Affordable Housing Audits: What to Expect & How to Prepare

Affordable housing audits are fundamental in establishing full regulatory compliance and financial transparency, as well as accurate tenant eligibility documentation. These reviews apply to developments funded through programs such as the Low-Income Housing Tax Credit (LIHTC), HUD Section 8, the HOME Investment Partnerships Program, and various state and local subsidies.

No matter you are a developer, property manager, nonprofit agency, or housing authority, the affordable housing audit—from tenant file audits to the 50% test in affordable housing—has major importance in maintaining compliance. A thorough affordable housing compliance audit generally includes a review of financial records and occupancy data as well as adherence to HUD audit requirements. Familiarity with the LIHTC audit process and its documentation standards is helpful in terms of safeguarding the project’s ongoing eligibility and funding.

What Are Affordable Housing Audits?

Affordable housing audits are simply formal evaluations designed to assess whether a property fully complies with the financial and operational, alongside regulatory standards tied to its funding. Such audits apply to projects supported by programs like LIHTC, HUD Section 8, and state or local subsidies.

The mentioned affordable housing compliance audit might be initiated by the below:

• Federal agencies like HUD
• State housing finance agencies
• Independent CPA firms conducting financial statement audits

Specific areas reviewed in affordable housing audits are presented below:

• Tenant income certifications and eligibility files (tenant file audit)
• Income limits, rent restrictions, and affordability periods
• Financial reporting and expenditures as well as reserve account management
• Proper use of tax credits or bond financing mechanisms
• Overall alignment with HUD audit requirements and LIHTC audit process standard

Audit methods can change in parallel to the funding source. There are common procedures like desk reviews, tenant file audits, site inspections, and financial statement evaluations. In some cases, it should be noted that projects may also be subject to the 50% test for affordable housing when bond financing is involved.

The 50% Test: What It Means for Your Project

For affordable housing developments financed through tax-exempt bonds, the 50% test plays a critical role in terms of determining qualification for the 4% Low-Income Housing Tax Credit (LIHTC). In accordance with this rule, at least 50% of the project's aggregate basis—covering land and depreciable property—must be funded with tax-exempt bonds.

Key aspects might be outlined as below:

• Meeting the 50% threshold is a prerequisite for claiming 4% LIHTCs under the LIHTC audit process.
• Failure to pass the 50% test could result in disqualification from credits and loss of projected equity.
• Non-compliance situation might also trigger further scrutiny during affordable housing audits or state-level affordable housing compliance audit procedures.
• Falling below the 50% threshold can influence investor agreements and long-term financial stability.

This benchmark is a critical compliance factor for both project sponsors and auditors, especially in terms of HUD audit requirements or annual tenant file audit reviews.

Why Auditors Ask for Bank Statements

During affordable housing audits, particularly in the context of a tenant file audit, verifying tenant income and asset levels is a top priority. It should also be noted that one of the primary documents requested by auditors for this purpose is the bank statement.

Auditors review bank statements in order to achieve the below:

• Confirm that reported income aligns with actual deposits
• Locate total household assets that may affect eligibility
  Evaluate continued compliance with HUD audit requirements and IRS income certification standards

In addition to bank records, a tenant file audit may also require the below elements:

• Tax returns
• Current pay stubs
• Employment verification letters

Such documents are useful in confirming that income limits are met and that units remain in fuşş compliance with program rules. These reviews are a routine part of both affordable housing compliance audits and the LIHTC audit process, and establishing that assistance is allocated in accordance with federal and state guidelines.

Current Challenges Facing the Sector

It should be acknowledged that affordable housing audits usually bring to light a range of systemic challenges affecting properties and program administrators. Key issues may be listed as below:

• Insufficient housing stock: Demand for low-income rental units continues to outpace supply and creates pressure on existing developments and waitlists.
• Layered compliance: Many properties are funded through multiple sources—like HUD or IRS tax credits as well as local housing authorities—each with distinct reporting and HUD audit requirements, timelines, and documentation standards.
• Tenant income discrepancies: Minor misstatements in income or household size frequently result in findings during tenant file audits, which can jeopardize LIHTC allocations and compliance status.
• Deferred property repairs: Funding limitations generally delay necessary maintenance. They simply raise red flags during affordable housing compliance audits and inspections related to habitability and safety.

It is true that these recurring challenges are not only operational—they carry direct consequences during financial reviews, site inspections, and the LIHTC audit process.

What Happens During an Audit?

In affordable housing audits, specific areas are routinely examined in order to assess compliance with program and funding requirements:

• Certified financial statements and cost certifications
• Tenant files, including leases, income documentation, and household eligibility (tenant file audit)
• Rent rolls to assess adherence to affordability limits and occupancy standards
• Documentation supporting utility allowance calculations
• Resident services or community program compliance, if required by funding agreements

There are also issues identified during an affordable housing compliance audit or LIHTC audit process as presented below:

• Missing or incomplete documentation
• Ineligible tenants based on income thresholds or household composition
• Rent levels exceeding program limits
• Errors in cost allocations or reporting inconsistencies

These reviews may be performed in accordance with HUD audit requirements or state agency protocols and may involve both on-site inspections and desk reviews.

Preparing for an Affordable Housing Audit

Strong preparation is fundamental for establishing full compliance during affordable housing audits. The following checklist might be leveraged to lower the risk of findings during a tenant file audit, LIHTC audit process, or reviews under HUD audit requirements:

Checklist for Readiness

• Confirm that every tenant file includes complete, signed, and dated income verification documents
• Review annual income recertification logs to ensure all files are current
• Compare rent rolls against maximum allowable rents under your funding program
• Organize supporting documentation for capital expenditures, operating reserves, and subsidy disbursements
• Conduct periodic internal audits or mock affordable housing compliance audits to identify issues early

Maintaining a clear and professional documentation record trail is a keystone—particularly when preparing for multi-layered compliance checks, covering those involving the 50% test for affordable housing in bond-financed projects.

Final Thoughts

It should be acknowledged that affordable housing audits are fundamental tools for establishing full regulatory compliance, protecting tenant eligibility, and having access to critical funding. Whether the individuals are undergoing a tenant file audit, preparing for a LIHTC audit process, or responding to HUD audit requirements, proactive preparation makes a measurable difference.

Organized documentation and internal reviews, as well as a strong grasp of requirements—including the 50% test for affordable housing—can lower the risk element of findings during an affordable housing compliance audit.

Need Help? Dimov Audit presents specialized audit services for affordable housing organizations. Contact our team to schedule a file review or learn more about our audit readiness services.

FAQs

What is the biggest issue with affordable housing?

A lack of supply remains the biggest issue, as demand for affordable units far exceeds availability in many regions.

What is the 50% test for affordable housing?

The 50% test requires that at least half of a project’s total basis be financed with tax-exempt bonds to qualify for 4% LIHTC credits.

What is an audit in housing?

An affordable housing audit is simply a formal review of financial records, tenant eligibility, and compliance with HUD and LIHTC program rules.

Why does affordable housing ask for bank statements?

Bank statements are reviewed during tenant file audits to verify income, assess assets, and ensure compliance with HUD audit requirements.