next accounting period the entry is reversed. As VHDA accrued interest payable must be reported separately, agents should subdivide the account into

accounts 2131, 2132, etc., as necessary, to reflect accrued interest to different lenders.

2140 Dividend or Distributions Payable This account is used by profit-motivated and limited dividend mortgagor entities. The account records, through journal entry, dividends or distributions declared by the owner but not yet paid. The offsetting debit is to Account 3210, Retained Earnings. For assisted developments, the amount of the dividend or distribution paid during the present period should agree with total(s) from the Total Allowable Distributions to be Paid as of Audit Year End line of the Statement of Surplus Cash/Residual Receipts and Distributions prepared for the prior period (or periods, where the distribution may be made

semiannually). The account is debited when the dividend or distribution is paid.

B-10 of 22

Account # Account Description 2150 Accrued Property Taxes This account records by journal entry the accrual

of property taxes incurred and payable in the subsequent year. If necessary, the account may be subdivided to include different types of property taxes accrued (e.g., local real estate, county real estate, personal property taxes, etc.).

The entry is reversed at the beginning of the next accounting period.

2160 Notes Payable (Short-Term) This account records liabilities on notes due within one year. The account is credited when a cash loan is secured by a short-term note. When a note is secured to cancelanother development payable, the account is credited through journal entry. The

account is debited from the Cash Disbursements Journal when payment is made on the note.

2190 Miscellaneous Current Liabilities This account records current liabilities not otherwise described above. If necessary, owners

may subdivide this account into specific current liability accounts numbered from 2192 to 2199.

2191 Tenant Security Deposits - Held in Trust (Contra)

This account records the offsetting liability resulting from transactions recorded in Account 1191, Tenant Security Deposits – Held in Trust.

2200 PREPAID INCOMES

2210 Prepaid Rents This account records rents received from tenants (including commercial tenants) that apply to future accounting periods. When the rent is received in advance, this account is credited and Cash (Account 1120) is debited. As the rent becomes due, agents make a journal entry debiting this

account and crediting Tenant Accounts Receivable (Account 1130).

2220 Prepaid Interest Revenue This account records by journal entry all interest revenue received but not earned at the close of the accounting period. A corresponding debit is made to the Interest Revenue (5400 Series)

account. The entry is reversed at the beginning of the next accounting period.

2230 Apartment Rehabilitation Deposits Cooperatives establish this account contra to Account 1370, Apartment Rehabilitation Deposits. The balance reflects the cooperative’s obligation

to refund the deposit if rehabilitation of the rented unit is unnecessary.

2290 Miscellaneous Prepaid Revenues This account records any prepaid revenue other than rents or interest. Agent should establish

specific accounts in the 2290 Series to record any miscellaneous prepaid incomes.

2300 LONG-TERM LIABILITIES

2310 Notes Payable (Long-Term) This account reflects amounts on notes due more than one year from the date of the balance sheet. The amount due within one year is recorded in Account 2160, Notes Payable (Short-Term). The account is credited when long-term notes are issued and is debited as principal payments are made on the notes. Interest paid on the notes is

charged to Account 6830, Interest on Notes Payable (Long-Term).

B-11 of 22

Account # Account Description 2311 Notes Payable - Surplus Cash This account records development obligations (1)

payable only from available surplus cash, and (2) in accordance with the terms of the note. The account is credited when the note is issued and

debited when payments are made on the note from available surplus cash.

2320 Mortgages Payable - VHDA This account reflects the unpaid principal balance of the VHDA mortgage(s). The account is debited by the amount of regular amortization payments made on the mortgage. Interest payments on the

mortgage are charged to Account 6820, Interest on Mortgages Payable - VHDA.

2325 Mortgages Payable - Other This account reflects the unpaid principal balance of the non-VHDA mortgage(s). The account is debited by the amount of regular amortization payments made on the mortgage. Interest payments on the mortgage are charged to

Account 6825, Interest on Mortgages Payable - Other.

2330 Non-VHDA Bonds Payable When the development is permanently financed through a non-VHDA bond issue, the par value of the bonds is charged to this account. The account is debited as payments are made on the bonds or if the bonds are canceled. Interest paid on the

bonds is charged to Account 6810, Interest on Non-VHDA Bonds Payable.

2340 Flexible Subsidy Loan Payable This account reflects the total amount of the unpaid balance of Flexible Subsidy Operating Assistance loans. Credits to the account are made when the proceeds of a loan are received and an agreement has been executed. The balance in the account is decreased (debited) for

the amount of the principal paid each time a payment is made.

