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What Every Management Company Owner Must Know About Surviving an Affordable Housing Compliance Audit

Jun 13, 2022

As the owner of a management company, your goal is to run an efficient, profitable business. Your portfolio consists of properties that you either own or third-party-fee manage. These properties may have market rents, or they may participate in various federal and state assistance programs. The latter group is governed by regulatory agreements that dictate how you manage them and when an audit is required. Such mandatory audits are compliance focused, so your objective going into the process must be to minimize findings that could increase the costs of your audit.

As you prepare for the audit process, you will find chapter 3 of the Consolidated Audit Guide to be a useful resource. You can download the Consolidated Audit Guide at This chapter outlines Housing and Urban Development (“HUD”) requirements for conducting the compliance portion of the annual audit, detailing the required testing areas. Auditors typically create their testing around these procedures for the high-risk areas. One area that generates significant non-compliance findings is the tenant application, eligibility and recertification process.

Here are a few guidelines to avoid some common pitfalls:

  • Review all move-in certificationsThe move-in certification is a key document in every file because it establishes the initial eligibility for a tenant. An inaccurate or incomplete certification could allow a non-eligible applicant to move in, creating non-compliance findings when discovered by the auditor or HUD representative. Management companies will use questionnaires to assist with completing the certification. The information provided by applicants on assets, income and expenses needs to be verified by a third party, and the certification needs to be updated. This step can easily be overlooked because the certification is already populated with amounts from the questionnaire. Make sure you take a close look at each one.
  • Perform random file reviews – Regional property managers should review a sample of the tenant files during their monthly site visits. This will keep your property managers on their toes and will alert you to potential problems that can be addressed before they lead to non-compliance findings.
  • Provide training – Management companies should mandate training for their property managers. Accountants performing the audits are required to have annual training, and there are many qualified organizations that provide such training. Discuss this training with your audit firm and see who they recommend. Managers take considerable pride in their properties, and they want their files to be perfect. Give them the tools they need to succeed.
  • Establish proper file organization– A consistent layout for the tenant files provides structure and allows for a quicker, more efficient review process. Files should not contain any loose documents, as this will slow down the review and create the possibility of lost or misplaced paperwork. Also, any documentation that is more than three years old is not required for the current review and can be archived to a secondary file. However, the initial move-in documentation should always remain in the current file as it is part of the suggested audit procedures.
  • Create your own custom checklists – Customized checklists are a great tool for your property manager to follow. Providing a checklist for the tenant application, eligibility and recertification process allows the manager to focus on the necessary paperwork for this compliance step. This guidance can help you avoid a potential finding relating to incomplete tenant files.

Affordable housing compliance audits can be stressful, but with proper preparation, you can avoid negative findings and be on your way to a successful, cost-efficient property audit.

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