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Tips for a successful audit

Tips for a successful audit

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Tips for a successful audit

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  1. Tips for a successful audit Preparing for a tax credit monitoring review NC Affordable Housing ConferenceNovember 1, 2011

  2. Staying in Compliance To be in compliance: • Units must be occupied by certified, income eligible households at restricted rents • Be rented to non-transient households • Maintain a condition suitable for occupancy • Project must meet the minimum set aside • Be available to the general public The key to compliance is thorough documentation!

  3. From Applicant to Tenant:A 4-Step Process • APPLY • VERIFY • QUALIFY • CERTIFY

  4. A good Application or Questionnaire serves as your road map! • Lists all Household Members • Lists the Student Status of all Household Members • Asks specific questions about Income & Assets of all Household Members

  5. Whose Income Is Counted? • Head/Co-head – ALL income • Spouse – ALL income • Other Adults – ALL income • Dependents Under 18 – Only unearned income • Dependents FTS Over 18 – Unearned income, plus up to $480 of earned income • Foster Child/Adult – Include income of Foster Child/Adult as appropriate, but do not include payment for the care of Foster Child/Adult • Live-In Aides – NO income is counted

  6. Determining Annual Income:What’s Included? • Net asset income • Gross wages • Unearned income • Payment in lieu of earnings • Recurring contributions • Listed in HUD 4350.3 Exhibit 5-1

  7. Determining Annual Income:What’s Excluded? • Earnings in excess of $480 for each full-time student 18 years old or older, except Head, Co-Head or Spouse • Loans • Temporary, nonrecurring or sporadic income • Special “Hostile Fire” pay received by a household member serving in the armed forces • An extensive listing found in HUD 4350.3 Exhibit 5-1

  8. Determining Annual Income:What’s Excluded? Good Rule of Thumb: If it is not specifically excluded by HUD, include the income in total household income.

  9. Included: Excluded: Assets • Bank Accounts • Cash on Hand • Debit Cards • Revocable Trusts • Investments • IRAs & Keoghs • Retirements Plans • Lump Sum Receipts • Deeds of Trust (Homes) • Life Insurance – Cash Value • Personal Property (Cars, Jewelry) • Indian Trust Land • Term Life Insurance • Business Assets • Inaccessible Assets

  10. Qualifying a Household • Make all of the necessary calculations to determine the household’s annual income • Carefully compare anticipated income to the applicable income limits

  11. How to Qualify Household • Use a separate Income & Asset Calculation Worksheet • Show the steps of your calculations • Don’t round until the final calculation • If using calculator tapes, attach them to a blank sheet of paper • Calculator tapes that obscure info on the verification can cause noncompliance

  12. Tenant Income Certifications • The required documentation certifying household eligibility for initial occupancy and annually thereafter • Should only be executed after the verification process is completed • Do not allow households to sign blank TICs that you fill in later • Do not allow the household to complete the TIC

  13. Self-Check for Tenant Files • Rental Application • Proper Verifications • Income Certification • Initial Lease Consistent file order is the best method of determining whether there is missing documentation.

  14. Other Items Reviewed • A tax credit audit will include a review of the following: • Rent Roll • RCRS data entry • Utility Allowance Documentation • Supportive Services Documentation, if required • Physical Condition of the Property

  15. Common Sense Approach • Simplify! • Be Consistent! • Avoid Conflicting Information!

  16. TRICKS of the Trade • What you always wanted to know, but were afraid to ask! • The secret tips we don’t tell you!

  17. Excess Documentation Submitted For the Desk Audit • What we don’t see can’t hurt you • What we do see might hurt you

  18. Credit Reports • Look for deferred student loans. Student loans are typically only deferred while you are a full-time student. This is one way to catch discrepancies on student status. • Look for mortgages. This may reveal assets (land, home, etc) that the household forgot to tell you about. • Watch for consistency in applying the Tenant Selection Policy

  19. Criminal Reports • Watch for consistency in applying the Tenant Selection Policy to help avoid Fair Housing complaints

  20. Bank Statements • Banks frequently charge for verifications; therefore, it is common for you to collect bank statements as verification of assets • You must include all pages of the statement for the verification to be complete, not just the page showing a single account balance • Look for deposits that reveal income the family neglected to disclose

  21. Errors in Logic • Income = $0 • Assets always = $0 • Gross Rent > Income • Decrease in pay/benefits with no explanation

  22. Common Errors Found in Files • Failure to verify disclosed items • Incomplete verifications • Writing on verification forms • Overtime and bonuses not included in income • Failure to use highest calculated income

  23. Common Errors Found in Files • Miscalculated Assets • White-out used on forms • Including Social Security #s, bank account #s, etc in file info sent to NCHFA • Clarification statements that do not provide new information • Clarification statements should not substantially contradict the verification

