June 21, 2023

Affordable housing organizations in Washington state often conduct projects that are subject to cost certification audits. The type of cost certification audit an entity needs is primarily dependent on the project funding sources, so it is important to know which audit is required in order to meet the compliance requirements. Below I’ve outlined two common types of these required cost certification audits: Low-Income Housing Tax Credit (LIHTC) Cost Certification Audits and HTF Certified Final Development Costs Audits.

LIHTC Cost Certification Audits

The LIHTC program provides tax credits to developers of affordable housing projects. A cost certification audit is required for LIHTC projects to verify that the costs incurred during the development comply with the program’s regulations and additional information is accurately presented. Therefore, an audit typically focuses on the following key components: 

Verification of Report Details

The audit verifies that the costs incurred during the development or rehabilitation of the affordable housing project were incurred for the project and other information is accurately reported. This is primarily done through verification of the project’s reported costs and further details to underlying invoice documentation, funding agreements, and other relevant documents. 

Compliance with Program Regulations 

The LIHTC program has its own regulations and requirements that must be followed, including applicable IRS ordinance, state-set guidelines, and terms specified within the funding and financing agreements. The audit certifies that the project costs meet the necessary criteria to qualify as eligible basis for tax credits. 

Calculation of Eligible Basis 

The audit verifies the calculation of the eligible basis, which is the key input for determining the amount of tax credits available for allocation to the project. The audit ensures that the eligible basis is accurately determined based on the qualified costs incurred during acquisition, rehabilitation, and construction, while properly excluding the ineligible and non-qualified expenses. 

The cost certification audit is required by the Washington State Housing Finance Commission and is commonly a required deliverable for the project to receive a capital contribution from the project’s investor member.  

HTF Certified Final Development Costs Audit 

The Washington State Department of Commerce administers the Housing Trust Fund and HOME programs which provide funding for affordable housing projects. Awards made by the Washington State Department of Commerce may require an audit of the “HTF Certified Final Development Costs” worksheet. The audit of the worksheet evaluates the costs incurred by the project to ensure they are reasonable, necessary, allocable, and allowable per the program’s guidelines, regulations, and funding requirements.  

Under the program guidelines, non-LIHTC projects that are subject to audit are required to submit the cost certification audit to the Washington State Department of Commerce. This submission must be made no more than 90 days after the projects placed in-service date—the day in which the certificate of occupancy or its equivalent has been issued for the project. The entity also has the option for the audit to be conducted with its financial statement audit, in which case the audit would be due 90 days after the end of the entity’s fiscal year.  


It’s important for project sponsors and developers to consult the guidelines and requirements provided by relevant agencies to understand the specific procedures, documentation requirements, and compliance standards associated with each type of project. If you have questions regarding your needs for a cost certification audit, send me an email and I’d be happy to help. 

© Clark Nuber PS, 2023. All Rights Reserved. 

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.