Cash Management for HCV and Shortfall
Cash Management for HCV and Shortfall
Funding methodology is complex and confusing. It’s important that PHAs know what to do in the event they do not receive enough or are out of HAP funding. As importantly, PHAs have questions about requesting additional HAP funding. Here, we provide guidance that can be useful to PHAs in their cash management efforts.
HUD began cash management for Housing Assistance Payment (HAP) funding in 2012. PIH 2011-67, revised by PIH Notice 2017-06, established cash management procedures to reduce the accumulation of Restricted Net Position (RNP) [excess HAP funding], reduce Treasury outlays by timing the disbursements of HAP funding based on actual need, and facilitate a more efficient and timely method to account for PHA HAP reserves. In January 2012, HUD began distributing funds to PHAs monthly based on the most recent assessment of needs.
HUD is required to control disbursement of funds to PHAs to ensure that PHAs do not receive federal funds before they are needed, as described in Treasury Financial Manual, Volume 1, Part 4A-2045.10 – Cash Advances – Establishing Procedures for Cash Advances:
“It is the responsibility of grantor agencies [HUD] to monitor the cash management practices of their recipient organizations [PHAs] to ensure that Federal cash is not maintained by them in excess of immediate disbursing needs. Agencies [HUD] must establish systems and procedures to assure that balances are maintained commensurate with immediate disbursing needs, and excess balances are promptly returned to the Treasury.”
HUD’s solution is to use the latest Voucher Management System (VMS) validated HAP expense data. HUD will use this HAP data to provide monthly HAP disbursements to PHAs. PHAs will receive monthly emails notifying them of HAP funding amounts for the upcoming month. For example, PHAs received an email dated March 10, 2023, explaining how HUD determined the funding need for April 2023 HAP disbursements for PHAs. HUD used the PHA-reported HAP expenses in VMS from November 2022 and inflated the amount by 2%. Attachment A b provides the calculation (see below for example).
CY 2023 April HAP Disbursement Enclosure
|PHA Name||Terrapin Housing Authority|
|Total VMS HAP Costs Reported: |
|Total Calculated Monthly Need (Line 4 + Line5)||$954,026|
This funding methodology is still causing confusion today. BDO receives questions often such as:
- “If I don’t receive enough HAP funding for the month, do I have to cut back on issuing vouchers?”
- “Am I out of HAP funding, and do I need to cut vouchers from the program?”
- “Can I ask HUD for more HAP funding?”
The answers to these questions depend on several factors such as Annual Budget Authority (ABA), HUD Held Reserves (HHR) and RNP. ABA is the amount of HAP funding awarded to each PHA for each calendar year. ABA is formula-driven based on prior calendar year HAP expenses as reported in VMS plus an inflation factor. Since HUD is disbursing HAP funds to PHAs based on cash management, any ABA not disbursed to the PHA at the end of the calendar year is transitioned to HHR and can be used for future HAP funding for the PHA. Any HAP funds remaining at the PHA that have not been paid to landlords is called RNP.
Every month PHAs must review their HAP funding letters to determine if they are receiving enough HAP funds to pay for their upcoming HAP expenses. Just because the PHA may not be receiving enough HAP funds monthly, doesn’t mean additional funds aren’t available. First, the PHA should check their RNP to see if the PHA is holding any additional HAP funds. HUD may purposely reduce the PHA’s monthly HAP funding to force the PHA to use their RNP. PHAs should have zero or very little RNP. Remember, cash management requires HUD to only provide PHA’s HAP funds when they need it, so when a PHA accumulates RNP, HUD will reduce the PHA’s monthly funding to force the PHA to spend those funds. If the PHA doesn’t have enough HAP funding in addition of the RNP, then the PHA can ask HUD for a “front load” of ABA/HHR. HUD [Financial Management Center – FMC] will require the PHA to provide supporting documentation for unit months leased and HAP expenses not yet in VMS and estimated leasing and HAP expenses for upcoming months. It usually takes the FMC about 72 hours to provide the additional funding. Since HUD is providing the funding letter about 2-3 weeks before the PHA receives the funding, the PHA has plenty of time to coordinate with Finance and HCV operations to determine if there is an additional funding need.
Shortfall is different. When a PHA is projected to run out of HAP funding [ABA, HHR, RNP, current year fraud recoveries] based on leasing levels in HUD’s Two-Year-Tool, then HUD will work with the PHA to provide “Shortfall Funds” to prevent termination of participants. There will be certain requirements the PHA would have to meet to be eligible to receive these funds. The eligibility requirements for Shortfall funding are published annually via PIH Notice.