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Section 3


Program Compliance Accounting


> Annual Financial Statements


    > Frequently Asked Questions



Questions about Annual Financial Statements


Questions about On-line Financial Statement Submission


Questions about Surplus Cash


Annual Financial Statements


Q: New When are financial statements required to be submitted to MHDC?  (1/29/10)


A:   Financial Statements are due 90 days after fiscal year-end.  2009 financial statements are required to be submitted online to MHDC by Wednesday March 31, 2010.


Q: New Have new accounts been added to the MHDC Chart of Accounts for the 2009 year-end? (1/29/10)


A:  No.  2008 was the last time additions were made to the required chart of accounts.


Q: New Are there any new financial statement requirements planned for 2009 year-end?


A:   Yes,  Missouri legislative staff has requested that MHDC collect more detailed information on the allocation of Low Income Housing Tax Credits.  Properties with 13+ units must submit a Schedule of Eligible and Allocated Federal and State Tax Credits as part of the annual audited, reviewed, or compiled financial statements.  Properties with 1-12 units must mail the current signed Forms 8609 and Missouri Eligibility Statements for each building as prepared by the certified public accountant to MHDC's St. Louis office - 4625 Lindell Blvd, St. Louis, MO 63108.  For reporting year 2009, signed 8609 forms and eligibility statements must also be submitted for all previous years of the tax credit period to provide the entire tax credit history to-date.


Q:  New What if we do not have our tax return prepared yet to determine the amount of tax credits earned to report on the Schedule of Eligible and Allocated Federal and State Tax Credits? (1/29/10)


A:   MHDC realizes that not all properties will have their tax returns finalized by the time of audit submission, but MHDC needs to know the amount of credits earned for the period covered under the financial statement.   


Q:  New On the Schedule of Eligible and Allocated Federal and State Tax Credits,  do I need to provide projected credits for each subsequent year? (1/29/10)


A:  No, MHDC does not want properties to report the projected eligible credits for future years.  The idea of the table is to fill in the eligible credits for the year covered by the financial statement, and since we are just beginning to use this form, we are also asking for previous history.  Future years should be left blank in the eligible column.


Q:  New Can I incorporate this information within the footnotes of the financial statement, or do I have to prepare it as a supplemental schedule? (1/29/10)


A:  MHDC’s preference is to include this information as a supplemental schedule.  MHDC believes this approach would be easiest for both the CPA’s preparing the statements and MHDC staff reviewing the information.


Q:  New Do I need to provide total columns on the Schedule of Eligible and Allocated Federal and State Tax Credits? (1/29/10)


A:  No, total columns are not necessary.



Q: New Have new accounts been added to the Chart of Account in 2008?  (1/30/08)


A:   Yes.  MHDC has added the following accounts in 2008:       



Pool Supplies and Pool Maintenance / Contracts




Elevator Maintenance / Contracts


MHDC has updated its Chart of Accounts and Balance Sheet and Income Statement with Account Numbers template to reflect the new changes.




Q: New When are financial statements required to be submitted to MHDC?  (1//30/08)

A:   Financial Statements are due 90 days after fiscal year-end.  2007 financial statements are required to be submitted on-line to MHDC by Monday March 31, 2008.


Q: How do I determine if I need to submit my financial statement on-line or mail a financial statement hard copy to MHDC? (1/16/07)


A:  All financial statements must be filed on-line at amrs.mhdc.com unless the project files their financial statement with HUD under the REAC system.  In this case, a copy of the property’s financial statement needs to be mailed to the MHDC – STL office: 4625 Lindell Blvd. St. Louis, MO 63108.  MHDC does not require HUD submitted properties to file electronically with MHDC.  Of course if the property wanted to file on-line, arrangements can be made by contacting the MHDC St. Louis Office at 314-877-1350.  MHDC does require a copy of the financial statement to be uploaded in the electronic submission for MHDC to review.


Q: How is Gross Potential Rent Determined? (1/16/07)


A: This account includes MHDC approved rents charged at 100% occupancy.  The amount can be calculated by taking the total of the approved rent charges per each unit times the number of months in the approved rent increase period.  Approved rents can be found in the property’s Regulatory Agreement, Land Use Restriction Agreement, HUD Rent Schedule Low Rent Housing Form HUD-92458, or MHDC’s Schedule II if a rent increase has been approved since the property’s inception.  Rents should NOT be netted!


