How to Prepare for a HUD Audit: 10-Step Compliance Checklist for Housing Authorities

HUD audits can feel overwhelming, but they don't have to be. Whether you're facing a Single Audit under 2 CFR Part 200, a comprehensive compliance review, or program-specific monitoring, proper preparation is the difference between a smooth process and a costly nightmare of findings and corrective action plans.

According to the U.S. Department of Housing and Urban Development, a HUD audit examines financial records, program compliance, and operational practices for entities receiving federal housing assistance. The primary purpose is to verify that organizations comply with HUD regulations and use federal funds appropriately.

With increased scrutiny from HUD's efficiency initiatives and tighter oversight of federal spending, housing authorities must treat audit readiness as part of daily operations—not just annual checklists. Here's your 10-step compliance checklist to ensure your housing authority is audit-ready.

Step 1: Understand Your Audit Requirements

Not all HUD audits are created equal. Start by identifying which type of audit applies to your organization:

• Single Audit (2 CFR Part 200): Required for organizations expending $750,000 or more in federal funds annually. Note: This threshold increases to $1 million for fiscal years beginning on or after October 1, 2024. Single Audits consist of two components: a financial statement audit and a compliance audit of major HUD programs.
• HUD Comprehensive Compliance Review: In-depth on-site monitoring visits that examine Capital Fund programs, procurement files, tenant files, waiting list management, rent calculations, and Section 8 administration.
• REAC Physical Inspections: Physical condition assessments under NSPIRE or UPCS standards that evaluate property maintenance and safety.
• SEMAP Certification: Section 8 Management Assessment Program scoring for Housing Choice Voucher programs, measuring performance across 14 indicators.

Familiarize yourself with the specific requirements outlined in grant agreements, regulatory requirements, and HUD guidelines. Review the annual Compliance Supplement published by OMB, which outlines audit objectives and suggested procedures for federal programs.

Step 2: Organize Your Financial Documentation

Financial documentation is the backbone of any audit. Auditors will request comprehensive records including:

• Audited financial statements from previous years
• General ledger and detailed transaction records
• Bank statements for operating and reserve accounts
• Accounts payable and receivable documentation
• Payroll records with supporting timesheets
• Grant award letters and HUD funding notifications
• Budget-to-actual reports showing expenditure tracking

Ensure all transactions are recorded accurately in your accounting system. Conduct monthly bank reconciliations and maintain organized supporting documents such as receipts, invoices, and purchase orders. Regularly update your accounting software to benefit from improved features and enhanced security.

Step 3: Prepare the Schedule of Expenditures of Federal Awards (SEFA)

The SEFA is a comprehensive list of all federal awards expended during the fiscal year and must be prepared in accordance with Government Auditing Standards.

Include all necessary information:

• Grantor name (e.g., U.S. Department of Housing and Urban Development)
• Assistance Listing Number (formerly CFDA number)
• Grant/program title
• Amount of expenditures by program
• Pass-through entity information (if applicable)
• Loan balances outstanding at fiscal year-end

Cross-reference your SEFA against your accounting system to ensure amounts match. This document determines which programs will be tested as "major programs" during the audit.

Step 4: Review Tenant File Documentation

Tenant file compliance is one of the most common sources of audit findings. Each file must contain complete documentation including:

• Income verification documents (pay stubs, tax returns, benefit letters)
• Rent calculation worksheets showing proper application of income limits
• HUD Form 50058 submissions with error-free data
• Inspection reports (initial and annual HQS/NSPIRE inspections)
• Lease agreements and Housing Assistance Payment contracts
• Citizenship/eligible immigration status verification
• Criminal background screening documentation
• Reasonable accommodation requests and responses

Common findings include missing documentation, no supervisory review of files, and failure to maintain formal checklists ensuring all HUD-required documents are collected.

Best Practice: Implement a standardized checklist for housing representatives to use during admission and recertification. The checklist should be signed by both the housing representative and a supervisor, then maintained in the tenant's file as proof that all compliance requirements were verified.

Step 5: Verify Procurement Compliance

Federal procurement standards under 2 CFR Part 200.318-200.327 are heavily scrutinized during audits. Common findings include failure to follow procurement methods based on purchase thresholds, lack of written procurement policies, and failure to verify contractors are not debarred or suspended.

Ensure you have:

• Written procurement policy that complies with Uniform Guidance
• Documentation of competitive procurement processes (bids, quotes, proposals)
• Conflict of interest certifications from employees and board members
• SAM.gov verification that contractors are not debarred or suspended
• Cost/price analysis documentation for purchases
• Board approval minutes for contracts exceeding thresholds

Periodically review and update procurement policies to ensure they align with current regulations.

