Preparing for a tax credit audit by your state housing finance agency is not something that can wait until you get notification of the review. It is something that should be incorporated as part of your on-going policies and procedures. Here are five simple steps that can be integrated into your regular routine that will help you be prepared for an inspection year round.
1. File Review
It is strongly recommended (if not required by your investor and/or syndicator) that files be reviewed by someone other than the community staff. If files are reviewed on an on-going basis, then mistakes can be identified quickly and corrected long before notification of an audit. If you arent already conducting file reviews, one way to get started is every quarter to review all new move-ins and recertifications that have been completed. Within one year, you will have reviewed every resident file and made all necessary corrections. The ability to do this on an on-going basis is what can help your community have a successful audit every year.
2. Print and Review State Reports
As state status reports are required (monthly, quarterly, or annually depending on your state) print them and use them as a tool for additional file review and follow up. Always check recertification dates to confirm that annual recertifications have been completed in a timely fashion. In addition, review files that have income amounts that are close to the current limits (especially move-ins) to confirm that there are no problems with those files. You will also need to carefully review these reports for accuracy as it may be used by your state agency to determine which files are to be reviewed.
3. Walk Units
It is important to know the physical condition of the interior of your apartment homes. If you arent already, you should be conducting unit inspections on a regular basis. You can use this as an opportunity to check for health and safety issues, unreported maintenance items, and even illegal occupants. While unit inspections may not be required in any specific intervals, bi-annual or quarterly inspections are strongly encouraged and will be most beneficial.
4. Update Utility Allowances
For a community that requires residents to pay for any utilities, updating and calculating the utility allowances is an important part of being prepared for an audit. Changes in utility allowances are required to be implemented within 90 days of their effective date and many times this will require an adjustment in rent. Failure to lower tenant paid rent as the result of a change in a utility allowance will result in an 8823 finding on non-compliance being issued to the owner. A simple way to avoid this non-compliance is to request updates to your utility allowances on a quarterly, rather than annual basis. This will ensure that you make any required changes within the required timeframe. Be sure to keep documentation of all utility allowance updates for review at the time of your audit. Keep in mind that for any residents that receive Section 8 assistance, you are required to use the PHA or HUD allowance for that resident. This may mean that you have multiple utility allowances to update every quarter.
5. Supportive Services
The LURA or other regulatory document or restrictive covenants for your community will usually include requirements to provide specific services for your residents. Depending on the year your community was built and what state you are in, the requirements may range from little to no responsibilities to as far as preparing a monthly calendar a year in advance that details each service offered. Regardless of what you are required to provide, you should keep very clear records of what you have done. We suggest a binder that is tabbed by month that will include the following for each month: calendar of events, newsletter or other flyer that announced event to residents, sign in sheet for residents who attend, and photographs of each event. Having all of this information in one place in chronological order will help the reviewer quickly and easily confirm that you are in compliance.
If you do all of the above on a regular basis, then preparing for the day of the audit should be simple! Here is a quick checklist of what you can do to prepare.
o Send notice to all residents notifying them of the date and time of the audit to let them know that units will be randomly inspected. Be sure to remind them of specific areas they need to be aware of (i.e. smoke detectors, window and door locks, outlet covers, etc). You should also make sure they know we will be looking for unauthorized occupants.
o Do a complete inventory of files you dont want one to be missing the day of the audit!
o Make sure ALL vacant units are market ready.
o Walk your community look for curb appeal and any health/safety hazards. First impressions mean a great deal. Make it POP!
o Gather all documentation requested by the auditor (if any).
o Print rent roll and be sure that move in dates match the move in date in each file.
o Print the state annual report and be sure that it matches the rent roll.
o Clean the office and make sure it is organized and neat.
o Prepare a folder for the auditor to take with him/her of the following items:
o Marketing (from the last 12 months)
o Utility Allowances (most current)
o Current rent roll
o Designate a quiet place for the auditor to work.
o Have light refreshments.
o Have maintenance staff available with the following items to walk units:
o Batteries
o Lightbulbs
o Outlet covers
o Screwdriver
We are confident that by following these simple guidelines year round and completing this short checklist before an audit, you will a successful review every time.
Good luck and Happy Audits!