2350 Capital Improvement Loan Payable This account balance represents the unpaid balance of a capital improvement loan. Funds from this account are used to repair or replace major systems in low and moderate income multifamily buildings. The balance is reduced by

the amount of the principal paid with each loan payment made.

2360 Operating Loss Loan Payable This account represents the unpaid balance of a loan obtained to sustain operations due to a prior year operating loss. The use of the proceeds from this type of loan is restricted to expenditures for operating expenses. The account balance is

decreased by the amount of the principal paid with each loan payment made.

B-12 of 22

Account # Account Description 2390 Miscellaneous Long-Term Liabilities This account records long-term liabilities not

otherwise described above. If necessary, agents

should subdivide the account into specific long-term liability accounts numbered from 2391 through 2399.

3000 EQUITY ACCOUNTS

3100 OWNER EQUITY

3105 Certificates Subscribed This account reflects the par or assigned value of subscribed membership certificates or capital stock. Charges (debits) are made to the account when the cooperative issues membership certificates or stock to new members. The offsetting credit is to Account 3140, Certificate of Initial Capital Value Issued and Outstanding.

3110 Capital Stock - Preferred This account normally is used by mortgagors controlled through a Corporate Charter rather than through a Regulatory Agreement.

3120 Capital Stock - Common The class of capital stock which has all the residual interests in the corporation with no limitations nor preferences in distribution of retained earnings or ultimate distribution of assets. In Cooperatives with

only one class of shares, it is the same as the Capital Stock (Account 3110).

3130 Owner Equity or Certificate Held in Treasury

These control accounts reflect the total amount of capital invested in the development by its owners. Subsidiary accounts are normally maintained for each class of stock or owner. The accounts are credited as additional capital is contributed to the developmentby

the owner(s). Cooperatives debit this account when the outgoing member’s unit is resold.

3140 Certificate of Initial Value Issued and Outstanding

This account reflects the initial value of all subscribed and outstanding membership certificates or stock. The account is credited when the cooperative issues subscribed certificates or stock to new members. The account is debited when

certificates are returned to the Treasury (Account 3130) pending resale of the units.

3200 EARNINGS

3210 Retained Earnings This control account reflects the accumulated earnings of a mortgagor entity that are not distributed to owners. The account is debited when dividends or distributions are declared and for any net loss from operations of the development. The account is credited with any net income from operations of the development. In the case of cooperatives, this account records by journal entry the surplus (debit) or deficiency (credit) from the cooperative’s operation during the reporting year. The appropriate offsetting debit or credit comes from Account 3250, Profit or Loss. The balance of this account represents the cooperative’s surplus or deficiency from operations since the initial occupancy of the cooperative. This account also records by journal entry any patronage refunds the cooperative makes to members.

B-13 of 22

Account # Account Description 3215- 3235 RESERVE ACCOUNTS These accounts record appropriations of retained

earnings for general or specific purposes. These accounts record through journal entry the monthly payments made to principal and the funded

reserve accounts. The offsetting debit is to Paid-in Surplus (Account 3241).

3215 Amortized Mortgage For cooperatives, this account records amounts paid for mortgage amortization. Credit entries are

made to this account with offsetting debit entries to Paid-in Surplus (Account 3241).

3220 Replacement Reserve This account is used to accrue funds for planned replacement of major capital items such as heating units, roofs, etc. Credit entries are made

to this account with offsetting debit entries to the Paid-in Surplus (Account 3241).

3230 Miscellaneous Reserve This account is used to accrue funds for pre- identified specific purposes. Credit entries are

made to this account with offsetting debit entries to the Paid-in Surplus (Account 3241).

3235 General Operating Reserve This account is used to maintain a fund for general operating expenses. Credit entries are

made to this account with offsetting debit entries to the Paid-in Surplus (Account 3241).

3241 Paid-in Surplus This account records amounts paid by members in excess of the initial value of their membership certificate or stock. Entries to this account separate paid-in surplus from member carrying charges included in Account 5120, Rental Income

- Apartments. The account is credited by the total amount of monthly principal and reserve payments. The offsetting debit is member carrying charges included in Account 5120, Rental Income - Apartments, thereby reducing the cooperative’s operating income by the amount of member capital contributions.

3250 Income or Loss All expenses (6000 and 7000 Series) and development revenue (5000 Series) are transferred to this account when the development’s books are closed. After audit, this account is closed into Retained Earnings

(Account 3210) or Owner’s Equity (Account 3130).

4000 VALUATION ACCOUNTS

4100 ACCUMULATED DEPRECIATION (4120 - 4190)

These accounts reflect the accumulated depreciation on the fixed assets currently in use by the development. The accounts are credited at the end of the accounting period by the amount of depreciation charged against operations (6600 Series) and based on the estimated useful life of the asset being depreciated. When the asset is

withdrawn from development use, the account is debited by a journal entry.

