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We audited P.K. Management Group, Inc. (PKMG), a contracted field service manager in HUD’s real estate-owned Management and Marketing III program, as part of the activities included in our 2016 annual audit plan and because it was the sole contractor performing property preservation and protection services for U.S. Department of Housing and Urban Development (HUD)-acquired properties located in Illinois in Region’s 5 jurisdiction.  Our audit objective was to determine whether PKMG provided property preservation and protection services in accordance with its contract with HUD and its own requirements.

PKMG did not always provide property preservation and protection services in accordance with its contract and its own requirements.  Specifically, it did not ensure that (1) 82 HUD-owned vacant properties were in ready-to-show condition and (2) 23 custodial properties were free of health and safety hazards and the exteriors were clean, safe, sanitary, and secured.  In addition, PKMG billed HUD for properties for which it had not provided property preservation and protection services.  As a result, PKMG inappropriately received more than $19,000 in property management fees for properties that were not adequately maintained.  In addition, it inappropriately received more than $2,300 in property management fees for properties that it had not serviced.  If PKMG does not improve its process for performing property preservation and protection services, we estimate that HUD could inappropriately pay more than $2.5 million in management fees for properties that are not maintained in accordance with its contract requirements over the next year.

We recommend that HUD require PKMG to (1) certify that the applicable property and preservation deficiencies have been corrected for the 105 properties cited, (2) reimburse HUD more than $19,000 for the 105 properties that were not adequately maintained, (3) implement adequate procedures and controls to ensure that all properties comply with its contract and its own requirements to prevent more than $2.5 million in program funds from being spent for monthly ongoing property management fees for properties that do not comply with HUD’s and its own requirements over the next year, and (4) reimburse HUD more than $2,300 in property management fees received for services it had not performed.