Make Sure Household Files Are in Shape for Review

Keeping household files well organized and up to date is a critical factor in demonstrating compliance with tax credit requirements. Lack of proper documentation, inadequate or missing clarification on verifications, asset or income errors, and typos are among the common mistakes that auditors find during a review.

Creating a file management process that consists of periodic internal audits, ongoing training, and checklists can help you keep your paperwork in order. We've asked tax credit experts Elizabeth Moreland and Andrew Seelye to share their advice on keeping your files in compliance.

Schedule Periodic Internal Audits

Conducting internal file audits on a regular basis can help you to ensure that your household files stay complete, up to date, and ready to pass an auditor's review.

“Every site should be reviewed once a year at the very least,” says Moreland. “Whoever does the internal audit has to know about compliance, and should understand what an auditor is going to be looking for and the reasons why properties get written up.”

The frequency of your internal audits will depend on the capability of your site staff, says Seelye. “When we first work with a team, we look at their files to see what types of errors they struggle with. If a team is new or laboring to manage the documentation in the files, we will audit more often—weekly at first, monthly later, and eventually quarterly or semiannually.”

You don't need to review every household file during the internal audit—start with 10 percent to 20 percent of your files, says Moreland. “If everything looks good in those files, then the rest will probably be fine. But if you find problems, then you'll need to expand the number of files being reviewed.”

PRACTICAL POINTER: Create a dummy file, or a “perfect” file, that site staff can refer to at each step along the way to maintain order and clarity, says Seelye. Once compliance staff know what a document should look like, it's easier for them to see their own mistakes, because the work doesn't fit into the visual template.

Clarify Missing or Incomplete Information

Many times, files are written up because there is missing or incomplete income verification, leaving auditors without the proper information to determine whether a household qualifies, says Moreland. For example, let's say you have a resident who makes minimum wage, and the employment verification indicates that she may have overtime pay or be eligible for a raise. But it does not clarify how much the additional income will be or whether that would put her over the income limit. This would raise a red flag for an auditor.

If you discover missing or incomplete third-party verification of income, you will need to include a clarification form to verify the information. Keep in mind the following tips for proper clarification:

• Keep clarifications short and to the point; avoid long, involved explanations, says Moreland. Also, clarify only what is missing, and write legibly so that the auditor can read it.

• Put the clarification form before the document being clarified so that auditors will know the issue has been addressed before they look at the document. Whether you decide to put the clarification before or after the verification or other document, make sure that it is touching the document being clarified so the auditor doesn't have to go looking for it, or you don't notice that it's not in the file during your internal audits, says Seelye.

• When using clarification forms, practice writing out the clarification before using the form that you'll put in the file, he says. “That way, if it is difficult to tell the story, you can have the best version of the clarification neatly presented on the form. Remember to keep notes while you pursue the clarification so that you have documented the times, dates, persons, and details correctly.”

• If you find missing information or errors in a file for a household that has moved away or for a resident who has died, try to contact the household using their last-known address. Document your attempts to contact the household, and talk to your state agency to determine a satisfactory resolution, says Seelye.

PRACTICAL POINTER: The exercise of reviewing and fixing household files offers a perfect opportunity to conduct realistic, site-specific training with site staff since the work volume is high (for example, from making corrections to audited files, plus handling regular move-ins and other file activity) and they'll get extra practice setting up procedures, says Seelye. “Those who go through the process will be well practiced, well informed, and will have higher morale regarding compliance.”

Organize Files in an Auditor-Friendly Manner

There is no industry standard for organizing household files—sites should use a logical approach and apply it consistently. Put all of the paperwork that a compliance auditor is going to review in one place, says Moreland, and then make sure that it follows the same order as it appears on the tenant income certification (TIC) form.

“An auditor should be able to use the TIC as a checklist, and as he goes down the list, the verifications should be in the same order in the file,” she says. “Some sites will put the TIC on top of all of the verifications; others will put it on the facing side so that the auditor can look at it like a book—with the TIC on one side and all of the verifications on the other.”

Auditors also find it very helpful to see the verification calculations—either with a calculator tape stapled to the verification, or a printout of the workform or spreadsheet showing the calculations, which can be attached behind the TIC. “The audit goes much faster when the auditor can see how you did your math,” Moreland says.

While it's important to provide complete and detailed information, overdocumentation can bog down the auditor's review process. Oftentimes, tax credit sites will include three or four pieces of paper to document one item, which creates inefficiencies for the auditor.

“Don't keep anything in the household file (or the eligibility portion of the file) that doesn't directly support eligibility,” says Seelye. “In general, if it is not directly supporting the information on the TIC, it probably doesn't need to be there.”

Overorganizing the file is another common pet peeve for auditors, says Moreland. Site managers have a tendency to overdo it by using fancy, multisection folders that force the auditor to constantly flip through the partitions to audit a single year. Simple is better, she says.

Additional Tips for Supporting Site Staff

It's easy for new site staff to become overwhelmed by the sheer volume of paperwork to be managed. “We're human,” Moreland says. “We're dealing with so much paperwork that it's not unusual to make mistakes every now and then.”

That is why it's important to always have a second pair of eyes to review household applications and recertifications—whether that is through your compliance department or by having site staff review and check each other's work. Moreland recommends creating a checklist for your staff of all of the documents that household files must contain. The checklist can be attached to each household file or even printed on the outside of the file.

And while making an occasional mistake is understandable, site managers need to train their staff to take responsibility for missing or incomplete documentation. “The only way they're going to improve is if you hold them accountable,” Moreland says. “Now that 100 percent tax credit sites are exempt from having to do recertifications, state agencies are going to be looking closely at your first-year files to make sure that they're accurate and complete.”

Insider Sources

Elizabeth Moreland: Elizabeth Moreland Consulting Services LLC; (800) 644-0390; elizabeth@taxcredit.com; http://www.housingcreditcollege.com.

Andrew Seelye: Seelye Management; (512) 619-9956; andrew@seelyemanagement.com; http://www.seelyemanagement.com.

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