B-14 of 22

Account # Account Description 4200 RESERVE FOR COLLECTION

LOSSES This account records the amount of tenant accounts receivable that agents estimate are uncollectible. This allowance is increased and an expense recorded when full collection becomes doubtful. A journal entry is made crediting this account and debiting Bad Debt Expense (Account 6370) for the estimated amount of uncollectible Tenant Accounts Receivable. The allowance is decreased when the receivables are formally written off. When all collection efforts have failed, the amount of the debt is “written off” by journal

entry debiting this account and crediting Account 1130, Tenant Accounts Receivable.

5000 INCOME ACCOUNTS Unless otherwise noted, the balances of all revenue accounts are closed into Account 3250,

Profit and Loss, at the end of the accounting period.

5100 RENTAL INCOME

5120 Apartments Except for Section 236 and 221(d)(3) BMIR developments, this account records gross rent potential less tenant assistance payments for all residential units (including non-revenue producing units). For section 236 and 221(d)(3) BMIR developments, the account records basic rental charges due tenants as shown on the latest Form HUD-92458, Rent Schedule, less tenant assistance payments. See Account 5190 for treatment of rents due or collected from tenants paying amounts greater than the basic rental charge. Offsetting debits to this account are to Account 1130, Tenant Accounts Receivable, Account 5220, Vacancies – Apartments, Account 6312, Office or Model Apartment Rent, and

Account 6331, Manager or Superintendent’s Rent Fee Unit.

5121 Tenant Assistance Payments This account records tenant assistance payments received or earned by the development. Tenant assistance payment programs include the Rent Supplement, Rental Assistance Payment (RAP)

and Section 8 programs, including vacancy and debt service special claims.

5130 Furniture and Equipment This account records the gross rent revenue expected from furniture and equipment when the development provides furnished apartments.

5140 Stores and Commercial This account records gross rental revenue

expected from stores, offices, rented basement space or other commercial facilities.

5170 Garage and Parking Spaces This account records the gross potential rental revenue from all garage and parking spaces.

B-15 of 22

Account # Account Description 5180 Flexible Subsidy Income This account reflects the amount of Development

Improvement Funds transferred from the Development Improvement Account (1380) to reduce mortgage or escrow deficiencies, to cover operating deficits or to meet working capital needs. These amounts are reported on HUD- 9823 A Requisition for Advance of Flexible Subsidy Funds. The offsetting debit is to the relevant asset or expense account. At the close of the accounting period, agents must adjust the account by journal entry for any development

expenses or releases awarded to pay accounts payable from prior fiscal periods.

5190 Miscellaneous Income This account records gross rental revenue expected not otherwise described above. For Section 221(d)(3) BMIR developments, this account records rental collections due from over- income limit tenants in excess of the basic rental charge. For Section 236 developments, this account records excess rents collected from tenants when no payment is due HUD for the

reporting month. Also see definition of Account 2115, Accounts Payable - HUD.

5200 VACANCIES These accounts (5200 - 5299) record rental revenue lost through vacancy of an apartment unit or otherwise revenue-producing space or equipment. Agents normally debit the accounts monthly. At the end of the accounting period, the

balance of these accounts is closed into Account 3250, Net Income or Loss.

5300 ELDERLY AND CONGREGATE SERVICES INCOME

These accounts (5300 - 5399) are used primarily by developments designed for the elderly. The accounts record revenues received other than rents for services provided to tenants (e.g., meal services, housekeeping and nursing care services). Service-related expenses are charged to the 6900 series services accounts. A schedule

shall be attached to the Statement of Income summarizing these accounts.

5400 FINANCIAL INCOME

5410 Interest Income - Development Operations

This account is used to record interest earned on funds in development operating accounts. This account will be credited for the interest amount

and the appropriate interest generating asset account will be debited.

5420 Not Used N/A

5430 Income from Investments – Residual Receipts

This account records interest earned from Operating Reserve (Residual Receipts) investments. The account will be credited for the

interest amount and the appropriate interest generating asset account will be debited.

5440 Income from Investments – Reserves for Replacements

This account records interest earned from Replacement Reserve investments. The account will be credited for the interest amount and the

appropriate interest generating asset account will be debited.

B-16 of 22

Account # Account Description 5490 Income from Investments -

Miscellaneous This account records interest earned from other miscellaneous investments. The account will be

credited for the interest amount and appropriate interest generating asset account will be debited.

