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What About Fraud?

Thursday, August 2nd, 2012

Written by Jennifer Borland, Spectrum Enterprises

Sometimes it’s a challenge to get a clear picture of a household’s income, assets, and student status.  The tenant certification process can become even more challenging when information provided is not completely true. It can be difficult to determine when a person has intentionally lied versus making an innocent mistake.

For example, if a household has seven bank accounts and only lists six on the Application, it’s possible that this was an oversight. Is it possible they forgot about a savings account with a $10 balance? Absolutely.

However, it would seem that a person who states no employment on the Application, Unemployed Status Affidavit, and Cert of Zero Income turns out to have been employed at the time of initial certification deliberately misrepresented his income. Is it possible to complete four forms (including TIC) stating no income because they forgot about the job they were actively working at the time? Not likely.

The IRS takes fraud very seriously. Page 25-1 of the Guide for Completing Form 8823 states:

“LIHC property owners should demonstrate due diligence to prevent tenant fraud. Fraud includes deliberate misrepresentation of fact in order to induce someone else to part with something of value or surrender a legal right. In this case, the outcome of deliberate misrepresentation by a tenant can result in the property owner renting a residential unit to an ineligible tenant at a below market rate.”

The Guide goes on to tell you what to do to correct the issue – get the unit back to a credit-worthy status:

“If an owner discovers that a tenant has deliberately misrepresented their income level, student status, household size, or any other item used to determine eligibility, the owner should consult state or local landlord-tenant laws to determine whether the tenant can be asked to vacate the LIHC unit or the rent raised to the market rate.  The owner is not expected to complete the annual recertification if a tenant is asked to leave or an eviction proceeding is in process.”

Fraud is taken so seriously that the IRS has instructed that fraud be reported to their Whistleblower Office:

“Report any suspected or known deliberate misrepresentation of income to the Internal Revenue Service’s *Whistleblower Office. Complete Form 211, Application for Award for Original Information, and submit the form to the address identified on the form.*

As with credit ratings, criminal history, and landlord references, be sure your company has a clear written policy about how to document and handle fraud. Before accusing a person or household of fraud, it is important to have irrefutable evidence.  Gather as much documentation as possible to illustrate the fraud and maintain documents in the tenant file or with the application.

LIHTC and Student Status

Thursday, September 8th, 2011

Written by Jennifer Borland, Spectrum Enterprises

On the day before Mother’s Day, when I was 22, I graduated from college. As is often the case, the graduates marching that day were arranged in alphabetical order by last name. The woman ahead of me was 58 years old; she was full time undergraduate accepting her diploma… just one day before her daughter would do the same.

Of course student status is a key element of LIHTC eligibility. Students come in all sorts of forms and ages; it is never safe to assume that a person is not, has not been, or will not be a full time student. Student status is only an issue if every household member meets the definition of a student, but you have to accurately determine who is and who isn’t a student. Sometimes this can be tricky.

BACK TO SCHOOL REMINDER: A person is a student if they have been a student for any part of 5 months of the current calendar year or the 12 months following the effective date of the certification.

The months need not be consecutive or complete. Just one day of the month, equals the whole month for student status purposes.

If your student status form only asks “are you or will you be a student,” it is missing the part about “have you been?” Unfortunately, we see this mistake quite often. We also see forms that are worded properly, but the applicant has misunderstood the question and answered inaccurately.

Regardless of how your form is worded, get in the habit of asking, “When were you last a student?” If a person has been a student during the current calendar year, you’ll have to verify status with the school.

There are several little things that could indicate a person meets the LIHTC definition of a student though they may not consider themselves a student. Look for signs on the application: no rental history; job that is brand new in May or June with no previous employment; dates of residence for previous address are August – May.

For those of you who are no longer required to do annual certifications, don’t forget to verify student status annually. For 100% LIHTC properties, once a household is income eligible it is always income eligible, but the same is not true of student status.

