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Mid-Year Distributions Under Old Regulatory Agreement

Mar 28, 2017 10:14AM MDT

Les,

I've run into a similar situation for a question that was posed last week on this site regarding mid-year calculations for periods other than 6/30 under the old regulatory agreement (2002 version) for a 221(d)(4) project. I have a client that did a mid-year calculation as of March 31, 2016, and then distributed that cash, which was in excess of the amount calculated as of 12/31/15 by about $300k. They then did another calculation as of 6/30/16, and distributed the amount of that calculation since they still had positive surplus cash. For reporting purposes, if we only show the mid-year calculation in REAC as of 6/30, it's going to look like they over-distributed, whereas if they had waited and distributed the excess $300k in July, there would be no issue. Would this be a finding, or should we adjust the 6/30 calculation to include this extra $300k that was distributed early? Or possibly just report as-is without a finding, and then explain the situation when HUD asks about it?

Thanks

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Les Sparks AHACPA Mar 28, 2017

Chad, unfortunately, these items are almost always findings. Here is why. First, client calculated at December 31, 2015. It has $100k. This was included int he prior year submission. Second, you enter the calculation at “mid year”. You can only enter 1 mid-year calculation in the submission. There is no ability to enter another “mid-year” calculation. That is the definition of mid-year. (ha ha). So, HUD takes the sum of the prior year and mid year calculation and subtracts all uses of surplus cash. If you show more distributions than cash available, then it is a flag – automatically. There no avoidance of this finding if the totals do not match.

So, you have seen the discussion about the definition of mid-year. Not much too add there. However, I can unequivocally state, that there only one mid-year calculation per year – not two.

So, yes it is a finding. The only question to answer at this point is “How much was improperly taken from the project?” I find it best to look at proforma calculations of what surplus cash would have been had they not taken the early distribution. Then at the two aspects separately. Were they taken in the wrong period, but would have had sufficient surplus cash had they not messed up the timing and did they take too much no matter what.

Based those answers, you will know what the findings will be. There can be a finding for timing (too early, but would have had enough cash) or a finding where too much was taken no matter the timing.

Les

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