Understanding Audits & Fund Administration Under the Reform & Integrity Act

By Coleen Danaher, VP Business Development, JTC America’s; Bidhya Dhungel, CPA, EB-5 Capital; Mike Xenick, CEO, InvestAmerica

The EB-5 Program has an over 32-year history during which it has generated billions of dollars in foreign investment, created hundreds of thousands of jobs and has drawn much needed capital and vital improvements to communities in need. Unfortunately, the program remains controversial, due In large part to bad actors, bad publicity, program abuses and cases of fraud.

The introduction of the EB-5 Reform and Integrity Act of 2022 (the “RIA”), supported by IIUSA, is intended to reduce the risk of fraud and other abuses. This law has numerous requirements, restrictions, and additional supervisory responsibilities for regional centers. One of the new requirements in the RIA is that New Commercial Enterprises (NCEs) are now required to use an independent-fund administrator to provide oversight and track the disbursement of EB-5 capital, and thereby improve transparency, security, and reporting compliance. NCEs may obtain a waiver from the fund administrator requirement if the financial statements of the NCE and affiliated job creating entity (“JCE”) are audited by an independent accounting firm.

While using independent fund administrators, and independent auditors should help improve EB-5 Program integrity, these two options are very different processes. The purpose of this article is to shed some light on the differences, the benefits, and advantages of each

An Overview of Fund Administration

Broadly speaking fund administration is the execution of all the “back-office” functions necessary to support an investment fund. These functions include fund accounting, financial reporting, investor on-boarding and communications, capital calls, distributions, monitoring investment compliance, and so on. Fund administrators are a critical intermediary between fund managers and investors.

Independent companies specializing in fund administration began to appear as an industry group after the 1997 Taxpayer Relief Act. Initially the growth in the use of independent fund administrators was driven by fund managers that benefited from the expertise and efficiencies of the fund administrator. Outsourcing the back-office administration provided cost benefits and also allowed fund managers to focus on their core business. However, the financial crisis in 2008, including the Madoff scandal discovered in 2008, highlighted the risks of fraud when independent fund administration was not used. Prior to 2008, less than 10% of hedge fund managers used independent fund administrators, after 2008, this percentage increased to 90%.


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