Gross Potential Rents should be reported as follows:


Rent Revenue - Gross Potential

(assume per Schedule II)

 $  302,400

      ($450 x 56 1 BR units x 12 mo)



Vacancies - Apartments *


 $   (15,000)

Rental Concessions #


 $     (5,000)

Loss to Lease ^


 $     (3,000)




Net Rental Revenue Rent Revenue Less Vacancies

 $  279,400


* Defined as the gross potential rents lost through vacancy of an apartment unit.


# Defined as the amount provided for rental concessions (i.e. free rent, discounts) in connection with the execution of the tenant's lease.


^ Defined as Gross Potential Rents lost due to the timing of tenant's current lease.  (i.e. - rent increase effective date 1/1/x; tenant lease expiration date 4/1/x = 3 months of rents lost to lease).


Q: How does MHDC calculate management fees, and why am I required to repay excess management fees? (1/16/07)

A: MHDC performs a review of management fees based on year-end information.  Management fees are to be reconciled at year-end to remain compliant with MHDC’s PROJECT OWNER’S/MANAGEMENT AGENT’S CERTIFICATION Form.


Reimbursement of management fees will be required when management fees are not paid in accordance with the PROJECT OWNER’S/MANAGEMENT AGENT’S CERTIFICATION Form. Management Fees can be paid one of two ways – “per occupied unit” or “% of collected rental income.”  Forms that contain the language “per occupied unit” will not be eligible for the maximum management fee unless there was 100% occupancy during the year.


 MHDC calculates “per occupied unit” management fees as follows:



MHDC calculates “% of collected rental income” management fees as follows:


Total Collected Income *


 $  200,000




Approved Management Fee %



(assume 5%)








Total Management Fee Allowed

 $    10,000










*  Total Collected Incomes includes Apartment Rents, Cooperative Carrying Charges,

Rent Supplement payments, RAP Payments, Laundry Income, Tenant Charges

Rents collected thru a Collection Agency







Q: How does MHDC determine if interest should be accrued for at year-end, and How does MHDC determine accrued interest? (1/16/07)

A:  Interest should be accrued for if January’s mortgage payment is paid in January instead of December.  This amount should be booked regardless of materiality because of potential surplus cash implications.  The interest portion of January’s payment is for interest earned from December 1 to December 31st.  MHDC uses MHDC’s internal payment posting date to determine if interest should or should not be accrued for.  The amount to be accrued for is determined based on the property’s amortization schedule and monthly billing statement (i.e. January’s Mortgage Statement would show how January’s payment was to be allocated between principal and interest.)  Billing statements are usually received 10 days prior to the payment becoming due. 

Q:  New When will Owner’s Equity calculations be sent out? (1/30/08)

A:  MHDC will mail Owner’s Equity calculations by January 31, 2008.


Q:  Is there a preferred format that MHDC requires Financial Statements to be submitted in?

A:  Yes, MHDC prefers that all properties prepare their financial statements using the chart of accounts provided under the On-line Budget System.  This format is essential for MHDC to begin creating its benchmarking database, and it will allow MHDC to review the financial statements compared to the annual budget more effectively. Click Balance Sheet & Income Statement Format with Account Numbers for a sample of a balance sheet and Income statement under this format.

Q: How do I know if I am required to file a financial statement?

A: Financial statement submission depends on the number of units your development has. Development’s with 24 or more units must file audited financial statements that follow Generally Accepted Auditing Standards and Government Auditing Standards (only if HUD or RD assistance is received). Development’s with 13 – 23 units may file reviewed or compiled financial statements that follow the Statement on Standards for Accounting and Review Services. Development’s with 12 or less units do not need to file financial statements.

Q:  What types of audits require the Schedule of Audit Findings, Compliance and Internal Control Comments, and Prior Audit Findings Resolution Comments to be performed?

A:  Any property that is required to file a financial statement to HUD, Rural Development, and/or receives MHDC Home funds in excess of $500,000 must prepare its audit under the Government Auditing Standards.  Government Auditing Standards require the auditor to report on Internal Control, submit a Schedule of Questioned Costs, and report on prior year findings.  Properties that do not receive federal funds may prepare their financial statements under normal Generally Accepted Auditing Standards.

