By Elizabeth L. Moreland, NCP-E
Let’s face it, maintaining compliance on a Housing Credit property can be very frustrating for your on-site managers.
From their point of view, compliance comes down to those crucial file reviews and whether their files can pass the auditor’s scrutiny. This point of view is fair, as the resident files are truly the lifeblood of the property’s tax credits. Without out good files and clear documentation of eligibility, compliance is in jeopardy. But, it is important to realize, it is not just a matter of whether your residents are eligible, but also whether you have the documentation to prove it. And, if you can’t prove your Housing Credit residents are eligible, you risk losing your valuable credits!
First Things First
Your on-site managers or compliance personnel must become experts in determining eligibility and file documentation. But before they can accomplish this task, they must understand the Housing Credit Program, the importance of the development elections and be given the necessary tools to complete the job.
The first steps can only be achieved by educating your staff. This means you will have to send them to a Housing Credit training. It also means you will have to share the pertinent governing documents with them to be sure they know their particular development’s compliance elections and the noncompliance ramifications.
Fortunately, Housing Credit trainings are readily available today. The more difficult step is to obtain the property’s governing documents. These documents include a copy of the final application submitted to the State Agency, the Extended or Land Use Restriction Agreement, the funding agreements from each financing source, the IRS 8609 for each building and the partnership agreement if one exists. These documents should be obtained from the developer or owner of the property. However, if the owner or developer does not have them or refuses to share them with you, you should contact the State Allocation Agency and the limited partner (if one exists) to see if they have copies.
With a little creativity on your part, these documents can be obtained. It is absolutely crucial that this step not be skipped. Without the information these documents provide, you are operating in the dark as to the compliance elections made and the corresponding eligibility requirements your residents must meet to be Housing Credit eligible.
Tools for Success
The next step is to be sure to give your staff the proper tools to complete the job.
Determining and documenting a household’s eligibility is a labor intensive process. The process can easily take weeks to complete and frequently your managers must process 10 to 15 applicants per unit before an eligible one is found.
Once the applicant moves in, management must maintain compliance and prove continuing eligibility. For every year the resident decides to stay in his unit, he must be recertified. This requires another set of paperwork!
Frequently, properties are understaffed or given limited resources to complete this important task. We all realize the property budgets are tight and corners have to be cut, but if the corners are cut here, you are only asking for trouble. And this trouble comes at a high price!
To avoid the loss of credits, give your staff the tools and resources they need to accomplish the task. This includes a copy of the income and rent limits, actual rent schedule and a unit map indicating how the units should be rented. It also includes such items as a copy machine, fax machine, and marketing materials.
But to truly ace a file review, your on-site managers or compliance personnel need a good form system for gathering information and verifying eligibility. Too often, a decent forms system is not taken seriously. 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 forms need to be specific to the Housing Credit Program.
When designing your form system, be sure you make your line of questioning complete, easily understandable to the person completing the form and easy to audit. The form system should be set up as a useful tool for your managers rather than adding to the burden of the documentation process.
In today’s world of computers and with the availability of word processing software, designing a forms system should not be difficult. However, if time is of the essence, forms packages can be purchased from several vendors.
If you are required to use certain forms by your State Agency or some other entity, review them thoroughly. If the forms are missing crucial questions or are not designed well, contact the State Agency or entity and request alterations. Many states have been very willing to allow the forms to be altered or additional questions added. If your state is unwilling to allow these changes, then you will need to be prepared to contact the source to obtain the missing information or to encourage them to complete your forms.
Documentation, Documentation, Documentation
We have all heard the adage: “location, location, location.” Just as this statement is important to real estate, “documentation, documentation, documentation” is important to Housing Credit compliance.
Your on-site managers and compliance personnel must become documentation experts! They can not let this part of their job slide or become of less importance. It must become a priority even though a tedious one.
Your resident files will be reviewed by many important parties: your Housing Credit partner (often a syndicator or equity investor), the property’s funding sources, the State Monitoring Agency and, possibly … the IRS! Be sure your files are ready for this scrutiny!
First, your managers should not accept incomplete applications. Auditors will not make the assumption that the unanswered question means it does not apply to the individual, but will usually interpret it as incomplete information and, therefore, possible noncompliance. If an applicant leaves unanswered questions on the application, return it to the applicant requiring all questions be answered before you begin processing his eligibility.
When working with third-party verifications, be sure all questions are completed and the information given is understandable.
If all information is not complete, do not assume that it means it is not applicable to the applicant. If the answer given is cryptic, avoid the urge to interpret it for 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 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 information while processing the verification forms and this information does not get transferred into the resident’s file. This information is often crucial to the overall eligibility picture you are trying to portray. Be sure your managers understand that any information relating to income eligibility or household status should be clearly documented in the file. It may seem trivial to the manager, but to an auditor reviewing the files, it could sway a noncompliance decision.
Finally, when putting your files together, remember the level of scrutiny they will go through. Be sure the file documentation is put in a consistent order from file to file.
This makes auditing easier and lends to the overall view of professionalism you want the auditor to feel about your work.
Keep your files neat and professional looking. It is important that you understand reviewing files is not usually an auditor’s favorite pastime, rather a necessary evil. This means auditors are often swayed by human nature.
If the files are a disorganized mess or difficult to review, the human nature factor kicks in and the auditor usually gets tough. However, if the files are easy to audit and professional in appearance, the auditor’s human nature is usually swayed in the other direction and the audit will often go without a hitch!
Preparing for D-Day
Don’t wait until the day of the audit to wonder if your files will “ace the review”. Rather, implement a system that allows for a second staff person to review the documentation prior to moving the applicant in.
If this was not done previously or your staff size won’t allow for it, then consider a pre-audit review by a competent Housing Credit expert. The money spent for such a review is well spent when you consider the ramifications of a noncompliance report being sent to your limited partner or the IRS.
Once you get notice of an impending audit, you will want to swing into action. The auditor will want to review the resident files (often the first year files but probably the current year as well) and few of the actual units and the property’s grounds.
He may also request to see the utility allowance documentation, your marketing records including the waiting and refused lists and your accounting records such as the rent roll.
Finally, don’t ignore the little details. Be sure your staff is prepared for the audit and that the appropriate company representative is available. And get your office cleaned up. If your office is disorganized, it only makes the auditor think your work must be disorganized!
On the day of the audit, be sure to show the auditor around, give them a sample resident file so they can see how you organized the information and make yourself available for questions.
Acing a review is relatively easy if you implement these simple steps. Teach your staff to “think like an auditor” when they are compiling the information and documenting eligibility. Also, remember that the staff person or persons responsible for the files is under a considerable amount of pressure. For them to succeed, he needs training, tools and your support. Without these three simple items, he is destined to fail.