Follow Eight-Step Plan to Document Rehab and Repair Costs
It may be tempting to take shortcuts when keeping records of rehabilitation and repair costs, rather than fully documenting the need for and reasonableness of these costs. But taking shortcuts could backfire, especially if you get audited.
Under HUD rules, you must be able to show that all costs, including those for repair and rehabilitation, are “reasonable, necessary, and properly accounted for” by site management. HUD auditors check for detailed records to back up the amounts you charge the site for repair and rehabilitation.
Without detailed documentation, HUD could order you to reimburse the site for these expenses. That could hurt your reputation and ability to secure HUD’s approval to manage sites in the future.
Here are eight steps you should follow for documenting rehabilitation and repair costs and demonstrating that they are reasonable, necessary, and properly accounted for. Following these steps will also help to keep your management participation record clean.
Step #1: Document Need with Work Order
First, use a work order form to document the need for the repair or rehabilitation and show that the expenses are necessary. The work order should show what work must be done and whether it’s being done in response to a resident request, an emergency, inspection results, or routine or preventive maintenance. The work order also should identify the specific unit or units or area of the building where the work will be done (for example, “replace the stoves and ovens, which have outlived reasonable expected life, in all units in building 10”).
Use a work order form that includes multiple copies and is divided into two sections. The top section should indicate the work requested. When that’s completed, copies go to the owner and to your purchasing agent. The bottom section of the form should have space to record that the work was actually performed (see Step #5, below).
Step #2: Follow HUD Purchasing Rules
According to HUD’s Management Agent Handbook, if you expect the cost of the repair or rehabilitation project to exceed $10,000, HUD requires you to get written bids from at least three contractors or suppliers [Handbook 4381.5, par. 6.50(a)]. It’s a good idea to put your request for the bids in writing as well. You should specify to each contractor or supplier the work you’ll need done or the products you’ll be buying. Give product specifications, terms of delivery, and requirements for installation, service, parts availability, and warranty.
You aren’t required to accept the lowest bid, but you should document the reasons you didn’t do so. Depending on the responses you get, you may decide that the lowest bidder doesn’t meet your specifications or isn’t qualified for the project. In these cases, you should go with the lowest qualified bidder who best meets your site’s need. If you make that decision, be sure to document why you chose the higher bid instead of a lower one, in a memo to the file.
For repair and rehabilitation projects that cost less than $10,000, you don’t have to get three written bids, but you should solicit either oral or written estimates. For any oral estimates you get, make a record of it by noting the estimate in a memo to the file [HUD Handbook 4381.5, par. 6.50(b)].
Also, it’s important to note that documentation of all bids should be retained as a part of the project records for three years following the completion of the work [HUD Handbook 4381.5, par. 6.50(c)].
Step #3: Get Approval from Owner and HUD if Necessary
For major projects, you want to make sure that the owner supports your use of site funds. To do this, send a memo to the owner requesting it to authorize the purchase of services or materials. Tell the owner how this purchase will be funded (for example, from the reserve for replacements, operating expenses, or a combination). Ask for approval in writing for the purchase and the funding method you’ve outlined.
If you plan on using the replacement reserve account to fund the purchases, you must get an okay from your local HUD office. Even if you use operating funds, it’s a good idea when doing major repair and rehabilitation work to notify HUD that you are using operating funds for this purpose. This helps to assure that there won’t be problems with your plan to use operating funds should HUD audit you.
Step #4: Issue Purchase Order
To authorize the purchase of the items or services, your purchasing agent should issue a purchase order that specifies the terms you and the contractor or supplier agreed to, including the price, the dates and method of delivery, and any conditions and warranties. Refer to each unit or area of the site covered by the work in the purchase order. Make sure the site manager gets a copy, so he knows what work is being done or what supplies have been purchased. Forward a copy to the accounts payable department as well.
If there are any changes to the work plan along the way, be sure to document them with revised work orders and any related purchase orders.
Step #5: Document Work Performed
Once the work is completed, document what the contractor did or what the supplier installed. Both the maintenance supervisor and the site manager should inspect the completed work or the items installed. The manager and/or maintenance supervisor should sign off on the work order form (see Step #1 above), indicating that the work has been completed. Keep one copy in the unit file, and send another copy to the main office to match with the purchase order and the supplier’s or contractor’s invoice.
Step #6: Get Detailed Invoice from Contractor or Supplier
Require the contractor or supplier to give you a detailed bill (invoice) before you use site funds to pay it. Ask for a bill that specifies the work performed or the product delivered and installed, the date or dates of the work, and where specifically at the site the work was performed or items were installed. Require the contractor or supplier to include the property name, address, building, relevant unit or units, and the purchase order numbers on each invoice. This will enable an auditor to easily determine what work has been performed.
Step #7: Send Invoice to Accounts Payable to Authorize Payment
The accounts payable employee or other employee who authorizes payment to the contractor or supplier should compare the information on the invoice with the information on the work order form and the purchase order to be sure the information matches.
In addition, the employee should ensure that the contractor or supplier is an approved vendor for the project. Only then should the employee issue a check to the supplier.
If there are discrepancies between what the contractor is billing you for and what you requested, be sure to resolve them before you issue a check. Keep a copy of the invoice in the accounts payable files under the contractor’s or supplier’s name. Be certain to attach the supporting documentation, including a copy of the check, purchase order(s), and work order forms. These policies and procedures should be documented in the project’s/agent’s internal controls.
Step #8: Keep Copies of Repair, Rehab Records by Unit
To show auditors which units received repairs and rehabilitation, make sure you have a file for each unit where you can keep copies of all records relating to that unit. You don’t want auditors to have to sift through your repair and rehabilitation records to figure out which unit or units the work relates to. Keep a file for each of the major common area expenses, such as painting, roofing, landscaping, and air conditioning.
The project’s books and records must be maintained in a reasonable condition for audit. The more organized and complete your documentation, the quicker and smoother the audit will run.