5900 OTHER REVENUE

5910 Laundry and Vending Revenue This account records development revenues received from laundry and vending machines owned or leased by the development.

5920 NSF and Late Charges This account records charges assessed to

tenants for rent checks returned for insufficient funds and for late payment of rents.

5930 Damages and Cleaning Fees This account records charges collected from tenants for damages to apartment units and for

fees paid by tenants for cleaning of an apartment unit (other than regular housekeeping services).

5940 Forfeited Tenant Security Deposits This account records any security deposits forfeited by tenants moving out of the development. The account is credited only when

the tenant security deposit is deposited into the development operating account.

5990 Other Income This account records development revenues not otherwise described in the above revenue accounts. This account (previously shown under Account 5420) is used to record interest reduction payments made to the mortgagee by HUD on behalf of the development owner under Section

236 of the National Housing Act. This revenue account will be credited for the amount of the

payment and the appropriate interest expense account will be debited.

6000 DEVELOPMENT EXPENSE ACCOUNTS

All development expense accounts are closed into Account 3250, Profit and Loss, at the end of the accounting period. Unless otherwise noted, all debits to the expense accounts are made from the Cash Disbursements Journal.

6200 and 6300

ADMINISTRATIVE EXPENSES

6210 Advertising This account records the cost of advertising the rental property. The cost of any unused advertising, if significant, is transferred by journal

entry to Account 1260, Prepaid Advertising, at the end of the accounting period.

6235 Apartment Resale Expense This account records repair costs required following the sale of a cooperative unit less any

portion of the seller’s equity that was applied against repair costs.

6250 Other Administrative Expenses This account records miscellaneous expenses related to the rent-up of vacant units. For example, charges to this account may include reasonable payments to third parties for referring new tenants to the development or the cost of new locks after a tenant moves out. Agents may also charge this account for any allowance given tenants in lieu of rent (e.g., providing a new tenant

a week’s free rent in exchange for cleaning and painting the unit).

B-17 of 22

Account # Account Description 6310 Office Salaries This account records salaries paid to office

employees (other than the resident manager) responsible for the front-line operation of the development regardless of whether the employee works on site or in the agent’s office. Front-line responsibilities include for example, taking applications, verifying income and processing maintenance requests. The account does not include salaries paid to occupancy, maintenance and regional supervisors who carry out the agent’s responsibility for overseeing or supervising development operations and personnel. These salaries are paid from the management fee. This account also does not include the development’s share of payroll taxes

(Account 6711) or other employee benefits (Account 6723) paid by the development.

6311 Office Supplies This account records office expense items such as supplies, postage, stationery and copying.

6312 Office or Model Apartment Rent This account records the rental value of an apartment, otherwise considered potentially rent- producing, but used as the development office or

as a model apartment. The account is normally debited by journal entry.

6320 Management Fee This account records the cost of management agent service contracted by the development. This account does not include charges for bookkeeping or accounting services paid directly by the development to either the management agent or another third party (see Account 6351).

6330 Manager’s or Superintendent’s Salaries

This account records salaries paid to a resident manager or superintendent. It does not include the development’s share of payroll taxes or other employee benefits or compensation given a

resident manager or superintendent in lieu of salary payments.

6331 Manager’s or Superintendent’s Rent Free Unit

This account records the contract rent of any rent free unit provided a resident manager or

superintendent which would otherwise be considered revenue producing.

6340 Legal Expense (Development) This account records legal fees or services incurred on behalf of the development (as distinguished from the mortgagor entity). For

example, agents charge legal fees for eviction procedures to this account.

6350 Auditing Expenses (Development) This account records the auditing expenses incurred by the development that are directly related to VHDA/HUD/DHCD requirements for financial statements and reports. This account also includes the auditor’s charge for preparing the mortgagor entity’s Federal, State and Local tax returns. This account does not include the cost of routine maintenance or review of the

development’s books and records (see Account 6351).

B-18 of 22

Account # Account Description 6351 Bookkeeping Fees/Accounting

Services This account records the cost of bookkeeping fees or accounting or computing services not

included in the management fee but paid to either the agent or a third party.

6360 Telephone and Answering Service This account records the cost of telephone or

answering services provided on behalf of the development.

6370 Bad Debts This account records by journal entry the amount of tenant accounts receivable the agent estimates uncollectible at the end of the accounting period. The offsetting credit is to Account 4220,

Allowance for Vacancy and Doubtful Tenant Accounts.

6390 Miscellaneous Administrative Expenses

This account records administrative expenses not otherwise classified in the 6300 Series. If necessary, agents should subdivide the account

into specific accounts numbered 6391 through 6399.

