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2011 CAHEC Conference June 8, 2011 Advanced Tenant Certification

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2011 CAHEC Conference June 8, 2011 Advanced Tenant Certification Erik Whitton – Spectrum Enterprises, Inc. “Advanced Tenant Certification”. Tax Credit Compliance

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2011 CAHEC Conference

June 8, 2011

Advanced Tenant Certification

Erik Whitton – Spectrum Enterprises, Inc.

advanced tenant certification
“Advanced Tenant Certification”

Tax Credit Compliance

“Beyond the basics; an examination of complex non-compliance issues discovered in tenant files. How to look at a file from an auditor’s perspective and gain insight on the types of indicators that raise flags during a file review. “

advanced tenant certification1
“Advanced Tenant Certification”

We will examine actual tenant files and discuss issues such as:

  • Inconsistent information within a file
  • Incorrect math
  • Applicants failing to disclose all income/assets
  • Being aware of federal laws impacting compliance
  • Due diligence requirement
  • Applicants adding minors to the household in order to qualify
  • First recerts showing income increases
  • Etc.
advanced tenant certification2
“Advanced Tenant Certification”
  • Over the past year our staff has been setting aside files that contain more advanced issues of noncompliance which could lead to a credit loss.
  • Files used in this presentation are meant to illustrate the concepts being discussed.
  • In all cases we cautioned our clients that the household could jeopardize the tax credit.
  • In most cases we work with investors reviewing first year qualifying tenant files for new deals. These files are extremely important as the initial qualified basis triggers the flow of tax credits into the deal.
  • Mistakes made with first year files can be very damaging to the overall tax credit funding for the project.
advanced tenant certification arthur file
“Advanced Tenant Certification – ARTHUR FILE”
  • Be aware of file inconsistencies. Check and double check all information.
  • Sometimes 3rd party verifications can contain errors!
  • Arthur File:
  • TIC listed $20,688.28
  • Applicable income limit was $21,960
  • A checking account verification from the bank stated the average 6 month balance as $814.88
advanced tenant certification arthur file1
“Advanced Tenant Certification – ARTHUR FILE”
  • However, the file also contains bank statements (required by the management company) as supporting documentation. These list the following balances:
    • OCT - $1,220.69
    • NOV - $131,973.18
    • DEC - $128,296.50
    • JAN - $128,587.36
    • FEB - $127,578.15
    • MAR – missing
  • The actual 5 month average checking account balance computes to $103,531.18
  • The imputed asset income would be an additional $2,070.62
  • This would place the HH over the income limit
  • There’s no way the 6 month average balance could be $814.88. It’s mathematically impossible.
advanced tenant certification rosanna file
“Advanced Tenant Certification – ROSANNA FILE”
  • Spectrum has a policy which we strongly encourage all clients to adopt. Where an applicant has provided inaccurate information during the screening process we do not issue an approval for them to move into an affordable unit. NO EXCEPTIONS ARE MADE!
  • If you can find false/inaccurate information about one aspect of eligibility how can you trust any of the other information provided?
  • On 4 different documents in the file the HOH certified zero assets.
  • Our auditor noted that a pay stub showed a direct deposit.
  • Upon further questioning the applicant revealed over $53,000 in assets.
  • Suggest adding to your tenant selection criteria that providing false or inaccurate information will result in an immediate rejection of the application.
advanced tenant certification jasmin file
“Advanced Tenant Certification – JASMIN FILE”
  • When a household is very close to the income limit additional steps are needed to meet the due diligence requirement
  • This is especially true with first year qualifying households at new LIHTC properties
  • Jasmin File:
    • Tenant has 2 jobs. The PT job is not in question. Income is $3,612.62
    • For the FT job EV listed a current weekly salary; no raise expected.
    • $623.66 x 52 = $32,430.32
    • Letter from employer echoes the salary but also mentions a $500 year end bonus. Manager did not include this on the TIC.
    • $32,430.32 + $500 = $32,930.32
advanced tenant certification jasmin file1
“Advanced Tenant Certification – JASMIN FILE”
  • Plus PT job and small amount of asset income = $36,545.70
  • Income limit is $36,840
  • Less than $300 from the income limit.
  • This property is required to submit pay stubs in addition to the EV. Our auditor noticed that the salary went from $598.66 to $623.66. The increase was shown on the first 2010 pay stub (January 4).
  • This could be an annual scheduled raise. We asked the manager to follow up with the employer to obtain a history of pay raises (tenant had the same job for 4 years).
  • If the follow up came back showing sporadic raises we would have accepted the file.
advanced tenant certification jasmin file2
“Advanced Tenant Certification – JASMIN FILE”
  • However, the follow up showed a raise every year in January. Therefore we feel the TIC should reflect a raise (anticipated income for the 12 months following move in).
  • This was an April 1 move in. We counted 39 weeks at the current rate and 13 weeks with an additional $28/week. The additional $364 places the HH over the income limit.
advanced tenant certification jenny file
“Advanced Tenant Certification – JENNY FILE”
  • Be aware of file inconsistencies. Check and double check all information.
  • Jenny File:
  • TIC listed $27,144; Applicable income limit was $27,420
  • Since the household was close to the income limit (less than $300) and there was a question regarding OT, we asked the manager to submit pay stubs.
  • Both the EV and phone verification list $24,109.23 as the amount of YTD pay
  • Our staff compared this to the pay stub which listed $26,109.23
  • Note that the YTD amounts are only off by one digit
  • How is this possible? A simple mistake or something more sinister?
  • Using the pay stub YTD placed the HH over the limit
    • 26,109.23 divided by 49 weeks = $27,707.75
advanced tenant certification dwight file
“Advanced Tenant Certification – DWIGHT FILE”
  • When reviewing 1st year recertification files we always look for income increases, changes in jobs, etc.
  • All recertification files with a change in income, household composition, etc. must include very detailed explanation.
  • Include the nature and timeframe of the change.
  • Ask whether the change should have been known at time of initial move in.
  • Dwight File. Moved in 06/04/2009
  • Household Income = $26,903.24
  • Income Limit = $27,720.00
  • June 4, 2010 Recertification Income = $29,816.28
  • $2,000+ over the income limit.
advanced tenant certification dwight file1
“Advanced Tenant Certification – DWIGHT FILE”
  • Our staff began to examine the nature of this income increase.
  • At move in the tenant worked at Heavey’s earning $9.15 per hour. EV is dated 05/02/2009.
  • Recert shows a job at Neill Corp which started on 06/08/2009 paying $12.24 per hour.
  • At time of move in (06/04/2009) the tenant would have known he was starting a new job in 4 days.
advanced tenant certification dwight file2
“Advanced Tenant Certification – DWIGHT FILE”
  • We asked the manager to obtain & provide additional explanation including
    • When did he apply for the job?
    • When did he interview?
  • Sometimes the follow-up provided by the manager does not help put the issue to rest
    • The original (Heavy’s) job was verified to have terminated on 02/23/2009.
advanced tenant certification michio file
“Advanced Tenant Certification – MICHIO FILE”
  • Another 1st recert that went over income.
  • This particular property has a pattern of first recerts where people went over the limit.
  • Examining the recert file our team found an EV form for a job that listed a hire date preceding the date of move in, yet the job was not disclosed when the HH was processed for move in a year ago.
  • Very clear that the tenant did not reveal all income at time of move in.
  • In this scenario you should not renew the lease or complete the recertification. Household should be evicted and replaced by a qualified tenant.
  • IRS 8823 audit guide says that an owner should not lose credits for tenant fraud.
  • However, due diligence requirement must be met. No loose ends.