Three months before your property’s year-end date signals the start of another audit season. You’ll sign an engagement letter with your CPA firm and then work through scheduling the audit itself, as well as preparation and follow-up meetings.

Though the first stage of the audit isn’t as deadline-saturated as the final audit, its testing is just as crucial, if not more so, because preliminary tests establish the base for the entire process.

So to keep your team’s stress levels low and the audit moving smoothly during this crucial preparation phase, be engaged and communicate with your auditors often, and make sure to have your documents ready when the request list arrives in your inbox.

Affordable Housing Preliminary Required Documents

The best way to be proactive and save yourself stress when preliminary audit work begins is to get documents that the auditor will need to see. Though every property is different, and every auditing firm may request things in different ways, you can still come prepared with commonly requested information.

All Properties

No matter where you’re located or how your property is financed, you can count on needing the following documents during preliminary:

  • Ownership changes – including structural shifts and address changes
  • Monthly bank statements throughout the year
  • Insurance declaration pages – showing the coverage period, coverage amount, and cost of premiums
  • Fidelity bond declaration for the management company
  • Real estate tax statements/bills paid during the year
  • Mortgage invoice/statement for one month (can be any month)
    • If the mortgage has been refinanced in the last year, provide the new loan agreements
  • Descriptions of legal issues with an assessment by management
  • Bank and mortgage confirmations
  • Management agent certification (if changed from prior year)
  • Disbursements – sample disbursements used in the audit require a copy of the invoice and supporting documentation as well as a cancelled check
  • Receipts – sample receipts used in the audit require a copy of each check, deposit slip, bank remittance, and bank statement
  • Tenant files – sample tenant files used in the audit require additional documents
  • IRS or state agency notices received during the year
  • Observations and feedback from prior audits and other preliminary discussions

The better prepared you are ahead of time, the faster you will be able to respond to the auditor, and the faster they will be able to get started on the preliminary audit process.

In addition to these general documents, properties with loans from the Department of Housing and Urban Development (HUD) or tax credits through Low-Income Housing Tax Credits (LIHTC) can also prepare information specific to their property.

HUD and RD Properties

HUD and Rural Development (RD) require their properties to submit additional documentation through the audit process to the applicable agency, including:

  • Replacement reserve withdrawal approvals or change in monthly required deposits
  • Inspection or observation reports from HUD or RD (this can be REAC, MOR, RD review, or another agency’s review)
  • HUD HAP Vouchers or RD project worksheets
  • HUD- or RD-approved rental amounts
  • Correspondence between the property and regulatory agencies
    • This includes communication with HUD/RD, Office of Inspector General (OIG), Contract Administrators, or other federal agencies
    • If these agencies noted issues with financial results or operations, please provide owner/management agent feedback and resolution

LIHTC Properties

Make sure to prepare the relevant tax forms for your auditor, which usually include:

  • Correspondence from IRS, Housing Authority, or other agencies concerning tax credits
  • HAP Vouchers
  • Replacement, operating, or other reserve withdrawal approvals from ownership group
  • IRS Form 8823: Report of non-compliance

Bring High Expectations

Along with the requested documents, the most important thing you can bring to preliminary work is a set of good expectations. Expect friendly service, smooth correspondence, and a pleasant experience. Set specific goals and anticipated completion dates, being optimistic but also realistic.

If your experience fails to meet many of your expectations, it may be time to switch CPA firms. There are many financial service providers who can perform an audit, get it filed on time or early, and answer any questions you have along the way.

The next time you go out for bid or submit RFPs, add us to your list. We’d be happy to show how our auditors can serve your property while keeping you compliant.