Low Income Housing Tax Credit File Audit Checklist

File audits are an integral component of compliance with Low Income Housing Tax Credit, HOME, and other affordable housing programs. Failing to properly review resident files may lead to expensive noncompliance issues including moving ineligible households into your building, miscalculating rent payments, submitting inaccurate financial statements and more. Let our professionals help your organization avoid costly mistakes by auditing all resident files before move-in and during annual re-certifications.

1. Resident Certifications
LIHTC project owners must keep resident files on all current residents in their projects. These resident files should include: an applicant’s application for housing; income certification form CDA-102 or any approved certification form; qualifying income verification documents such as verification forms for assets and eligibility verifications; lease with attachments and static information such as citizenship papers, military discharge papers, social security cards or birth certificates for every current tenant in their project; lease agreements that include all attachments.

The resident file must be stored safely with backups in unalterable electronic format and microfilm, where applicable. MFH conducts compliance reviews of resident files at least every three years; during these visits, Tax Credit Officers or their authorized delegate will review a sample of resident files unit-by-unit while performing physical inspections of 20% of low-income units in their project.

Noncompliance may arise for various reasons, from moving in non-eligible households to miscalculating rent. Spectrum’s CORES certification process can assist with identifying and correcting mistakes before an IRS audit takes place.

2. Income Verifications
Verifying income may seem like an unnecessary extra step that delays getting what a borrower or renter needs, but it is essential for both parties’ protection. A lender or rental company wouldn’t want to loan out money that their customer cannot feasibly afford.

Documents used to establish income may range from pay stubs, tax returns and bank statements (though bank statements should not be used as official proof of income documents). W-2s and paystubs are commonly requested although these won’t give an accurate picture if someone works an irregular schedule and commission is involved.

When applying for income verifications, residents must add their initials and the date next to their name; additionally, this statement must reflect the actual time of request without back-dating (i.e. no backdating). Otherwise, it will not be valid during an audit process.

3. Rent Verifications
Landlords must ensure a thorough screening process when it comes to tenant screening. Utilizing an online form that requests basic information from prospective tenants can help verify income details and employment data, but this is only part of the process – rental verifications need to be performed as well, which means calling prior landlords of prospective tenants to verify what has been listed on their application form.

Landlords should conduct background checks on potential tenants to gain an insight into how they have behaved in the past and whether they were reliable renters who adhered to lease agreements and raised maintenance/repair issues as needed. Without this step, landlords risk ending up with bad tenants that will damage their property and cause financial losses.

Noting this process includes contacting previous landlords, it is essential that your rental verification form includes a section requiring consent from applicants in order to contact their former landlords. Furthermore, your terms and conditions should specify how you will utilize this data for tenant screening purposes.

4. Financial Statements
Financial statements provide reports detailing a company’s financial condition at any given point in time or over an extended period. They typically consist of the income statement, balance sheet, cash flow statement and statement of retained earnings – with public companies required to produce all five; private firms may opt to produce either all or four statements alongside adding “notes to financial statements”.

Notes provide additional details from each of the other five reports to assist readers in understanding them, often including information on accounting methods used and supporting evidence for certain balances.

Financial statements are frequently presented in computer readable XBRL format, an industry driven global standard which has the support of several regulators globally.