Although a regular audit of financial statements and disclosures can help property managers prepare for a HUD-sanctioned management and operating review (MOR), there are some differences between HUD Audit Guidelines and the questions covered in a management review through HUD 9834.
There are rather obvious differences on HUD 9834, like lead-based paint compliance, vacancy monitoring, or receipts — by unit — of appliance purchases. Those questions aren’t included in HUD audit guidelines. However, items like documentation of outside contractors and the reconciliation of accounts payable seem like they should be similar for an audit or MOR. They aren’t exactly.
We have highlighted a few of the grey areas here that property managers of HUD-funded properties should be aware of when reviewing HUD 9834. Did your recent audit cover all the obvious and not so obvious questions you may be asked during an on-site review, or do you have some work to do?
1. Condition of the Property
- Lead-based paint compliance – inspection, maintenance, abatement and protection of tenants and their belongings?
- Repairs – paid consistently from right operating expense account and eligible items reimbursed by reserve?
- Tools – satisfactory inventory system to account for them (and keys?)
- Appliances – secured to prevent theft?
- Maintenance backlogs – backlog of work orders?
- Unit Readiness – assess occupancy readiness of vacant units?
- Signage – clear and adequate for tenants and visitors?
2. Financial Health
- Project operating costs – reasonable compared to a similar property?
- Principals and Board – received HUD 2530 approval and meet regularly?
- Mortgage – any past restructuring?
- Owner – eligible for incentives?
- Reserve and General Operating accounts – adequate to meet future needs?
- Operating expenses – regularly reviewed to make sure property is paying best possible rates, including taxes and utilities?
- Bad debts – procedure for write-offs reasonable?
- Centralized accounting – approved by HUD?
3. Rent Increases
- Requests – submitted promptly to HUD?
- Reserve for Replacement analysis – performed before submitting budget-based rent increase?
- Rent adjustments – documented last adjustments?
- Special rent increases – previously approved?
4. Vacacy Rates
- Vacancy activity – documented for the last 12 months and how many each month?
- Rates – vacancy rates on the date of the MOR on-site visit?
- Vacancy – staffing issues impacting vacancy rates?
- Vendors – maintain a list of outside contractors and bills paid in time to maximize discounts?
- Enterprise Income Verification (EIV) – proper controls with regard to staffing access to sensitive tenant data in the EIV system?
- Management – can staff adequately perform management and maintenance functions, and do they receive regular training?
- After Hours – after hours and emergency phone numbers posted?
- Supervision – process for field supervision of staff?
- Tenant employment – efforts to employ tenants under Section 3?
- Sex offender status – does application ask if applicant or any member of applicant’s household is subject to a lifetime of state sex offender registration?
- Previous residence – does application ask about list of previous residences?
- HUD 92006 – attached to application?
- Application denial – different appeals reviewer than the person who denies the application?
- Wait list – number of applicants listed for each type of unit?
- Fees and charges – other charges assessed besides security deposits?
- Tenant Rental Assistance Certification System (TRACS) – data secure and up to date?
- Private information – tenant personal information stored according to HUD document retention guidelines and access limited to only certain personnel?
- Unit size – unit sizes adequate for household composition?
- Eligibility exceptions – exceptions granted to ineligible households?
- Pets – pet deposits in acceptable range and payments allowed?
- EIV – income discrepancies documented and resolved?
- Utilities – certifications reflecting the correct utility allowances, and reimbursements distributed within five days of receipt of housing assistance payments?
- Intent to Vacate – notices received in writing?
- Rejections – rejection letters inform applicants of the right to appeal and appeals documented and handled properly?
By paying attention to these particular questions at your properties — in addition to conducting a regular HUD audit — your ability to answer questions during a MOR desk review or on-site review will be stronger. For additional questions or concerns, talk to the Audit team at Cornwell Jackson.
Scott Bates, CPA, is a partner in Cornwell Jackson’s audit practice. He provides consulting to clients in real estate, including HUD-funded properties. Contact Scott at firstname.lastname@example.org or 972-202-8000.