Step 6: Review Internal Controls

Auditors will document and test your internal controls to assess whether they provide reasonable assurance of compliance with program requirements. Strong internal controls include:

• Segregation of duties: No single person should control all aspects of a financial transaction
• Supervisory review: Management oversight of key processes like rent calculations and procurement
• Regular reconciliations: Monthly comparison of accounting records to bank statements
• Access controls: Limit who can approve payments, access tenant data, or modify accounting records
• Quality control sampling: Regularly review a sample of tenant files and transactions

Conduct an internal assessment using the Committee of Sponsoring Organizations (COSO) framework to identify control weaknesses before auditors do.

Step 7: Ensure Timely and Accurate Reporting

PHAs must comply with various reporting requirements depending on programs administered:

• Voucher Management System (VMS): Monthly leasing and expense data for HCV programs. Create a monthly reconciliation checklist comparing VMS entries against your accounting system.
• HUD Form 50058: Submit within 60 days of any tenant action (admission, annual reexamination, interim, move). Review error reports regularly and automate data quality checks where possible.
• Financial Data Schedule (FDS): Annual financial reporting submitted to HUD's REAC FASS system. Establish clear responsibilities between staff and third-party accountants, and reconcile accounts routinely to avoid delays.
• SEMAP Certification: Annual self-certification for Section 8 programs measuring performance across 14 indicators. Track SEMAP indicators throughout the year to ensure timeliness and accuracy.

Missing reports, late submissions, and data mismatches between accounting systems and HUD submissions are common audit findings.

Step 8: Verify Housing Quality Standards Compliance

PHAs must conduct initial and routine unit inspections and correct deficiencies in a timely manner. Common findings include lack of evidence that inspections were performed, failure to correct deficiencies promptly, and failure to abate rent when deficiencies aren't corrected.

Best Practice: Use inspection tracking software to maintain a listing of all inspections performed, including failures and reinspection dates. Maintain copies of unit inspections in tenant files. Ensure Housing Assistance Payments are abated for units where deficiencies are not remedied within required timeframes.

Step 9: Maintain Declarations of Trust

A current Declaration of Trust must be recorded against all public housing properties acquired, developed, maintained, or assisted with funds from the U.S. Housing Act of 1937. The inability to locate required Declarations of Trust is a common audit finding.

Complete and maintain a Declaration of Trust for all PHA properties. Establish controls to ensure these documents are completed, current, and maintained in a secure location with backup copies.

Step 10: Review Prior Audit Findings and Corrective Actions

If your previous audit identified deficiencies or material weaknesses, auditors will verify that corrective actions have been implemented. Unresolved repeat findings carry more serious consequences, potentially including funding restrictions or designation as a "troubled" performer.

Review your prior audit report and corrective action plan. Document evidence that recommended actions have been completed. Update policies, procedures, and internal controls based on lessons learned. This demonstrates your commitment to continuous improvement.

Common Audit Findings to Avoid

Based on recent HUD Office of Inspector General reports and single audit findings, the most common issues include:

• Poor file documentation and missing records
• Inaccurate or untimely rent calculations
• Delays or errors in HQS/NSPIRE inspections
• Misuse or misallocation of federal funds
• Noncompliance with federal procurement standards
• Reporting errors and late submissions

These findings often stem from isolated teams with inconsistent training, lack of internal audit controls, and no performance monitoring.

How OutsourceIt Inc. Can Help

Preparing for a HUD audit requires significant staff time and expertise. OutsourceIt Inc. provides comprehensive inspection administration and compliance support that keeps your housing authority audit-ready year-round:

• Inspection coordination and scheduling with complete documentation trails
• Quality control reviews of tenant files and program compliance
• Reporting support to ensure timely, accurate submissions
• Documentation management that maintains audit-ready files
• Compliance monitoring that catches issues before auditors arrive

Our California-based team has deep experience with HUD programs and can deploy nationwide within 48 hours to support your audit preparation needs.

The Bottom Line

HUD audits aren't just about compliance—they're tools for strengthening your organization's financial health and operational effectiveness. With proper preparation, audits become constructive processes that enhance transparency and ensure effective use of public resources.

Housing authorities that treat compliance as a daily priority rather than an annual event will thrive under increased federal scrutiny. Strong internal systems, clear accountability, and regular quality checks prevent the errors that lead to costly findings and protect your funding, your team, and the residents you serve.