Q: What schedules are required under Reviewed or Compiled Financial Statements?

A:  The same statements required for an audit are required for a review or compilation.  The biggest difference to note is the auditor’s level of responsibility.  The following schedules are required under the scope of reviewed or compiled financial statements:  Accountant’s Report, Balance Sheet, Statement of Income and Expense, Statement of Retained Earnings /Owner’s Equity, Statement of Cash Flows, Notes to the Financial Statements (including Notes Payable and Change in Fixed Assets), Schedule of Funds, Mortgage Escrow Deposits, Schedule of Reserve Funds, Surplus Cash Distribution, Residual Receipts Calculation, Equity Distribution Calculation, Mortgagor's Certification, and Managing Agent’s Certification.  Please note the Surplus Cash Distribution, Residual Receipts Calculation, and Equity Distribution Calculations are not required for Tax Credit Only properties.

Q: What is the difference between reviewed or compiled financial statements?

A: Reviewed financial statements are less in scope than an audit. Your CPA is not required to evaluate internal control and no specific tests are required. Instead inquiries are made of management, and your financial statements are analyzed. Knowing the extra costs involved in an audit, a review will provide some of the assurances of an audit, since a qualified, independent outsider has analyzed your financial statements.

Compiled Financial Statements are less in scope of an audit and review. The CPA has done no testing or analysis of the financials, but having the firm involved enhances internal controls. In a Compiled Financial, your monthly bank account reconciliation will be read. The transactions will be assembled using generally accepted accounting standards, although they are not tested. Compiled statements are often sufficient to meet your needs, since the cost of a compilation is very low in comparison to that of an audited or reviewed financial statement.

Q: What will happen if I do not file my financial statement within 90 days of my fiscal year-end?

A: Failure to submit annual financial statements will result in your property being placed on MHDC’s Non-Compliance list. MHDC will not process any future requests (replacement reserve withdrawal, rent increases, Surplus Cash, etc.) from this development until the issue is resolved. 

Q: What does “Non-Compliance Status” mean?

A: Non-Compliance Status is a term used by MHDC when a project fails to submit any information as prescribed under the Regulatory Agreement or respond to any MHDC inquiry within the allotted time frame. Lack of response to MHDC’s request is a direct violation of the Regulatory Agreement. MHDC will not process any future requests (replacement reserve withdrawal, rent increases, surplus cash, etc.) from a project until the non-compliance issue is resolved. Once the non-compliance issue is resolved, the project is put on a 90 day waiting list before their request can be processed.

Q:  Are Fidelity Bond premiums considered an eligible project operating expense? 

A:   Fidelity Bond policies are required for each Management Company to insure against employee fraud and embezzlement.  Effective January 1, 2004, Fidelity Bond premiums of $500 or less will be allowed as an eligible operating expense. Premiums in excess of $500 will not be eligible and should be reported as a non-operating item on the income statement.

Q: What are some acceptable methods to segregate cash when the operating cash account has exceeded $100,000?

A:  Option 1 - Divide into different accounts (different banks)

Option 2 – Provide documentation of the financial institution’s rating. The financial institution must have a rating consistent at all times with current minimally acceptable ratings as established and published by Government National Mortgage Association (GNMA)

Option 3 - Buy treasuries (need to be cognizant of the change in market value over the years and prepare for that)

Option 4 - Purchase surety bonds to insure the money held in the (1) account

Option 5 - The Federal Home Loan Bank out of Des Moines, Iowa can provide a letter of credit

Note: MHDC does not endorse any one option over the other.

Q: Can partnership tax expenses be combined with the annual audit expense, and be charged to operations?

A: Yes - MHDC allows partnership tax expenses and the fee to prepare the mortgagor's K-1 to be combined with annual audit expense, and be charged to operations on the annual financial statements.

Q: Can financial statements be prepared using “other comprehensive basis of accounting” (OCBOA)?

A: No – CPA’s may not prepare financial statements using OCBOA (i.e. cash basis and tax basis.) All financial statements must be prepared using MHDC guidelines and “Generally Accepted Accounting Principles” (GAAP). GAAP accounting is the concept of the matching principle. This means that revenues should be matched with expenses and vice versa. Transactions should be recorded when economic events occur in addition to when cash is transferred.

