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The Arizona Auditor General found substantial gaps in the Department of Housing's monitoring of Low-Income Housing Tax Credit properties, including incomplete inspection evidence, delays in notifying owners of hazards and missing documentation of tenant eligibility reviews. Report 26-118 was released October 1 and received independent reporting October 2 and October 3.
The audit's central physical-inspection finding concerns 126 of 153 reviewed tenant-unit inspections. Auditors say the department did not inspect, or did not document that it inspected, at least one federally required health and safety standard in those records. That wording is important: missing evidence of an inspection is not proof that every unit had every listed hazard or that no inspection activity occurred at all.
The report reviewed 10 LIHTC properties. Its findings concern the department's monitoring and reporting process for that sample, not a statewide defect rate for all tax-credit homes. The auditors expressly say their samples were not intended to be projected to the entire population.
The new October reporting therefore supports a detailed account of a recently released audit, rather than a claim that the report was first issued October 3 or that 82 percent of all Arizona affordable apartments have failed a federal inspection.
The audit's methodology describes a sample of 10 out of 512 LIHTC properties subject to department compliance monitoring during fiscal years 2020 through 2025. Four were judgmentally selected properties receiving both state and federal tax credits, while six were randomly selected properties receiving federal credits without state credits.
For each property, auditors reviewed the department's records associated with its most recent inspection. The unit sample ranged from eight to 24 inspected apartments per property. This structure helps explain why the 153-unit figure is an audit record set, not the total housing inventory.
The report identifies the 126 affected records as approximately 82 percent of the inspections reviewed. The denominator must travel with that percentage. Removing the sample description would convert a bounded finding about agency documentation into an unsupported conclusion about the statewide housing stock.
The methodology also distinguishes the physical inspection from tenant-file review. Both used records associated with the sampled properties, but they examine different duties. A property can have an incomplete eligibility record without that fact establishing a physical hazard, and a physical violation does not by itself prove that a tenant's income is over the limit.
The report says LIHTC monitoring inspections can use local health and safety codes or the federal standards under 24 CFR 5.703. It explains that those federal standards include NSPIRE and says the department chose to use the federal framework.
According to the department's account recorded in the audit, it began implementing NSPIRE in October 2024, before the mandatory implementation date identified in the report as October 2025. This gives the audit a direct inspection-standards connection while keeping the monitored program clear: it concerns the state's tax-credit compliance work.
The report is not an announcement of new NSPIRE standards and does not assign each sampled property a HUD score. Nor does it establish that every LIHTC building is a public-housing property. The department's responsibility here is the monitoring required for the tax-credit program.
The missing entries included records of whether inspectors checked smoke alarms, hot-water heaters, electrical panels, showers, stoves and other items, or identified needed repairs. Those gaps matter because the department needs a complete record to identify noncompliance, notify the owner and determine whether corrections occurred.
Auditors found 45 identified health and safety violations at six of the 10 properties that were not included in the department's noncompliance notices to owners. Examples included improper water-heater piping and nonfunctioning range burners.
Those 45 violations are separate from the 163 violations that the department did include in notices to those six owners. The report is not saying that only 45 problems existed or that all 163 reported violations were omitted. Keeping the two counts separate explains both the inspection findings and the reporting failure.
The audit also found delays in issuing notices. At six properties, notices took between 40 and 115 days after inspection, exceeding the department's stated goal of 30 days. The report says federal regulations require prompt notification but do not themselves define a specific number of days for every written notice.
Urgent hazards have a different notification expectation. The report says federal program guidance and the department's procedures call for notice to an on-site owner representative at the end of the inspection when violations pose serious health and safety risks. At three properties, auditors found no notification, or no documentation of notification, at that point.
One property had 14 issues requiring correction within 24 hours, including rodent and gnat infestations, a smoking stove and blocked escape access. The department did not provide the notice until 115 days after inspection, according to the report. A general 30-day administrative goal should not be read as permission to wait that long on urgent conditions.
The report gives a detailed example at Hollywood Ridge I in Peridot. An October 8, 2025 inspection identified a pest infestation in a resident's home and an outdoor electrical outlet without required ground-fault circuit-interrupter protection.
Auditors say the department did not notify the owner of those two urgent violations until December 29, 82 days after inspection. The owner did not address the hazards until March 24, 2026, a total of 167 days after the inspection.