I bring this up now because this time of year we see a large number of households applying for LIHTC housing with recent college or high school graduates, young children becoming students for the first time, and folks who were students in the spring or summer semesters, but aren’t now. Be careful, and don’t be afraid to ask questions, even if it seems silly or redundant, you can never be too careful.

Tipped Employees

Thursday, June 23rd, 2011

Written by Jen Borland, Private Monitoring

The US Dept of Labor states:

“An employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. If the employee’s tips combined with the employer’s direct wages of at least $2.13 per hour do not equal the federal minimum hourly wage, the employer must make up the difference.” (http://www.dol.gov/dol/topic/wages/wagestips.htm)

When an employer reports paying less than $7.25 per hour (hourly wage and tips combined) on an Employment Verification (EV), follow up must be done with both the employer and the applicant.

It must be clarified why an employer is reporting paying less than federal law requires. In most cases we find that the EV does not contain accurate information. It is important to have the employer disclose year-to-date earnings (both hourly wages and tips) to help determine actual income. A documented telephone conversation with the employer is an acceptable method of clarification, though a series of pay stubs is preferred.

Obtaining several consecutive pay stubs is helpful in determining if the employee is really working as many hours as an EV might report. Pay stubs will also show tips earned; be sure to compare the tips on the stubs with what is reported on the EV. If the individual has had the same job for more than one year, previous years’ tax returns can also be useful.

Additionally, it is the employee’s responsibility to report tips to his/her employer, though this may not always happen. In some salons or restaurants the employees handle their own money from sales, in others all transactions are conducted a reception desk. Since it is possible that tip income is received that the employer does not know about, Spectrum recommends that the applicant complete a self affidavit under penalty of perjury stating all tip income, including tips not reported to the employer. Asking an employer about the establishment’s procedure for disbursing tips is a good idea as well.

Common tipped positions:

  • Server/Waiter/Waitress
  • Host/Hostess
  • Bartender
  • Busser (busboy)
  • Hairdresser
  • Adult Entertainer

It is important to look at such files carefully. A tipped employee earning minimum wage who works 40 hours a week must make at least $205 a week in tips to meet the minimum wage requirement. That’s only $41 per day in tips (assumed an 8 hour day). As always, remember to ask yourself if the information reported makes sense.

The Application – 10 Helpful Hints

Thursday, February 10th, 2011

It is important to remember that no two households are the same; every application presents its own challenges.  However, all households are seeking quality affordable housing. The application is the foundation for the certification process; it contains all the information necessary to determine LIHTC eligibility and can serve as a back-up affidavit if necessary.

Remember:

  1. Applications, verifications, and certifications must be no more than 120 days old as of the certification effective date.
  2. Every question/field on the application must be answered; even if the answer is “no.” Nothing can be assumed in this business; a blank does not mean “no.” If a household does not have a certain type of income or asset, they must answer “none” or “no” or “n/a” on the application. An incomplete application could result in noncompliance.
  3. Never modify a verification or application. Always use a separate sheet to document clarifications.  Never use white-out. If an applicant has used white-out, instruct them to initial the changes and document the reason on a separate page.
  4. The LIHTC program income calculations include all anticipated income for the 12 months following move-in. Any possible changes in income and household composition must be reported during the application process.
  5. If an applicant requires assistance completing the application, you must document this in writing. An affidavit stating why assistance was required (i.e. language barrier) and who provided the assistance must be included in the file and signed by the applicant(s).
  6. Check for variations in ink and handwriting on the application.  Spectrum will question this, so ask the applicants(s) about variations and document the explanation(s) in writing.
  7. Changes on the application should also be explained in writing.  Applications containing white-out should be re-done by the applicant with an attached explanation.
  8. Relationships should be clearly defined (i.e. instruct applicants to use “son,” “niece,” “step-child,” etc. instead of “child”).
  9. Unborn children are considered household members and should be included on the application.
  10. Check for consistent answers. Any inconsistencies should be explained in writing.

Apply logic to each household’s situation.  If things on the application just don’t seem to add up, ask more questions and document the answers. Don’t rent to a household until you can get clear and complete answers to your questions!


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