6400 UTILITIES EXPENSE These accounts record the costs of utility charges billed the development. If the amount of fuel oil at year end is significant compared to the total fuel oil expense for the year, agents should credit the

account by journal entry for the value of the fuel oil and debit Account 1210, Fuel Inventory.

6500 OPERATING AND MAINTENANCE EXPENSES

6510 Janitor and Cleaning Payroll This account records the salaries of janitors employed by the development. Agents should also include any compensation given in lieu of salary (such as a rent-free or reduced-rate rental unit) in Account 6510. This account should not include the development’s share of payroll taxes

(FICA and Unemployment) or other employee benefits paid to the development.

6515 Janitor and Cleaning Supplies This account records all costs of janitor supplies charged to the development.

6517 Janitor and Cleaning Contract This account records the costs of janitor or cleaning contracts the owner or agent executes with third parties on behalf of the development.

6519 Exterminating Payroll/Contract This account records the charges to a development for labor or costs associated with an exterminating contract executed with a third party by the owner or agent.

6520 Exterminating Supplies This account records the costs charged to the development for materials used in exterminating.

6525 Garbage and Trash Removal This account records the costs of removing garbage and rubbish from the development. The

account does not include salaries paid to janitors who collect the trash.

6530 Security Payroll/Contract This account records the development’s payroll costs attributable to the protection of the development or the costs of a protection contract

that the owner or agent executes on behalf of the development.

B-19 of 22

Account # Account Description 6535 Grounds Payroll This account records the salaries of development

employees whose primary responsibility is caring for development grounds. Development payroll costs related to permanent improvement to development grounds is capitalized and not charged to this account. This account does not include the development’s share of payroll taxes

or other employee benefits paid by the development.

6536 Grounds Supplies This account records the costs of equipment and supplies used in maintaining development

grounds. Charges to this account include the costs of shovels, rakes, seed, sod and shrubbery.

6537 Grounds Contract This account records charges to the development

for grounds service contracts executed by the owner or agent.

6540 Repairs Payroll This account records the salaries of development employees who repair development owned equipment or other assets. This account does not include the development’s share of payroll taxes

or other employee benefits paid by the development.

6541 Repairs Material This account records the costs charged to the development for material used in repairs.

6542 Repairs Contract This account records the costs of contract repairs to development assets. Agents should capitalize

repairs of significant amounts which extend the useful life of the asset.

6545 Elevator Maintenance/Contract This account records the costs of maintaining or repairing elevators by development employees or charges to the development for an elevator maintenance contract executed by the owner or agent.

6546 Heating/Cooling Repairs and Maintenance

This account records the costs of repairing and maintaining heating or air conditioning equipment owned by the development. Agents should

capitalize repairs of significant amounts which extend the useful life of the equipment.

6547 Swimming Pool Maintenance/Contract

This account records the costs of maintaining and operating the swimming pool by development employees or the charges to the development for

any swimming pool contract executed by the owner or agent.

6548 Snow Removal This account records the costs of removing snow from development sidewalks and parking areas.

6560 Decorating Payroll/Contract This account records the salaries of development employees whose responsibility is decorating

rental units, common space or the building’s exterior.

6561 Decorating Supplies This account records the costs of development labor and supplies in decorating rental units, common space or the building’s exterior or

charges to the development for any decorating contract executed by the owner or agent.

B-20 of 22

Account # Account Description 6570 Vehicle and Maintenance Equipment

Operation and Repairs This account records the costs of operating and repairing development motor vehicles and maintenance equipment. Motor vehicle insurance is not included in this account but is charged to

Account 6720, Property and Liability Insurance (Hazard).

6590 Miscellaneous Operating and Maintenance Expenses

This account records the costs of maintenance and repairs not otherwise classified in the 6400 and 6500 account Series. If necessary, agents

should subdivide the account into specific accounts numbered 6591 through 6599.

6600 DEPRECIATION VHDA does not prescribe the method of depreciation for fixed assets of the development. The method of depreciation, however, must conform to GAAP. These accounts represent depreciation charged for the fixed asset accounts during the accounting period. Agents make the corresponding credit to accounts in the 4100 Series, Accumulated Depreciation.

6700 TAXES AND INSURANCE

6710 Real Estate Taxes This account records payments made for real estate taxes of the development. At the end of the development’s fiscal year, the account is credited by journal entry for any taxes paid but due in the

following year. The corresponding debit is to Account 1270, Prepaid Taxes.

6711 Payroll Taxes (Development’s Share) This account records the development’s share of FICA and State and Federal Unemployment taxes.

6719 Miscellaneous Taxes, Licenses and Permits

This account records any taxes, licenses or permit

fees assessed the development and not otherwise categorized in the 6700 Series.

