What Happens at a State Agency Audit? 🏢
- Erica Davis
- Mar 25
- 3 min read
A Site-Level Walkthrough
State agency audits don’t have to be stressful. Here’s what to expect — and how to prepare at the site level.
Introduction
“The state is coming for an audit.”
Few sentences cause more anxiety for site staff.
But here’s the truth: if compliance is part of your daily operations, a state audit shouldn’t feel like a crisis. It’s a review — not a raid.
Let’s walk through what actually happens so you know exactly what to expect.
Why Audits Happen 📋
State Housing Finance Agencies (HFAs) monitor LIHTC properties to ensure compliance with Section 42.
Audits confirm that:
✔ Units are occupied by eligible households
✔ Rents are within allowable limits
✔ Files contain proper documentation
✔ The property meets habitability standards
Types of Audits
🔹 Routine Monitoring
Scheduled reviews every 1–3 years.
🔹 For-Cause Reviews
Triggered by complaints or prior findings.
🔹 Desk Reviews
Documents submitted electronically and reviewed remotely.
🔹 On-Site Reviews
Auditors visit the property to review files and inspect units.
The Notification 📬
Most HFAs provide 30–60 days’ notice.
The notice typically includes:
Date(s) of the review
Scope of review (files, physical inspection, or both)
List of files to prepare (or they may select on-site)
Required documentation
💡 Pro Tip: If your files are audit-ready year-round, the notice is just scheduling — not scrambling.
How Files Are Selected 📂
Auditors may pull:
🔹 Random Sample
Often 20% or more of total units.
🔹 Targeted Files
New move-ins
Recent recertifications
Student households
Over-income households
🔹 Full File Review
Less common, usually for-cause.
Every file should be audit-ready. You never know which one will be selected.
What Auditors Check 🔍
1️⃣ Income Verification
All income sources identified?
Third-party verifications obtained?
Within 120-day validity window?
Calculations correct?
2️⃣ Asset Verification
All assets disclosed?
Proper verification method used?
Asset income calculated correctly?
3️⃣ Eligibility Determination
Income within applicable limits?
Correct limit applied to unit designation?
Household composition properly documented?
4️⃣ Student Status
Documented for all members 18+?
All-student household exception documented if applicable?
5️⃣ Lease Review
Required LIHTC language included?
Lease dates aligned with certification?
Proper signatures and execution?
6️⃣ Rent Compliance
Tenant rent within maximum limits?
Utility allowance applied correctly?
Gross rent within allowable thresholds?
7️⃣ Certification Forms
All required forms present?
Signatures and dates complete?
Effective dates accurate?
The Physical Inspection 🏘️
Auditors will review:
✔ Unit interiors — smoke detectors, plumbing, electrical, maintenance
✔ Common areas — hallways, laundry rooms, community spaces
✔ Building exterior — roof, siding, grounds, accessibility✔ Systems — HVAC, hot water, fire safety
💡 Pro Tip: Conduct a property walk-through before the audit.
Fix simple issues like burnt-out bulbs, missing smoke detector batteries, and leaking faucets.
Small fixes prevent big findings.
During the Audit 🧾
Be Prepared and Cooperative
✔ Designate one primary point of contact
✔ Have files organized and accessible
✔ Provide a workspace
✔ Answer honestly — do not guess
If you don’t know an answer, say:
“Let me verify that and follow up.”
Common Auditor Questions
How did you calculate this income?
Why is third-party verification missing?
When was the utility allowance last updated?
How do you monitor student status changes?
Preparation eliminates panic.
Understanding Findings ⚠️
Types of Findings
🔹 Administrative Findings
Missing signatures, incomplete forms. Typically, correctable.
🔹 Non-Compliance Findings
Eligibility errors, rent overcharges. May require IRS reporting.
🔹 Health & Safety Findings
Physical deficiencies requiring immediate correction.
The Corrective Action Process 🔄
1️⃣ Written report outlining findings
2️⃣ Response period (typically 30–90 days)
3️⃣ Correct items and submit documentation
4️⃣ State determines remedy for non-correctable items
What Is Form 8823?
Form 8823 is the IRS form used by state agencies to report noncompliance.
Receiving one is not the end of the world. Many are tied to correctable issues.
However, repeated or serious 8823s can impact your property’s compliance history.
How to Prepare Year-Round 📆
✔ Complete certifications on time
✔ Conduct peer or supervisor file reviews
✔ Keep documentation current
✔ Update utility allowances annually
✔ Perform quarterly self-audits using the state checklist
Consistency prevents chaos.
The Bottom Line 📌
State agency audits are a normal part of managing affordable housing.
The goal isn’t to “pass” an audit.
The goal is to operate compliantly every day.
When you build compliance into your daily systems, audits become routine — not reactive.
Need Help Preparing for an Upcoming Audit?
The TCC Firm offers:
✔ Pre-audit file reviews
✔ Pre audits
✔ On-site and virtual compliance support
✔ Corrective action guidance
For LIHTC, Section 8, HOME, and Rural Development properties.
Compliance Made Manageable.
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