7 Common Mistakes Found in HUD Audits and How to Avoid Them

If you’re a housing provider receiving HUD funding, passing an audit isn’t just a matter of routine—it’s a requirement for continued participation in federal housing programs. But many organizations make avoidable mistakes that result in findings, questioned costs, and even the risk of losing funding.

At Wilson & Associates CPA, we’ve conducted and supported hundreds of HUD audits. Based on our experience, here are seven of the most common mistakes we see—plus how to avoid them and stay compliant.

One of the biggest red flags in any HUD audit is missing or improperly completed tenant documentation. This includes income verification, lease agreements, and certifications of eligibility.

How to Avoid It:
Implement a file checklist for every new tenant and conduct internal file reviews quarterly. Ensure staff are trained on HUD requirements for tenant documentation and recertification timelines.

HUD funds must be used for eligible expenses only. Auditors often uncover misclassified transactions or charges not directly tied to HUD programs.

How to Avoid It:
Maintain a separate accounting system or ledger for HUD-related activities. Document every expense with backup invoices and a clear explanation of how it aligns with HUD guidelines.

A lack of segregation of duties, poor oversight, or informal procedures can all raise red flags. Auditors assess whether your organization has effective controls to prevent fraud, errors, and noncompliance.

How to Avoid It:
Establish clear written policies and procedures for financial management, procurement, and tenant screening. Conduct regular internal audits or reviews to test compliance with these controls.

HUD requires housing providers to follow specific procurement rules when selecting vendors or contractors. Informal or non-competitive procurement processes are a common audit finding.

How to Avoid It:
Ensure all procurement activities are documented, competitive, and follow HUD’s thresholds for small purchases, sealed bids, and professional services. Retain copies of bids, proposals, contracts, and selection criteria.

Auditors frequently find that annual financial reports are filed late or contain errors. This can lead to findings and questions about the reliability of financial management.

How to Avoid It:
Use a reliable accounting system tailored to HUD reporting. Set calendar reminders for due dates and work with a CPA who understands HUD’s chart of accounts and financial statement formats.

If your organization works with subrecipients, you’re required to monitor them for compliance. A lack of oversight can be a significant audit issue.

How to Avoid It:
Develop a formal monitoring plan. Conduct site visits, request documentation, and ensure subrecipients are meeting the same standards you are held to under HUD programs.

HUD periodically updates its audit guide, and staying out of sync with the latest requirements can leave your organization vulnerable.

How to Avoid It:
Work with a CPA firm that specializes in HUD audits and actively monitors changes to the guide. Update your policies and procedures accordingly to reflect the latest standards.

We understand the challenges housing providers face when preparing for a HUD audit. That’s why we offer more than just compliance—we offer peace of mind. Our team helps you build strong internal systems, prepare thoroughly, and avoid the mistakes that lead to audit findings.

Whether you’re preparing for your first audit or looking to improve your current practices, we’re here to help.

📞 Contact us today for HUD audit support and CPA services tailored to housing providers.