6720 Property and Liability Insurance (Hazard)

This account records the costs of development property and liability insurance. The account is debited by journal entry when funds are not escrowed by a mortgagee or when Section 202

developments deposit funds in a special escrow account.

6721 Fidelity Bond Insurance This account records the cost of bonding development employees who handle cash.

6722 Workmen’s Compensation This account records the cost of workmen’s compensation insurance for development employees. The account is debited by journal entry.

6723 Health Insurance and Other Employee Benefits

This account records the costs of any health

insurance and other employee benefits paid and charged to the development.

6729 Other Insurance This account records the costs of insurance not otherwise classified in the 6700 Series.

6800 FINANCIAL EXPENSES

6810 Interest on Bonds Payable This account records interest paid or accrued on non-VHDA bonds issued to construct or permanently finance the development.

B-21 of 22

Account # Account Description 6820 Interest on Mortgages Payable -

VHDA This account records interest paid or accrued on VHDA mortgage(s) issued to construct or

permanently finance the development. The account is debited by journal entry.

6825 Interest on Mortgages Payable - Other

This account records interest paid or accrued on non-VHDA mortgage(s) issued to construct or

permanently finance the development. The account is debited by journal entry.

6830 and 6840

Interest on Notes Payable These accounts record interest and discounts

paid on short term (Account 6830) and long term (Account 6840) notes.

6850 Mortgage Insurance Premium/Service Charges

This account records payments to the mortgagee for insurance on the mortgage. In the case of HUD-held mortgages, the payment is in the form of a service charge. At the close of the accounting period, the account is credited by journal entry for any premiums paid but due the following year. The offsetting debit is to Account 1250, Prepaid Mortgage Insurance.

6890 Miscellaneous Financial Expenses This account records financial expenses not otherwise classified in the 6800 Series. If necessary, agents should subdivide the account

into specific financial expense accounts numbered 6891 through 6899.

6900 SERVICES EXPENSES Accounts in this series are used primarily by congregate developments and those designed for the elderly. The accounts record expenses directly related to special services provided the tenant (e.g., nursing expenses, drugs, food, etc.). A schedule of accounts in this series shall be attached to the Statement of Income summarizing these expense accounts.

7100 CORPORATE OR MORTGAGOR ENTITY EXPENSES

These accounts record expenses applicable to the mortgagor entities distinguished from expenses necessary and reasonable to the operation of the development. In addition, these accounts record expenses for community shared facilities. Owners and agents may charge expenses included in the 7100 Series against

development operations only with the prior written approval of VHDA/HUD.

7110 Officer Salaries This account records salaries paid to officers for performing corporate duties. It should also include

the value of any services given to an officer in lieu of a salary.

7120 Legal Expenses (Entity) This account records legal expenses related solely to the corporation or mortgagor entity.

7130 - 7132 Taxes (Federal – State – Entity) These accounts record federal and state income taxes and other corporate/entity taxes through expense of the mortgagor entity for the tax year.

B-22 of 22

Account # Account Description 7190 Other Expenses (Entity) This account records mortgagor entity expense

items not otherwise classified in the 7100 Series. The account includes fees for preparation of federal, state and local income tax returns for individuals or limited partners, fees paid to partners other than from available surplus cash

and office rent and supplies used exclusively for mortgagor entity purposes.

7700 TRUSTEE This account records expenses paid to an independent third party to manage the affairs of

the long term debt and protect both the interests of the lender and the borrower.

APPENDIX C

VHDA AUDIT GUIDE APPLICABILITY

C-1 of 2


The following chart summarizes the type of statement and Audit Guide to be followed on the various loan and grant programs financed and/or administered by VHDA. In addition, Government Auditing Standards may be applicable. It is the auditor’s responsibility to determine applicability of Government Auditing Standards. Auditors should check the loan and grant documents to ascertain if annual financial reporting is required on a specific development.

VHDA reserves the right to return financial statements that do not conform to the required Audit Guide.

