Financial Operations and Audit Support for Housing Finance Agencies

Housing Finance Agencies

Housing Finance Agencies (HFAs) sit in an unusual position. They are lenders, issuers, allocators, and pass-through entities at the same time, and each of those roles answers to a different audience with a different reporting standard.

A single agency may be servicing a single-family mortgage portfolio funded by tax-exempt bonds, administering federal program dollars it passes through to local subrecipients, allocating and monitoring housing tax credits, and reporting to a board, a state controller, bond trustees, rating agencies, and federal awarding agencies. None of those audiences want the same report, and none of them are willing to wait.

The result is a finance function whose difficulty is structural rather than technical. The accounting is well understood. The problem is that four reporting frameworks are drawing on one general ledger, and the reconciliations between them are usually the least documented part of the operation.

We help HFAs make those seams explicit, repeatable, and defensible.

Kearney & Partners performs no attest work. We are not your auditor. That separation is what allows us to work as your advocate through the audit rather than across from you.

The three pressures we see most often

Bond and indenture reporting that lives outside the accounting system

Indenture covenants drive their own reporting stream: trustee reports, program fund and revenue fund flows, parity and coverage calculations, arbitrage rebate tracking. These are not a single calculation. They are a set of specialist reports and computations, and the source data is the loan portfolio itself, not the general ledger. The general ledger is used as a tie-out for completeness, and portfolio facts (delinquencies, prepayments, loss estimates) feed the general ledger through allowances and related adjustments.

How this work is organized depends on agency size. Larger HFAs typically have a loan portfolio or portfolio management group that owns the reporting, coordinating with accounting on the tie-outs and the allowance entries. Smaller HFAs often concentrate the whole stream in one person, maintained in a workbook nobody else has documented. It reconciles because that person makes it reconcile.

The concentration risk is where the two models converge. In the smaller-HFA model it is obvious; when the person is on leave or retires, the agency discovers how much of its reporting was a personal capability rather than an institutional process. In the larger-HFA model it is quieter but real: portfolio and accounting are coordinated in practice but rarely in documentation, and the handoffs between them are usually the first thing to break when someone turns over. In both cases, this is one of the largest concentration risks we encounter in HFA finance functions, and it is rarely reflected on the risk register with the specificity it deserves.

Pass-through obligations that are treated as administrative

When an agency passes federal awards to local subrecipients, it takes on obligations of its own. Subrecipient and contractor determinations at 2 CFR 200.331 and the requirements for pass-through entities at 2 CFR 200.332 are not paperwork. They carry monitoring, risk assessment, and follow-up responsibilities that sit with the agency, not with the subrecipient.

The pattern we see is an agency with strong internal controls over its own expenditures and a much thinner file on what it required of, received from, and did about its subrecipients. That asymmetry shows up in testing and often results in compliance findings.

A SEFA assembled at the end rather than maintained through the year

Where an agency does expend federal awards, a Single Audit is required once those expenditures reach $1,000,000 in a fiscal year, under the Uniform Guidance at 2 CFR Part 200, Subpart F.

The SEFA, required at 2 CFR 200.510(b), is frequently treated as a year-end schedule to be assembled. It is better understood as the input that drives your own compliance testing: it feeds the major program determination process at 2 CFR 200.518, which decides which programs your auditor tests. An agency that builds its SEFA in the final weeks has given up its only opportunity to see its testing scope coming.

The larger risk is completeness. A SEFA built at year-end tends to capture what is easy to find. This includes the programs someone remembers, the awards with a clear grant number, and/or the pass-throughs already booked as such. It tends to miss what is harder to see: awards received through a state or local pass-through that were not clearly labeled as federal, small direct awards to a program group outside of the finance team, non-cash awards, loans and loan guarantees under 2 CFR 200.502, or program income that carries the federal identity of the underlying award.

Missed expenditures are the single largest exposure a Single Audit carries. They put the agency at risk of an incomplete SEFA, which is often a material weakness or significant deficiency finding and a materially incorrect major program determination, and they put the auditor at risk of having tested the wrong scope. Neither party wants to discover this in the final weeks of the engagement, or worse yet, after the report has been issued.

