We’ve heard from representatives of Regional Centers that have gone through audits to find out what’s required, what the process is like, and what you can do to prepare.
When the EB-5 Reform and Integrity Act of 2022 (RIA) was passed, many in the industry were pleased with the law’s new integrity measures aimed at combatting fraud and abuse in the EB-5 Regional Center Program. However, the bill’s passage also came with a lot of unknowns.
One provision of the law was a requirement for U.S. Citizenship and Immigration Services (USCIS) to audit Regional Centers once every five years. Two years after the law was enacted, these audits had yet to take place, and industry stakeholders were unclear as to how they would be carried out.
In a release from April 9th, 2024, USCIS announced that Regional Center audits were finally to begin, and since then, some Regional Centers have been among the first to experience the process. Here’s what we know about these audits so far and what Regional Centers can do to prepare for the inevitable word that they’ve been selected for an audit.
What the RIA says about audits
The full text of H.R.2471, the Consolidated Appropriations Act of 2022 that contains the RIA, states, “The Secretary shall audit each regional center not less frequently than once every 5 years.” Regarding the focus of those audits, the bill states:
Each such audit shall include a review of any documentation required to be maintained under subclause (I) for the preceding 5 years and a review of the flow of alien investor capital into any capital investment project. To the extent multiple regional centers are located at a single site, the Secretary may audit multiple regional centers in a single site visit.
The information that Regional Centers need to keep for at least five years includes “books, ledgers, records, and other documentation from the regional center, new commercial enterprise, or job-creating entity” that can be used to support “any claims, evidence, or certifications contained in the regional center’s annual statements” as well as “associated petitions by aliens seeking classification.”
As these audits are mandatory, the law makes it clear that “The Secretary shall terminate the designation of a regional center that fails to consent to an audit under subclause (II) or deliberately attempts to impede such an audit.”
The RIA requires USCIS to audit Regional Centers at least once every five years, and as such, the audit period could cover up to five years’ worth of information. Since only two years have passed since the RIA, any Regional Center audited right now should only have to provide information for the two years since the law’s passage. However, at a recent webinar, we learned it may be more complicated than that.
On July 10th, 2024, JTC and Invest In the USA (IIUSA) co-sponsored “Regional Center Audits: What Should You Do To Prepare?” At this online event, representatives from Regional Centers that had been among the first selected for audits discussed how the process had gone and what in-person meetings with auditors were actually like.
One thing we found out that was even if an operator has multiple Regional Centers, the audits for those Regional Centers will not be grouped together, meaning an audit may focus on a single Regional Center, forcing the operator to undergo additional audits for their other centers at a later date.
According to Darrell Sanders, Vice President – Investment Programs, American Life Inc., the initial phone call with auditors included questions about open projects that had begun prior to the passage of the RIA.
“One of the big things that we wanted to clarify was what defines an open project?” he said, adding that they needed to explain to auditors which projects had begun pre-RIA. “There were questions about pre-RIA transactions using post-RIA analysis.”
The consequences for noncompliance are straightforward. According to USCIS: “If a regional center chooses not to consent to an audit or deliberately attempts to impede the audit, we will terminate the regional center’s designation.”
Another aspect is less straightforward, which is site visits from USCIS. Regional Centers technically have the ability to refuse site visits at any time, though it’s not clear what the consequences will be.
The release states that “at any point during a site visit in connection with an audit, if the regional center representative expresses an unwillingness to participate in the site visit, we will cancel the visit. We will complete the audit report using the data available and indicate that we canceled the site visit at the request of the regional center.”
That makes it sound like refusing a site visit will not constitute a failure to consent to an audit. But the release also says, “We may consider noncompliance with a site visit to mean nonconsenting to an audit.” It would be nice if USCIS spoke with more clarity than stating they “may” consider canceling a site visit to be noncompliance with an audit, but given the vague statement, Regional Centers would be wise to accommodate site visits as much as possible.
As far as the consequences of the audit, USCIS is similarly unclear on this point. “Except when a regional center does not consent to an audit or deliberately attempts to impede an audit, there are generally no direct adverse consequences to an EB-5 associated entity or petitioner solely because of the negative audit result. However, we may use our findings to evaluate a regional center’s continuing eligibility to remain designated as well as compliance of associated applications, petitions, or other filings with applicable requirements.”
It should be noted that these audits are not the same thing as the annual audits Regional Centers can perform in lieu of retaining a third-party fund administrator. Those optional audits are generally performed under the Generally Accepted Auditing Standards (GAAP) and are scheduled and undertaken by the Regional Center.
These Regional Center audits are initiated by USCIS and, according to the release, will be carried out under the Generally Accepted Government Auditing standards (GAGA), also known as the Yellow Book.
According to USCIS:
The Yellow Book provides standards and guidance for auditors and audit organizations. An audit using the Yellow Book standards will help us verify the information that designated regional centers provide in associated applications and petitions as well as annual statements. It also will help us assess a regional center’s compliance with applicable laws for purposes of remaining eligible for its designation. Generally using GAGAS standards does not remove the officer’s discretion in considering the results of the audit in connection with making adjudicatory decisions, nor does it create any substantive or procedural right or benefit that is legally enforceable by any party against the United States or its agencies or officers or any other person.