C-2 of 2


PROGRAM TYPE OF STATEMENT AUDIT GUIDE

HUD-Assisted, HUD-Insured Portfolio:

Profit-Motivated Mortgagors

Section 236 Insured GAAP, GAGAS Audited Financial 2000.04, GAGAS Section 8 Insured GAAP, GAGAS Audited Financial 2000.04, GAGAS HUD-Insured Portfolio GAAP, GAGAS Audited Financial 2000.04, GAGAS

Not-for-Profit Mortgagors

Section 236 Insured, Section 8 Insured, HUD-Insured Portfolio

HUD-Assisted, Uninsured Portfolio - Profit and Not-for- Profit Mortgagors

Section 236 Uninsured Section 8 Uninsured, 883 Reg, except TPA’s on/after June, 2004*

GAAP, GAGAS Audited Financial OMB Circular A-133 Compliance Supplement/Uniform Guidance Compliance Requirements

Unassisted Portfolio GAAP, GAGAS Audited Financial VHDA Audit Guide, GAGAS

GAAP, GAGAS Audited Financial VHDA Audit Guide, GAGAS

GAAP Audited Financial VHDA Audit Guide

* Section 8 Uninsured, 883 Reg developments where a transfer of physical assets has occurred since June 2004 are subject to the 2000.04 Audit Guide and GAGAS.

Note: If a development is subject to audited financial statement submissions from a lender in a lien position prior to the VHDA or DHCD financing, such requirements should be followed in lieu of VHDA’s Audit Guide. VHDA will accept HUD and Rural Development (RD) audited financial statements in their prescribed formats when accompanied with VHDA’s Statement of Profit and Loss, Balance Sheet, Statement of Cash Flows, and Audit Compliance And Internal Control Questionnaire.

APPENDIX D

SCHEDULES AND REPORTS REQUIRED

D-1 of 2

SCHEDULES AND REPORTS REQUIRED

The following chart details the specific audit schedules and reports that are

required for developments financed and/or administered by Virginia Housing. Examples of reports and schedules are exhibited in Appendix A, Sample Audited Financial Statements.

Any substantial deviation from VHDA’s Audit Guide, including formatting changes to schedules and reports, must receive prior written approval the assigned VHDA asset manager. Note: The Statement of Cash Flows, Statement of Profit And Loss and Balance Sheet are required in the VHDA formats. In addition to submission in the audited financial statements, the Statement of Profit And Loss and Balance Sheet must be submitted electronically using the form and associated instructions found at http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pa ges/MFAuditGuide.aspx

VHDA requires one copy of the completed audited financial statements, including the signed Mortgagor/Grantor and Management Agent Certifications, to be submitted to the Asset Manager assigned to the development within ninety days of the end of the fiscal year. Note: Audits completed on HUD-insured developments must be transmitted electronically to HUD. In addition, one copy of the paper audited financial statement must be submitted to the Asset Manager assigned to the development within ninety days of the end of the fiscal year.

Specific questions regarding reporting requirements should be addressed to the Asset Manager assigned to the development. Appendix E, Quick Reference Chart, presents various contacts for audit-related matters.



SCHEDULES AND REPORTS REQUIRED CHART HUD ASSISTED

PORTFOLIO UNASSISTED PORTFOLIO

Audit Requirements

Uninsured Section 8

(883 Regs) * & Section 236

HUD Insured (All Programs)

2000.04

Mortgagor/Grantee Certification X X X

Management Agent Certification X X X Independent Auditor’s Report X X X

Balance Sheet X X X Statement Of Profit And Loss X X X

Statement Of Changes In Owner’s Equity X X X

Statement Of Cash Flows X X X Notes To Financial Statements X X X

Other VHDA Information X X X Accrued Expenses X X X

Accounts And Notes Receivable (Other Than Tenants) X X X

Delinquent Tenant Accounts Receivable X X X

Mortgage Reserve Funds X X X Schedule Of Funds In Financial Institutions X X X

Changes In Fixed Asset Accounts X X X Accounts Payable (Other Than Trade and Trade Creditors) X X X

Statement Of Surplus Cash/Residual Receipts And Distributions

X X X

Unauthorized Distribution Of Development Revenue X X X Declaration Of Ownership X X X

Identification Of Engagement Auditor X X X

Audit Compliance & Internal Control Questionnaire X X X

Independent Auditor’s Report On Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

X X

Schedule Of Findings And Questioned Costs X X

Auditor’s Comments On Audit Resolution Matters Relating

To The HUD Programs X X

Corrective Action Plan X X X

*Section 8 Uninsured, 883 Reg developments where a transfer of physical assets has occurred since June 2004 are subject to the 2000.04 Audit Guide.NOTE: Asset Management may have waived the requirement for submission of an annual audited financial statement.

D-2 of 2

APPENDIX E

QUICK REFERENCE CHART

Quick Reference Chart

Questions specific to the operations and reporting requirements of a development should be addressed to the Asset Manager assigned to the

development. Any multifamily associate can be reached at (804) 782-1986. Several audit-related contacts and their direct lines and email

information are listed below.