Q: Do losses due to flooding, fire, storm damage, or other disaster need to be reported to MHDC?

A: Yes – MHDC must be listed as an additional loss payee, and must be notified in writing, regardless of amount, that the project experienced a loss and filed a claim. A copy of the claims form must be sent to the MHDC (STL) office, and MHDC must be notified when repairs are complete so an inspection can be scheduled based on the extent of the repairs.

Q: What should the project do when they receive an insurance claim check, and how should the insurance claim be reported for accounting purposes?

A: All insurance reimbursement checks must include MHDC as an additional loss payee, and be sent to the STL office with the owner’s endorsement. MHDC will forward a check to the owner/contractor upon completion of work and MHDC’s inspection.

The project is responsible for the appropriate accounting of insurance reimbursement transactions. For assets previously capitalized, GAAP requires writing off the net book value of the damaged asset, and recognizing a gain or loss on disposal depending on whether the insurance proceeds are greater or less than the net book value. The fixed assets that are purchased with the insurance proceeds are capitalized as fixed assets and depreciated accordingly. The gain or loss should be recorded below net operating income (loss). In the event insurance proceeds are received on an asset that was originally expensed, the proceeds would hit (credit) other income, and expense (debit) when the replacement item is incurred. For presentation purposes, these items should not be “netted” on the same P&L line, and appropriate footnote disclosure or supplemental schedule is required to discuss the nature of the loss.

Q: What is the difference between Operating Deficit Reserves and Operating Reserves?

A: Operating Deficit Reserves fund shortfalls during the lease up period, and Operating Reserves fund shortfalls through the life of the loan or until depleted.

Q: Do audited financial statements need to be submitted at Cost Certification?

A: If a project cost certifies prior to July 1, audited financial statements must be submitted with the cost certification and again at year-end. If a project cost certifies after July 1, unaudited financial statements will be accepted with the cost certification and audited financial statements will be required to be submitted at year-end.

Q:  Why do Tax Credit Only properties need to submit financial statements?

A:  MHDC has found that many of our Tax Credit properties are being required by their equity syndicators to submit financial statements. 

Section 7(c) of the Land Use Restriction Agreement (LURA) gives MHDC the authority to request this information as it states “the owner shall submit any other information, documents, or certifications requested by the Authority which the Authority shall deem reasonably necessary to substantiate the owner’s continuing compliance with the provisions of the agreement.”

Q: Will I receive notification that my property’s financial statements are reviewed?

A: Yes, all developments will receive a letter from MHDC notifying them that their financial statements have been reviewed. In some instances, MHDC will require additional support to be submitted and accounts to be refunded before the financial review process can be closed.


MHDC’s On-line Annual Financial Statement Submission

Frequently Asked Questions


Q:  How do I enter my Annual Financial Statements On-line?

A:  Annual Financial Statements are to be filed on-line through MHDC’s Asset Management Reporting System (click here) or go to amrs.mhdc.com.

Q:  How do I access MHDC’s Asset Management Reporting System?

A:  Access is granted by entering the project’s user name and password.  Projects who submitted a 2007 budget will use the same user name and password.  All new projects will receive a user name from MHDC prior to the submission period.  MHDC no longer issues passwords.  The project can obtain a password via e-mail by using the Forgot Password? function on the login screen.  

Q:  How does the system know where to send a password when one is requested?

A:  Passwords are sent to the primary contact noted in MHDC’s Asset Management System.  This can be either the owner or management company contact depending on the preferred mailing address selected by the project during the 2007 budget submission.  MHDC requires the contact information screen to be updated at each budget, financial statement, and monthly occupancy submission.  At minimum, all contact information must include a contact name and e-mail address.

Q:  What will I be required to enter On-Line?

A:  The owner, management company representative, or CPA will be required to answer a series of informative questions regarding the property, enter balance sheet, income statement, and key footnote information, and upload a copy of the annual financial statement.

Q: Does MHDC require a CPA to enter the annual financial statement data?

A:  No.  The system is designed so that an owner or management company representative can enter the information on-line. 

Q:  Do I still need to submit a hard copy of the financial statement to the MHDC St. Louis Office?

