Now that we know the type of information USCIS auditors are asking of Regional Centers, the advantages of JTC’s EB-5 administration have come into focus.
One of the most important provisions in the EB-5 Reform and Integrity Act of 2022 (RIA) was that Regional Centers would be audited by U.S. Citizenship and Immigration Services (USCIS) at least once every five years. Little information was provided as to what these audits would entail or what information Regional Centers would need to have prepared to avoid failing an audit.
Now that audits have begun, we’ve been hearing from those who have experienced them regarding the scope and timeframe of USCIS audits. Regional Centers that work with JTC can heave a sigh of relief, because thanks to services we already provide, they’re better prepared than most.
What we’ve learned about USCIS Regional Center audits
On April 9th, 2024, USCIS announced that the Regional Center audits mandated by the RIA would begin this year. As the first round of audits began, JTC worked to collect information about what was being asked of Regional Centers and how the audit process was being carried out.
As part of our educational outreach efforts, JTC and IIUSA hosted a webinar on July 10th called “Regional Center Audits: What Should You Do To Prepare?” At the webinar, some of the first people to go through USCIS audits talked about their experiences. According to Darrell Sanders, Vice President – Investment Programs, American Life Inc., the first step was a notification of audit, followed by a letter requesting documentation.
“The second letter was about two pages of documentation that they wanted us to send them,” said Sanders. “Most of that documentation was financial statements, staff, lists and information about the owners in the Regional Center, but about 13 or 14 bullet points.”
As the participants detailed their audit experiences, certain themes came up again and again.
The timeframe to prepare is short
What may surprise Regional Center operators is just how quickly they will be expected to supply this information. According to Noreen Hogan, President, CMB Regional Centers, her team was given “two weeks and a day” to produce “just shy of 2,500 pages.”
“Look at the timeframe,” said Hogan, “because it is a lot of documents.”
“It was surprising how fast they wanted this back,” agreed Sanders. “If you’re not prepared, you’ve got two weeks to get 2,000 pages together.”
Be ready to supply additional information
At that point, an initial virtual meeting is held, and an in-person site visit is scheduled. During both these meetings, more documentation may be requested, and Regional Centers will be expected to supply it within a day or two.
“It includes things like the formation of the entities and the governance of those entities as well as, operationally, what is the flow of funds and how do you track it and things like that,” said JTC Head of Specialty Administration/General Counsel – US Jill Jones.
“We produce bank statements for the JCE, bank statements for the NCE, flow of funds,” said Osvaldo F. Torres, Esq., of Torres Law. At site meetings, Regional Centers were expected to go live with investor-facing software platforms and walk through the flow of funds for specific Limited Partners.
Proper operational systems need to be in place
“They wanted to see bank statements, letters documenting movement of funds from one place to another, so it was really all about the flow of funds and auditing that for random Limited Partners,” said Hogan.
With so many documents requested and information on specific investors required during in-person meetings, Regional Centers need to be prepared.
“You really need to make sure you have all your documents in place,” said Torres.
Flow of Funds is a common theme
Based on the information we’ve gotten from the webinar panelists and others who’ve undergone the process, we now know some of the information that is frequently requested by auditors. This information can include monthly bank statements (or other financial statements) for each separate account set up by the NCE and/or affiliated JCE, annual financial statements for the years subject to the audit (depending on when the audit is performed, this could be up to five years of financial statements), and all documentation maintained by the Regional Center to show the flow of EB-5 investor funds.
This flow of funds information includes everything pertaining to the initial investor deposit through escrow accounts to the NCE, from the NCE to the JCE, and from the JCE to the project. In addition, auditors want to see the methods utilized to track investor data, investments, and investment performance. Going live with software platforms helps auditors see just how records are kept and accessed by investors and employees of the Regional Center.
How JTC helps Regional Centers prepare for audits
If records are only kept in hard copy or in a way that isn’t searchable, this type of audit could be very difficult for a Regional Center. But for those that work with JTC, a lot of the information will already be easily accessible.
JTC recognized the importance of tracking this information in 2013 when it released it first fund administration solution. At that time, there was no regulatory requirement to do so, but JTC knew that for the long-term success of the EB-5 program, proper fund administration, financial controls, and reporting would be necessary.
JTC provides third-party fund administration services that include recordkeeping in accordance with the RIA, along with services like escrow, fund accounting, and cosignatory. The audit trail and documentation for all these services is stored on our cloud-based platform, which can be used to demonstrate to auditors that processes are in place to ensure security of funds, transparency for Limited Partners, and compliance with EB-5 rules.
The information required may differ based on the model being used, be it an equity model, loan model, or rent-a-center model. Only a fund administrator that understands the Regional Center’s business and the requirements of the RIA can help them determine what they need based on their unique situation.
JTC is continually updating our services, and now that we know what information is required for audits, we can work with our clients to add to our offerings and store even more of the required information on our online portal for easy access when their audit notification arrives.
Making sure you’re prepared for when your number is called
One thing we don’t know yet is how strict auditors will be when it comes time to make decisions about negative audit outcomes and possible penalties. We also don’t know how USCIS is determining who gets audited and when. For both of these unknowns, it’s a good idea to be ready because you never know when your turn will come.
By getting the help you need from JTC, you can ensure the audit process won’t be overly stressful. Our customizable suite of EB-5 services allows Regional Centers to get the services they require to demonstrate the integrity of their processes and secure their reputations. Get in touch with a JTC representative to learn the latest about EB-5 audits and how JTC can help.
To learn more about JTC’s services for EB-5 Regional Centers, click here.