This officer discretion and the lack of previous experience with these new RIA-mandated audits could leave Regional Centers unsure if they’re prepared for an audit should they be selected. Now that audits have begun, some information has trickled out about the process and how it has gone in practice.
What we know about USCIS audits so far
USCIS audits of EB-5 Regional Centers officially began on April 23rd, 2024. The Regional Centers that have been selected are so far unclear as to why they were chosen, and the USCIS FAQ page is somewhat unhelpful, stating, “we are developing procedures for selecting regional centers for audit each fiscal year.”
According to the FAQ, the tasks of the auditors will be as follows:
- Reviewing applications, certifications, and associated records;
- Reviewing public records and information on the regional center;
- Verifying the information, including supporting documentation, submitted with applications and in annual statements;
- Conducting in-person audits through a site visit (when applicable);
- Assessing the effectiveness of internal controls related to the regional center’s administration, oversight, and management functions;
- Reviewing and analyzing financial documentation;
- Reviewing the flow of investor capital into capital investment projects; and
- Interviewing personnel to confirm the validity of the information provided with applications and annual certifications.
The first step In the audit will be a notification letter and request for information. After that, auditors and the Regional Center will participate in the first audit meeting. Based on preliminary evidence from those Regional Centers that have been audited, the time from this initial notification to the meeting has been around two weeks.
After the initial meeting (which for the Regional Centers at the webinar was done over Microsoft Teams), auditors can request more information. Some reports have indicated Regional Centers were given only two days to provide this additional information, meaning you don’t have time to be unprepared. In the view of the auditors, if things are being done properly, additional time should not be needed.
“If you’re running your Regional Center as a true EB-5 business and this is what you do for a living, most of the documentation that they’re asking you for in order to produce is something that you’ve already provided to the USCIS,” said Noreen Hogan, President, CMB Regional Centers.
Another aspect of the audit is an in-person site visit at the Regional Center. According to USCIS, “An in-person audit site visit may include verifying property, plant or equipment; visually checking internal control processes; walkthroughs; and employee interviews. Our auditor will coordinate any in-person site visits with the regional center ahead of time.”
According to those who’ve already been audited, these employee interviews can be rather thorough, so it’s wise to discuss the audit with employees so they understand what is to be expected of them. As USCIS has been flexible in scheduling the date of these in-person meetings, Regional Centers have been able to plan ahead to ensure key employees are available to answer questions from auditors.
In addition to verifying information from annual reports, auditors have asked for documentation regarding the Regional Center’s structure and that of the NCE and JCE, marketing strategies, and roles of those associated, along with evidence of the flow of capital and bank statements.
“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.
It’s important to remember that the auditors are also new at this – just like Regional Centers, they haven’t performed these RIA audits before, and may not be experienced in EB-5 – so it is to be expected that additional information may be requested or the process adjusted as they come to better understand the workings of a Regional Center.
Best practices for USCIS audits
USCIS says Regional Centers “should be ready to present any information such as books, ledgers, records, and other documentation that the regional center must maintain,” as well as any information requested in the audit questionnaire. The FAQ also makes it clear that auditors may ask for additional information to verify “associated petitions, applications, or annual statements,” and “other documentation that the regional center, new commercial enterprise, or job creating enterprise uses to support the annual statement and associated petitions.”
This is a wide range of information, and as we are still in the early stages, it is best to be on the safe side. It’s clear USCIS expects Regional Centers to fully document not only their annual statements, but the information used to create those statements so it can be verified. Proper recordkeeping according to the RIA will be necessary to comply with the requests of auditors in the time being allotted.
That’s why JTC helps our clients by storing key documents and information in our 24/7 online portal where it can be accessed at any time, from anywhere. When a Regional Center that works with JTC receives a request for information, they know where to find it.
How should you prepare for a USCIS audit?
Given that only a small number of audits have been performed and the process is likely still being refined, Regional Center operators may be anxious because it’s tough for them to know whether they’re prepared. That’s why getting information from those who’ve gone through it can be a big help. The full webinar from is available online from IIUSA, so you can hear about the full process, from the initial letter and virtual call with auditors through the site visit.
The hope is that these audits will not only become less stressful as Regional Centers understand how to process will go, but will help ensure the integrity of the EB-5 program by uncovering problems that could greatly impact immigrant investors if they went undiscovered.
“Ultimately, what we want is for the EB-5 program to be authorized permanently,” said JTC’s Jill Jones. “This is a good program, and the only way to get it to be a permanent program is to show that it is doing the good that it’s intended to do.”
“The audits now underway mark a new beginning for Regional Centers that will help them better focus on the serious responsibility their Regional Center designation imposes on them to carefully vet participants, oversee project progress and track funds to ensure they are not being misused, said Osvaldo F. Torres, Esq., of Torres Law. “It is a good awakening.”