A:  Only if the project files their financial statement with HUD under the REAC system.  MHDC does not require HUD submitted properties to file electronically with MHDC.  Of course if the property wanted to file on-line, arrangements can be made by contacting the MHDC St. Louis Office at 314-877-1350.  MHDC does require a copy of the financial statement to be uploaded in the electronic submission for MHDC to review.

Q:  What is meant by uploading a financial statement?

A:  Uploading a financial statement means attaching a paper copy version of the financial statement to your electronic submission preferably in a .pdf format.

Q:  Does the uploaded financial statement still need to include the same supplemental schedules that have been required by MHDC in previous years?

A:  Yes.  All requirements remain the same as previous years.  Please visit our website www.mhdc.com for a listing of schedules required by MHDC.  MHDC needs to be able to access the financial statements to read the footnotes and verify various account balances.

Q:  Does MHDC have a prescribed format for preparing financial statements.

A:  Yes.  MHDC requires the balance sheet and income statement to be prepared in accordance with MHDC’s chart of accounts. MHDC has suggested formats available on our website www.mhdc.com  which can be downloaded.  The income statement containing MHDC’s chart of accounts may be submitted as a supplemental schedule.

Q:  How long will it take to submit a financial statement on-line?

A:  Depending on the financial complexity of the project, submission should take anywhere from 30 minutes to and 1 ½ hrs.

Q:  Are there any instructions on how to enter the financial statements on-line?

A:  Yes. Training instructions (click here) are posted on our website at www.mhdc.com. Instructions contain screen prints and helpful submission hints about the on-line system.

Frequently Asked Questions

Surplus Cash

When can projects submit their requests to distribute surplus cash, and how should requests be submitted? (1/16/07)

A: The on-line system allows the property to submit their request to distribute surplus cash with the submission of their annual financial statement.  If the property is in a surplus cash position, the system will ask the property at the end of their submission if they would like to request approval to distribute surplus cash.  If the property answers – Yes, a Surplus Cash request form will appear for the property to fill out.   A No answer will submit the financial statement to MHDC, but will not request surplus cash to be released.  In this case, the property may submit their request on-line at a later date.  All requests will be processed on a first come first serve basis.   In any case, surplus cash may not be distributed without MHDC’s written approval!

Written Surplus Cash distribution requests will only be accepted for properties that are required to submit financial statement hard copies, and must have their surplus cash approved by MHDC because the property falls under HUD’s “Old Reg” rules.

Q:   How are general partnership loans treated (loans to cover temporary cash flow needs of the property)?

A: General Partnership loans are allowed, but should be paid only if there is surplus cash at the end of the year. GP loans are not to be included in the calculation to surplus cash. A project should make sure that all the operating expenses are appropriately covered first before payback of the GP loan.

Q: When are Deferred Developer fees payable?

A: Deferred developer fees are allowed after surplus cash, but before the repayment of the surplus cash note to MHDC.

 How does a property know if MHDC or HUD is to approve surplus cash for a HUD insured project?

A: MHDC will approve surplus cash for any HUD insured project that MHDC is the mortgagee on and is considered an “Old Reg” project by HUD. "Old Reg" projects are those that have a new construction date of 11/4/79, or earlier, or that have a substantial rehabilitation date of
2/27/80, or earlier. “Old or New Reg” projects can be determined by checking the subsidy status screen in REMS. Surplus Cash for “New Reg” projects must be approved by HUD.

 How do projects determine what amount to report on Line 9 of the Surplus Cash Computation, and does supporting documentation need to be provided?

A: Line 9 of the Surplus Cash Computation is one of the few items that is actually not a Balance Sheet entry.

For example, if the taxes were due December 31 and they were in the amount of $10,000 and the mortgage company had only escrowed $9,000, they would then have a deficiency in the escrow of $1,000. This $1,000 could then be entered on Line 9 of the Surplus Cash Computation.

The calculation to support the Deficient Tax Insurance or MIP Escrow Deposits amount on Line 9 of the Computation of Surplus Cash, Distributions, and Residual Receipts form is required to be provided in the notes to financial statements or other supplementary data section. Beginning in 2004, any amount estimated on line 9 will be required to be sent to MHDC to be deposited in your escrow account.