Spectrum is Coming! Spectrum is Coming!

One of the most common questions I’m asked as a Spectrum Compliance Monitor is, “What can I do to properly prepare for a Spectrum audit/inspection?” 

If you adhere to Internal Revenue Code § 42 (i) (3) (B) (ii), you would be ready for a Spectrum review 365 days a year.  Your files would be perfect, your property would be in tip top shape, every emergency light would work, every smoke detector would be attached and every unit would be free of UPCS violations.  If this were the case than you would not be nervous before one of our inspections.  However, we all know that maintaining a tax credit property, the files, the tenants and the units is a lot of work and the reality is preparation is often needed for any inspection or audit.

First and foremost, read the confirmation letter we send.  This has a list of the documents we will need to see, along with a few brief instructions as to what we will be looking for.  Please note that we are prohibited by IRS regulations from giving you prior knowledge of which units we will be examining.

Review of files:

If you practice your due diligence when completing an initial occupancy certification, as well as when recertifying your tenants, then your files will be ready for our audit.  A good practice is to make sure a few sets of eyes review every single file.  Spectrum will review 20% of your tax credit households.  Typically, we will ask for your most recent move-ins since our last inspection. 

It is recommended that a person familiar with the files be present to assist our monitor on issues that might be quickly rectified. This person may even want to sit with our monitor to facilitate the process.  They may also want to take notes so that they can get a jump-start on addressing any identified shortcomings in the files.  There are some types of non-compliance that may be correctable during our audit.  Should time allow, our will go over the results of our review. 

An Owner’s Report letter will be sent to the owner within 60 days identifying all outstanding potential issues of non-compliance.  It is imperative that any issues be addressed as soon as possible.  Please contact Spectrum should you have any questions regarding our findings or how you should address them. Failure to do so may result in the issuance of an 8823.

Physical inspection:

Inform your tenants we’re coming.  The lease typically stipulates a minimum amount of lead-time that is required (typically 24 hours).  In your letter you can tell them as much or as little about what we will be looking for when we inspect their units. 

It’s good to have more than one maintenance staff member available for the inspection.  Often, properties have one maintenance staff member follow behind the inspectors with extra batteries, smoke & CO detectors.  This way, certain findings can be fixed on the spot.  It’s also a good idea that someone on staff writes down each of the Spectrum findings.  As with the issues identified in the file review, this will give management a chance to address the issues as soon as possible.  Please note that the IRS Audit Guide requires that ALL identified violations of UPCS or local code be reported on an 8823, whether they are corrected or not.  This means that technically every missing sink stopper will require an 8823.

We will test every emergency light, exit sign, GFCI outlet, smoke detector and CO detector.  Many properties go through and test them the day before our arrival.  It can help to prevent unwanted surprises.  It’s a good idea that maintenance staff knows how to turn off the common area power so that the emergency systems can be tested, as this method may be required by Spectrum.

If there are any violations of Health and Safety we will issue a 24-hour notice.  It is critical that the identified infraction be repaired within the allotted time and a signed copy of the notice is faxed to our office.

We will check every common area including community rooms, offices, janitor closets, maintenance rooms, electrical rooms, trash rooms, boiler rooms, workshops, basements, storage areas.  Last month we conducted a series of inspections immediately following one of many treacherous snow storms in the Boston area. We found that many properties were storing flammable liquids improperly; to include gasoline being stored in a laundry bottle.   Regardless of what room or closet you keep them in; flammable liquids must be stored in a fire proof storage cabinet.  And please, do not store gasoline in anything but a gasoline container.  We will also check every hallway and stairwell.  We will check every entrance and exit to the building.

We will not enter any unit without a representative from management accompanying us.  It is generally our requirement that all closed doors be opened by a member of the management team.  Once inside the unit we practice the “one wall” method during an inspection.  The inspector will walk in and follow one wall throughout the unit to ensure everything is checked.  Among other things, we check to see if every gas burner lights and we check the GFCI outlets in the kitchen and the bathroom.

The absolute best way to prepare for a Spectrum Audit/Inspection?  Practice your due diligence in both the maintaining of the files and the maintenance of the property year round.

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