That sequence illustrates both agency notification delay and owner correction delay. It should not be reduced to a claim that the department itself performed all maintenance work or that the hazards still remain unresolved in October 2026. The audit gives a correction date for this example.
The property had received more than $4.3 million in federal tax credits in 2005, according to the report. Its footnote identifies that as the total credits to be claimed over a ten-year period, not a single $4.3 million cash payment associated with the 2025 inspection.
The report notes that outside its formal review, auditors saw some work orders, photographs, invoices and other evidence of corrections. That observation does not erase the monitoring finding, but it also cautions against describing every cited condition as currently unrepaired without property-specific follow-up.
The audit found missing evidence that the department verified tenant income eligibility and allowable rents in 53 of 153 reviewed files, approximately 35 percent. Forty-six of those records had incomplete or blank income-related entries, and six did not indicate whether rent had been reviewed against the allowable range. The department could not provide an inspection report for one file.
This is a finding about the required verification record. It raises a risk that ineligible tenants could occupy restricted housing or that incorrect rents could be charged. It does not establish that all 53 households were actually ineligible or that every rent reviewed was unlawful.
At five sampled properties, the department took more than 30 days to notify owners of 37 file deficiencies. The report also identifies three deficiencies omitted from notices sent to two owners. These administrative problems are separate from the physical violations, even though both concern compliance monitoring.
The audit's discussion of rent limits also distinguishes LIHTC restricted rents from an ordinary statement that every resident pays a fixed percentage of their own income. Program rent calculations and household eligibility have specific rules. A general description of low-income housing should not replace those calculations with a blanket income-based-rent claim.
The Department of Housing's September 22 response agrees with the audit finding. It says it is working on an electronic solution to standardize inspection documentation and urgent health-and-safety notifications, along with revised policies, training and supervisory oversight.
The response says a vendor was identified September 15. It also describes electronic measures implemented September 1 to support a 30-day transmission goal and IRS reporting. Those statements are the department's response, not the auditor's confirmation that every new process has been fully tested and every finding closed.
The report makes 27 recommendations overall. Independent October 3 reporting says the governor's spokesperson described 17 as implemented and 10 still being worked on. That account should be attributed rather than treated as a completed independent verification of all corrective work.
The recommendations include documenting every required inspection and file review, notifying representatives of urgent hazards at inspection's end, sending written deficiencies promptly, reporting required noncompliance to the IRS and improving standardized training. They address the full chain from observation to follow-up, rather than only adding another checklist.
The audit also records progress following an earlier review of fraud-prevention and financial controls. Independent reporting describes new wire-transfer checks following the department's loss of $2 million in a 2023 impersonation fraud.
Those earlier events do not turn the current inspection deficiencies into a newly proven fraud scheme. The report evaluates different areas of agency work, and progress on payment controls can coexist with problems in physical inspections and tenant-file verification.
The supported conclusion is that the sampled monitoring process did not provide the required assurance of safe housing and proper program compliance. The next measure is documented implementation of the recommendations and reliable follow-up at the affected properties. The audit provides concrete examples and denominators for that work, not a statewide failure rate or a declaration that every cited hazard remains present today.
Arizona's Auditor General found that the Department of Housing did not inspect or document at least one required health and safety standard in 126 of 153 reviewed LIHTC unit inspections, about 82 percent of that sample. At six of 10 properties, 45 violations were left out of notices to owners, and some notices took 40 to 115 days against a 30 day goal. The sample covers 10 of 512 monitored properties, so it is not a statewide failure rate. It shows where LIHTC monitoring can break down: missing records, late notices and slow reporting of urgent hazards.
LIHTC owners and management agents in Arizona. The Arizona Department of Housing. Residents of tax credit properties. Other state housing finance agencies that monitor with NSPIRE or local codes, and the lenders and investors who rely on those inspections.
Arizona's October 1 audit found missing inspection or documentation for at least one standard in 126 of 153 reviewed tenant-unit inspections.
The review covered 10 sampled LIHTC properties, not every low-income apartment in Arizona.
Forty-five identified violations at six properties were omitted from notices to owners, and some notices took up to 115 days.
At one property, auditors document urgent hazards remaining unresolved for 167 days after inspection.
Tenant-file verification evidence was missing for 53 of 153 reviewed files, raising risk rather than proving every affected tenant was ineligible.
The department agrees with the finding and describes electronic tools, updated procedures and training; implementation remains distinct from promised correction.
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