In order to maintain the SEFA through the year the HFA needs to ensure that grants are coded as federal at the point they are booked, that pass-through letters are filed as they arrive, and that program income is tracked back to its source. That is a strong indication to all stakeholders that the HFA is utilizing appropriate controls and reducing the likelihood of waste, fraud, and abuse of federal funds. It also happens to make the scope conversation with your auditor quicker and less contentious.

Worth stating alongside it, because the two are routinely conflated: the Single Audit does not incorporate your financial statement audit. They are distinct obligations performed in the same window.

What we do

Audit process management

Readiness assessment before the period under audit, covering federal awards, pass-through activity, and the reconciliations most likely to be tested
Prepared By Client (PBC) request list coordination with named owners and tracked turnaround times
SEFA preparation as a maintained schedule rather than a year-end build, reconciled to the general ledger
Subrecipient monitoring files organized to the standard they will actually be tested against
Auditor liaison through fieldwork

Financial operations transformation

Documenting and de-risking the bond and indenture reporting chain, so it survives the departure of any one person
Reconciliation architecture between the general ledger, trustee reporting, and program reporting, with the adjustments written down
Close calendar built around the reporting obligations that actually bind, rather than a generic month-end
Fund and program structure that supports federal award reporting natively

Ongoing accounting and bookkeeping

Monthly close and recurring reconciliations across funds and programs
Loan portfolio and program-level accounting support
Recurring reporting packages for board, trustee, and program audiences
Capacity support where the reporting load exceeds the size of the team

Strategic finance and operational advisory

Board and executive reporting that survives contact with a finance committee
Succession and continuity planning for specialist reporting functions, which for most agencies is the highest-value work on this list
Operational assessment ahead of a rating agency or funder review
Support through finance leadership transition

How an engagement starts

We begin with a diagnostic rather than a proposal: your last audit cycle, your current close, your reporting obligations, and the reconciliations holding them together. You get back what we found, in priority order, with an honest view of what is urgent and what is merely untidy.

If the answer is that your operation is sound and the work is not needed, we will say so.

Ideal fit

Housing Finance Agencies and comparable state or regional housing finance entities, particularly where:

Specialist reporting depends on a small number of individuals
Federal pass-through activity has grown faster than the monitoring infrastructure around it
Audit cycles are absorbing disproportionate leadership time
A finance leadership transition is underway or approaching
Program growth has outpaced the reporting structure built for the previous scale

What changes in the first cycle

The honest answer depends on what the diagnostic finds, so what follows is a pattern rather than a promise.

The first thing that usually changes is that the undocumented reconciliations become documented and institutionalized. That sounds modest. In practice it is the difference between a reporting function that is a capability of the agency and one that is a capability of a person, and agencies tend to recognize the significance of it only once it is done.

Through the first audit cycle, the change shows up in fieldwork. The SEFA is already reconciled rather than being built while the auditors wait, subrecipient monitoring files are assembled to the standard they will be tested against, and PBC list responses go out on a schedule your team controls.

By the second cycle, the question is whether it held without us, which is the only measure that matters. We build for that outcome deliberately, including writing procedures your team owns rather than retaining the knowledge ourselves.

What we cannot change is the underlying obligation. Your covenants, your federal requirements, and your board's expectations all stay exactly where they were. What changes is how much of your leadership capacity they consume, and how exposed you are when one person is unavailable.

Common questions

Do you perform our audit? No. Kearney & Partners performs no attest work. We prepare the organization for audit and support you through it, which requires that we not be your auditor.

Do you take over bond compliance and arbitrage work? We do not replace specialist bond counsel or arbitrage rebate providers. What we do is make sure the reporting chain feeding them is documented, reconciled, and not dependent on a single person's undocumented workbook.

Our audits come back clean. Is there anything here for us? Possibly not, and we will tell you if so. The question a clean audit does not answer is what it cost to get there, and whether the process would survive losing the person who carried it.

Where do you usually start? Most engagements start with either audit readiness or the reconciliation documentation, because those two produce visible relief in the first cycle.