Topic Contact Phone Email Link

Audit Guide Provisions Nina Nolley

Asset Management

Regional Portfolio Managers

Neal Rogers

Jessica Braden

Megan Bryant

Amy Dugger

Julia Dye

Lorinda Gholar

Ken Lambert

David Layman

Kara Nickerson

Kelly Roper

Sarah Shafer

Joy Bolling

Tarik Claiborne

Carol Jackson

Jeremy Kahl

(804) 343-5859 [email protected]
















Borrower Inquiry Yvonne Broaddus (804) 343-5687 [email protected]

Melissa Gayle (804) 343-5764 [email protected]

1098's (Mortgage Interest Received) Melissa Gayle (804) 343-5764 [email protected]

1099’s (Subsidy Paid) Melissa Gayle (804) 343-5764 [email protected]

VHDA Audit Guide

(HUD-assisted portfolio)

https://vhd.mfsasp.com/BorrowerI

nquiryWeb/common/login.jsp

http://www.vhda.com/

BusinessPar tners/

PropertyOwnersManagers/

MFLoanServicing/Pages/MFAudit

Guide.aspx

E-1 of 1

mailto:[email protected]

























1

Updates to VHDA Audit Guide for Fiscal Years Ending On or After 12/31/19

Changes listed below have been made to the VHDA Audit Guide for financial statements prepared for years ending on or after 12/31/19. We recommend that the Audit Guide be reviewed in its entirety. Questions can be directed to the asset manager assigned to the development or Nina Nolley at (804) 343-5859 or [email protected].

The Statement of Profit and Loss and Balance Sheet templates have been updated. All account numbers remain the same. The Statement of Cash Flows, Statement of Profit and Loss and Balance Sheet are required in the VHDA formats. In addition to submission by email or paper audited financial statements, VHDA’s Statement of Profit and Loss and Balance Sheet must be submitted electronically using the forms and associated instructions found at: http://www.vhda.com/BusinessPartners/PropertyOwnersManagers/MFLoanServicing/Pages/MFAuditGuide.aspx.

Any substantial deviation from the VHDA Audit Guide, including formatting changes to schedules and reports, must receive the prior written approval of the VHDA assigned asset manager. Fillable PDF’s and/or Excel templates are provided as part of the Audit Guide on our website. The level of detail reflected in all VHDA forms is required and must be included if the templates provided are altered. Failure to provide this level of detail may result in VHDA, at its option, returning the financial statements. Note: VHDA will accept HUD and Rural Development (RD) audited financial statements in their prescribed formats when accompanied with VHDA’s Statement of Profit and Loss, VHDA’s Balance Sheet, VHDA’s Statement of Cash Flows, and VHDA’s Audit Compliance and Internal Control Questionnaire.

Mortgagor/Grantee’s Audit Guide. Please read in its entirety.

Master Tenant. When a master tenant exists, 1) separate Balance Sheets, Statements of Profit and Loss, and Statements of Cash Flows must be included for the master tenant and the ownership entity or 2) the Balance Sheet, Statement of Profit and Loss, and Statement of Cash Flows must reflect both the ownership entity and master tenant. The submission must allow VHDA to assess the financial aspects of the development’s operations; therefore, Lessor and Lessee must both be shown.

Borrower Inquiry. The website address for VHDA’s 24/7 multifamily mortgage loan information system is: https://vhd.mfsasp.com/BorrowerInquiryWeb/common/login.jsp. This is the site that mortgagors, management agents and CPAs must use to obtain mortgage confirmations.





2

2019 Changes

Appendix A, A-6. Statement of Cash Flows. Updates were made to bring the Statement of Cash Flows in line with the Financial Accounting Standards Board issued Accounting Standards Update 2016-18 Statement of Cash Flows (Topic 230) - Restricted Cash (“ASU 2016-18”) to address diversity in practice withrespect to the cash flows presentation of changes in amounts described asrestricted cash and cash equivalents. ASU 2016-18 requires a reporting entity toinclude amounts described as either restricted cash or restricted cash and cashequivalents (collectively referred to as “restricted cash” hereinafter) whenreconciling beginning and ending balances in its statement of cash flows. Theupdate also amends Topic 230 to require disclosures about the nature of restrictedcash and provide a reconciliation of cash, cash equivalents and restricted cashbetween the balance sheet and the statement of cash flows. ASU 2016-18 iseffective and must be implemented retrospectively during the year endedDecember 31, 2019. This may involve removing tenant security deposits andvarious reserves under the control of the owner/manager out of operating andinvesting activities, and reclassifying them to beginning of period and end of periodcash, cash equivalents and restricted cash.

Appendix E. Quick Reference Chart. Updates were made to reflect current VHDA contacts.

mortgagor/grantee’s audit guide · virginia housing development authority (vhda) to meet its...

Documents