  24. Tips for Staying in Compliance • Adequate documentation is #1 (Unit is not eligible unless you can prove it!) • Document EVERYTHING • Self-monitor to ensure compliance • Have a second set of eyes review each move-in • Organization is important!! • Maintain consistent tenant files • Create a Project Data File • Attend training

  25. Record Retention • Files for households that initially qualify the unit as a tax credit unit: • Must be retained for 21 years from the due date of the tax return for the first year of the credit period • Subsequent years files: • Must be retained for 6 years beyond the due date of the tax return for that year

  26. Project Data File – Every property should have a binder that contains all of the documents necessary to maintain compliance. Suggested items to include:

  27. Project Data File • Tax Credit Application • QAP • All Loan Documents • LURA • 8609 for each building • Utility Allowance Documentation • Income & Rent Limits for each year • Required annual reports to NCHFA • Monthly rent rolls • List of vacant units & compliance with NAU rule

  28. Most Important Key to Success:Proper Training!

  29. Certifications accepted by NCHFA: • Housing Credit Certified Professional • HCCP • Sponsored by National Association of Home Builders • • Credit Certified Compliance Professional • C3P • Sponsored by Spectrum Enterprises •

  30. Certifications accepted by NCHFA: • Tax Credit Compliance System • TaCCS • Sponsored by Quadel • • National Compliance Professional • NCP • Sponsored by Housing Credit College •

  31. Certifications accepted by NCHFA: • Tax Credit Specialist • TCS or e-TCS • Sponsored by National Center for Housing Management • • Specialist in Housing Credit Management • SHCM • Sponsored by National Affordable Housing Management Association •

  32. Professional training is not enough. You also need to: • Know the requirements of your state agency and • Fulfill your obligations as required by your state

  33. NCHFA Sponsored Training • Agency-sponsored training available across the state • Recommend leasing staff attend at least one training session per year to keep up with changes in rules and procedures

  34. Physical Inspections • NCHFA uses the Uniform Physical Condition Standards (UPCS) as the inspection standard. • The goal of the UPCS inspection is to: • Measure physical condition of the property • Objective and consistent manner • Accommodates all property types & configurations

  35. Physical Inspections UPCS inspectable areas: • Site • Building Systems • Exteriors • Common Areas • Units • Health and Safety

  36. Physical Inspections • Levels of Physical Noncompliance • Level 1-Minor • Level 2- Major • Level 3- Severe • All UPCS violations are reported to the IRS, regardless of severity per 8823 guide instructions (Tip)

  37. Physical Inspections • Example of Levels: • Level 1-Minor: 1” to 8 ½” x 11” hole in sheetrock that does not go through both sides of wall • Level 2-Major: > 8 ½” x 11” hole in sheetrock that does not go through both sides of wall. • Level 3-Severe: Hole in sheetrock that penetrates to the next room OR two or more walls have level 2 damage

  38. Physical Inspections Health and Safety Violations • Exigent (life threatening) Any deficiencies noted under this category: • A list of the deficiencies will be left with management staff • All exigent deficiencies must be corrected within 24 hours • Non-life threatening • A list of the deficiencies will be left with management staff

  39. Physical Inspections Tips for Successful Inspections: • Notify all residents of the inspection • Ask residents to raise blinds and remove all items from window sills prior to inspection • Check smoke detectors and batteries prior to inspection • Inspect property for violations prior to inspection

  40. Physical Inspections Common Noncompliance Issues: • Blocked egress (Tip) • Inoperable smoke detectors • Trip hazards • Broken or cracked electrical sockets or light switch covers

  41. Types of Noncompliance • IRS Noncompliance – • Issues addressed in the 8823 Guide published by the IRS • Examples: • Household over-income at move-in • Violation of Next Available Unit Rule • Violation of Student Rules • Lack of proper Utility Allowance documentation • Physical Inspection Violations • 8823 will be issued

  42. Types of Noncompliance • State Noncompliance – • Issues important to NCHFA that we expect the owner to address to remain in good standing with the Agency • Examples: • Failure to maintain the required number of units at required lower set-asides • Failure to recertify annually for properties with Agency loans • No 8823

  43. Types of Noncompliance • Program Noncompliance – • Violations of program requirements that are not violations of the tax credit program • Examples: • Violation of Low HOME rent requirements • Violation of HOME lease requirements • Violation of Key program income requirements • No 8823

  44. Top 5 Reasons for 8823s Issued in 2011 • Owner failed to submit the Annual Owner’s Certification of Continuing Program Compliance • UPCS Violations • Owner did not properly calculate Utility Allowance • Improper or Inadequate File Documentation resulting in Tenant Over-Income at Move-In • Owner failed to respond to Agency request for monitoring review

  45. Questions?Comments?