Over the past eight years and now into the era of the new Republican White House, scrutiny on affordable housing developers, owners and management companies has increased. Whether the reasons are to root out abuses of Section 8 funding or to justify cutting the US Housing and Urban Development budget, politics have put pressure on HUD inspectors to increase their review of funding recipients. Based on a recent presentation we attended on the return of the HUD Management & Occupancy Review (MOR), we outline ways that owners and managers of HUD-funded properties can prepare for a potential MOR.
In 42 states including Texas, HUD Management and Occupancy Reviews (MORs) have not been conducted on Section 8 properties since 2011. After a series of lawsuits and protests brought by the Performance-Based Contract Administrators (PBCAs) who perform MORs on behalf of HUD, it looks like things have been resolved for now. MORs will be conducted in these states once again. Some may have already occurred in the second half of 2016. They may be annual or more frequent, but they are always random and with little notice.
The purpose of a MOR includes:
- Maintaining housing for target populations
- Protecting FHA insurance funds
- Ensuring satisfactory management
- Ensuring good physical and financial health of properties
- Reviewing compliance with HUD rules
- Proper administration of subsidy contracts
At-risk projects are more likely to get notification of a MOR, but in many cases a PBCA has approval to conduct a review on 100 percent of the portfolio under its jurisdiction in the state. If your property or organization has not already received notification of a pending MOR, it still makes sense to prepare as though it’s already happening.
The reason for this is the extensive paperwork and reporting required during a MOR. However, if your organization has conducted a thorough financial audit, you already have much of the information available to prepare and share during a MOR. Some of the primary items include:
- General physical appearance of property and security
- Follow-up and monitoring of project inspections
- Maintenance and standard operating procedures (SOPs) in place
- Financial management and procurement processes
- Leasing & Occupancy compliance
- Tenant/management relations
- General management practices
Prior to a MOR field visit, the PBCA will conduct what they call a Desk Review, which includes looking at the project’s previous MOR findings. Any issues with the physical property, timely reporting of financials or audit findings along with the history of operating expenses will be noted. In a side-by-side comparison of HUD’s primary MOR document, “Management Review for Multifamily Housing Projects”— known as HUD 9834 — the items listed for review are very similar to a general financial audit of a HUD-funded organization.
It, therefore, makes sense to prepare for a MOR not only by reviewing and answering the questions listed on HUD 9834, but also by reviewing and using your audit findings to make improvements. With some early preparation, you can be ready for MOR.
Continue Reading: Prepare for a Management & Occupancy Review (MOR)
Scott Bates, CPA, is a partner in Cornwell Jackson’s audit practice. He provides consulting to clients in real estate, including HUD-funded properties. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.
