How to ace an LIHTC file review
Let’s face it, maintaining compliance on a housing credit property can be very frustrating for your onsite managers. From their point of view, compliance comes down to whether or not their files past the auditor’s review.
This point of view is a fair one, as the resident files are truly the most important element in determining a property’s tax credits. Without good files and clear documentation of eligibility, compliance is in jeopardy. It is not just a matter of whether or not your reidents are eligible, but whether or not you have the documentation to prove it. Without proof, you risk losing your valuable credits.
First Things First
If you expect and need your onsite staff to become experts in determining eligibility and maintaining documentation, they must have training. Begin by educating your staff in the general parameters of LIHTC properties-income restrictions, set asides, and first available unit rules. It also is important to incorporate regular updates on new rules and regulations into your training program. Fortunately, housing credit training and information is available today from a variety of sources.
At the same time, you should share the pertinent governing documents for the property with the onsite staff. In this way they will know their particular development’s compliance election and understand the ramifications of noncompliance. Without these documents, they are operating in the dark.
Governing documents include a copy of the final application submitted to the state agency, the Extended or Land Use Restriction Agreement, the funding agreements for each financing source, the IRS 8609 for each building, and the partnership agreement, if one exists. If these are unavailable from the owner or developer of the property, you should contact the State Allocation Agency and the limited partner (if one exists) to obtain copies.
Tools for Success
The next step in ensuring that your files are in order it to give your staff the proper tools to complete the job. Determining and documenting a resident’s eligibility is a labor-intensive process that can take weeks to complete. And frequently, your manager must process a dozen or more applications per unit before an eligible one is found. And every year a resident stays in his or her unit, the income levels must be recertified. In these days of limited resources and small staffs, remember that you cannot cut corners here; you are only asking for trouble.
To make the job of certification and recertification easier, ensure that your staff has a copy of the income and rent limits, the actual rent schedule, and a unit map indicating how the units should be marketed. A supply of marketing materials and a good-quality fax and copy machine also are essential to perform certification requests efficiently.
To truly ace a file review, your onsite staff or compliance personnel need a good form system for gathering information and verifying eligibility. Too often, an application is thrown together haphazardly or is borrowed from another property without regard for the information that needs to be collected. Both the application and verification form must be specific to the LIHTC program. The form should be designed to ensure that the line of questioning is complete, easily understood by the person completing the form, and clear for auditing purposes.
Your verification forms must clearly indicate what information you are requesting from third-party sources and be easy for these sources to complete. A jumbled, poorly organized form only prompts sources not to complete the verification and makes it more difficult for the auditors to review. Use an available word processing program to design a form, or, if time is of the essence, purchase a package of forms from a vendor.
Three Tips: Documentation, Documentation, Documentation
If location, location, location is the guiding principle of real estate, then documentation, documentation, documentation is the mantra of the LIHTC program. Your onsite managers must become documentation experts; this is not a part of the job that can be left to chance.
Your resident files will be reviewed by many important parties: your housing credit partner, the property’s funding sources, the state monitoring agency, and, possibly, the IRS. Be sure that your files are ready for this scrutiny.
First, your managers should not accept any incomplete applications. Auditors will not make the assumption that the unanswered questions means that they do not apply. Instead, they will see incomplete information as potential noncompliance. If an applicant leaves questions unanswered on the application, return it to the applicant and require that all questions be complete before processing eligibility.
When working with third-party verifications, be sure that all questions are completed and that the information given is understandable. If information is incomplete, do not assume that the question does not apply. If the answer is cryptic, avoid the urge to interpret it yourself. Rather, contact the source and get the information clarified. This information should be clarified on a separate form that indicates the source’s name and company, date of clarification, and the clarification itself.
When documenting eligibility, it is important that you have a clean paper trail from the application to the tenant income certification. For each item, the applicant listed on his or her application, there should be a “piece of paper” or verification form indicating how it affects the applicant’s eligibility. Do not allow your staff to shortcut this step. Often the manager or compliance officer learns tidbits of crucial information while processing the verification form. If this information is not transferred to the resident’s file, the overall eligibility picture may be incomplete. Be sure that your managers understand that any information relating to income eligibility or household status should be clearly documented in the file. It may seem trivial at the time, but to an auditor reviewing the file, it could sway a noncompliance decision.
Finally, when putting your files together, remember the level of scrutiny they will go through. Be sure the documentation is put in the file in a consistent order; chronologically or with all correspondence relating to one issue fastened together. This procedure makes auditing easier and lends an overall appearance of professionalism that is bound to impress the auditor.
Keep the files neat. Reviewing files may not be the auditor’s favorite pastime, and auditors, like everyone else, are swayed by human nature. If the files are disorganized or difficult to read, the auditor may be more inclined to find fault. The reverse is also likely; if files are easy to read, the auditor may be in a better mood and more inclined to give you the benefit of the doubt.
Preparing for D-Day
Don’t wait until the day of the audit to wonder if your files are in order. Rather, implement a system that allows a second staff person to review documentation prior to moving the applicant in. It is also wise to have a staff person or an independent housing credit expert preaudit the files before a file review takes place. The money and time spent for such a review is well worth it if you consider the ramifications of a noncompliance report.
Once you get notice of an impending audit, you will want to swing into action. In addition to the first-year and current resident files, the auditor may want to seek actual units, building grounds, utilityallowance documentation, marketing records, and waiting and refused lists. Accounting records, including the rent roll, will also be under scrutiny. Be sure that all of these are in top shape.
Finally, don’t ignore the little details. Be sure that your staff is prepared for the audit and that an appropriate company representative is on site. Get your property office cleaned up; a disorganized office only makes the auditor think you are disorganized. On the day of the audit, show the auditor around, give him or her a sample file to explain your method of organization, and make yourself available for questions.
Getting an “A”
Acing a file review is relatively easy if you implement a few simple steps. Teach your staff what constitutes compliance and how to “think like an auditor” as they compile and organize their documentation. Also remember that the staff person or persons responsible for the files is under a considerable amount of pressure. For them to succeed, they need training, tools, and your support. Without these three simple items, they are destined to fail.
Elizabeth L. Moreland, president of Elizabeth Moreland Consulting, Inc., is a trainer and consultant specializing in the low-income tax credit program properties. She has over 13 years of experience managing affordable housing programs and has been training individuals, corporations, and housing authorities on the intricacies of the tax-credit program for over seven years. She holds the Housing Credit Certificated Professional designation and is the chairman of the Management/Compliance Subcommittee for the National Association of Home Builders’ Housing Credit Group. She may be reached at (800) 644-0390.
Copyright Institute of Real Estate Management Mar/Apr 1999
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