How to Prepare for the Year-End Audit in the Affordable Housing Industry

Preparing for year-end audits is crucial for maintaining financial health and ensuring compliance with regulations specific to the affordable housing industry. These audits often extend beyond traditional financial statements to include compliance with HUD (U.S. Department of Housing and Urban Development) standards, low-income housing tax credit (LIHTC) regulations, and state housing agencies such as the Pennsylvania Housing Finance Agency. These requirements are detailed and frequently updated, so it’s important that management and the auditor are abreast of these changes. Audits within this industry will often have added complexity due to the grant funding, subsidy programs, and multi-layered financial structures.

The Importance of Early Preparation

Within the industry, most entities will have deliverable due dates required within the partnership/operating agreement. These dates can be within a short period of time following the end of the fiscal period, and the penalty for not adhering to them can be significant. In addition to the deadlines, there are also unique compliance requirements for HUD and LIHTC program audits that require a heightened need for early preparation.

It is important to have early communication prior to the audit start date, and then to maintain timely communication throughout the audit with your auditor. This will ensure expectations and agreed upon timelines are met. Some examples of documents/support that can be provided early are:

• Tenant files and certifications
• Unit inspection records
• Tax related documentation and depreciation schedules
• Interim financial results, including significant new transactions

Tips for a Smooth Audit Process

• Prior Year Adjusting Journal Entries: Review adjusting journal entries provided by the auditor from the prior year audit and ensure that they are recorded in the current year.
• Bank Reconciliations: Ensure all bank accounts are reconciled by year end. This includes any escrows or reserves.
• Repairs and Capital Improvements: Review any repairs made in the current year and ensure that they were properly capitalized or expensed based on your capitalization policy.
• Fixed Asset Disposal and Additions: Have a listing of all fixed asset disposals and additions during the current year. For disposals, this should include the date of disposal and any proceeds that were received. For additions, be sure to include the placed in-service date and number of useful lives.
• Partnership Equity Transactions: Be sure to record all partnership equity transactions like distributions of surplus cash during the current year.
• Updated Agreements: Provide the auditor with the most up to date copies of agreements or amendments.
• Maintain a Centralized Document Management System: Use specialized software to store records like rent rolls, grant agreements, and compliance certificates in an organized manner.
• Fluctuations: Review key revenue and expense accounts and be prepared to provide the auditor with explanations for fluctuations outside the normal course of business.

Conclusion

Successful preparation involves a blend of meticulous record-keeping, proactive management, and a comprehensive understanding of the nuances of regulatory requirements. Leveraging expertise from specialized accounting services that know the affordable housing landscape, as well as early preparation, can ensure a smooth audit experience.

McKonly & Asbury, LLP is a leader in accounting for affordable housing entities. Our team has the specialized knowledge to help you ensure you comply with HUD, LIHTC, and state housing agency reporting requirements. For more information on these services and more be sure to visit our Affordable Housing page, and don’t hesitate to contact us.

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