P.K. Management Group, Inc.
Doral, FL
Single Family Real Estate-Owned Management and
Marketing III Program
Office of Audit, Region 5 Audit Report Number: 2016-CH-1008
Chicago, IL September 29, 2016
To: Robert Mulderig, Acting Deputy Assistant Secretary for Single Family Housing,
HU
//signed//
From: Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject: P.K. Management Group, Inc., Doral, FL, Did Not Always Provide Property
Preservation and Protection Services in Accordance With Its Contract With HUD
and Its Own Requirements
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of P.K. Management Group, Inc., field service
manager, HUD’s real estate-owned Management and Marketing III program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
(312) 353-7832.
Audit Report Number: 2016-CH-1008
Date: September 29, 2016
P.K. Management Group, Inc., Doral, FL, Did Not Always Provide Property
Preservation and Protection Services in Accordance With Its Contract With
HUD and Its Own Requirements
Highlights
What We Audited and Why
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.
What We Found
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.
What We Recommend
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.
Table of Contents
Background and Objective......................................................................................3
Results of Audit ........................................................................................................5
Finding: PKMG Did Not Always Provide Property Preservation and Protection
Services in Accordance With Its Contract With HUD and Its Own Requirements ... 5
Scope and Methodology .........................................................................................15
Internal Controls ....................................................................................................17
Appendixes ..............................................................................................................18
A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 18
B. Schedule of OIG Property Observation Results .................................................... 19
C. Auditee Comments and OIG's Evaluation ............................................................. 25
D. Contract Requirements ............................................................................................ 40
2
Background and Objective
The Federal Housing Administration (FHA) is an organizational unit within the U.S. Department
of Housing and Urban Development (HUD) that administers the single-family mortgage
insurance program. FHA insures approved lenders against the risk of loss on mortgages. In the
event of a default on an FHA-insured loan, the lender acquires title to the property by
foreclosure, a deed in lieu of foreclosure,1 or other acquisition method; files a claim for insurance
benefits; and conveys the property to HUD. As a result of acquisitions through the mortgage
insurance program and other programs, HUD needs to manage and sell a sizable inventory of
single-family homes in a manner that promotes home ownership, preserves communities, and
maximizes the returns to the FHA insurance fund.
Since 1999, HUD has been outsourcing the disposition of its real estate-owned inventory to
management and marketing contractors. This acquisition is part of the third generation of
management and marketing services. On September 30, 2012, HUD entered into a management
and marketing contract with P.K. Management Group, Inc. (PKMG), for field service
management services2 to successfully manage HUD-owned single-family properties and provide
property preservation and protection services consisting of but not limited to inspecting,
securing, performing cosmetic enhancements, repairing, and providing ongoing maintenance to
the HUD-owned properties.
PKMG is a national real estate management company with experience in managing, preserving,
and providing environmental services for residential and commercial properties. It is the sole
prime contractor serving as the field service manager in six contract areas for HUD’s
management and marketing program, including Illinois. During the previous Management and
Marketing III program, PKMG served as a prime field service manager contractor in nine States
and territories and as a subcontractor providing quality control, property inspection, and
environmental services to an additional portfolio of HUD homes across 38 States. PKMG was
incorporated on May 7, 2005. Its corporate office is located in Doral, FL.
To implement its field service management contract with HUD, PKMG used subcontractors to
complete the property preservation and protection services. According to the contract with
HUD, PKMG should be liable for damages to all acquired properties due to failure to inspect or
secure property or other act, neglect, failure, or misconduct of the contractor, a subcontractor, or
1
A deed in lieu of foreclosure is a transaction where the homeowner voluntarily transfers title to the property to the
lender in exchange for a release from the mortgage obligation.
2
Field service managers are companies that provide property preservation and protection services consisting of but
not limited to inspecting and securing properties, performing cosmetic enhancements or repairs, and providing
ongoing property maintenance.
3
any management official of any of the foregoing. The contractor must indemnify HUD for
losses due to any act, neglect, failure, or misconduct of the contractor, a subcontractor, or any
management official of any of the foregoing. Therefore, PKMG is ultimately responsible to
ensure that the properties are maintained in accordance with the contract with HUD and its own
requirements. PKMG reviews the subcontractors inspection reports and completes quality
control inspections of the properties in its active inventory.
Region 5 includes the States of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.
Our audit objective was to determine whether PKMG provided property preservation and
protection services for HUD-owned single-family properties in accordance with its contract with
HUD’s and its own requirements.
4
Results of Audit
Finding: PKMG Did Not Always Provide 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. The deficiencies occurred because PKMG did not provide adequate
oversight of its subcontractors to ensure that properties were maintained in accordance with its
contract and its own requirements. As a result, PKMG inappropriately received more than
$19,000 in management fees for properties that were not adequately maintained. In addition, it
inappropriately received more than $2,300 in management fees for properties it had not serviced.
Based on our statistical sample, we estimate that over the next year, HUD will inappropriately
pay more than $2.5 million in management fees for properties that are not maintained in
accordance with its contract with PKMG.
Properties Were Not Adequately Maintained3
From PKMG’s active inventory, we statistically selected4 128 properties to observe5 and
determine whether PKMG ensured that the HUD-acquired properties were maintained in
accordance with its contract and its own requirements. Of the 128 properties, 105 (82 percent)
had 424 deficiencies. The 105 properties had interior, exterior, and health and safety hazard
deficiencies or a combination of deficiencies. Specifically,
92 properties had 208 interior health and safety hazards,
51 properties had 68 exterior health and safety hazards,
60 properties had 77 other interior deficiencies,
68 properties had 71 other exterior deficiencies.
As a result, HUD disbursed $19,425 in management fees for properties that were not properly
maintained. The table below represents the type of deficiency observed and the location, either
interior or exterior.
3
See appendix D for criteria.
4
Our methodology for the statistical sample is explained in the Scope and Methodology section of this audit report.
5
We observed the 128 properties between March 15 and June 14, 2016.
5
Interior health Exterior health Other interior Other exterior
Deficiency type and safety and safety deficiencies deficiencies
Tripping hazard 43 22 - -
Safety hazards (missing or
loose handrails, defective steps) 5 9 - -
Property not secured (includes
sheds, garages, and
outbuildings) 33 13 - -
Active roof leak or water leak
(includes sheds, garages, and
outbuildings) 11 2 - -
Cutting hazard 38 16 - -
Electrical hazard 48 6 - -
Landscaping not maintained - - - 66
Not broom swept (includes
sheds, garages, and
outbuildings) - - 55 4
Moisture damage - - - 1
Feces in the property 3 - - -
Inoperable interior doors 9 - - -
Excessive mold or mildew 2 - -
Gas line, water line, or dryer
vent not capped 16 - - -
Property deterioration - - 19 -
Missing emergency contact
notice - - 3 -
Total deficiencies 208 68 77 71
6
Ninety-Two Properties Had Two Hundred Eight Interior Health and Safety Hazards
Contrary to sections C.5.2.3 and C.5.2.3.16 of its contract, the interiors for 92 of the 128
properties observed were not free of health and safety hazards. The 92 properties had 208
interior health and safety hazards. The following items are examples of interior health and safety
hazards listed in the table: uncapped and exposed electrical wires, missing flooring, missing
thresholds, broken glass, protruding nails, broken windows, unsecured attached garage doors, gas
lines not capped, active water leaks, inoperable interior doors, mold or excessive mildew,
defective stairs, missing handrails, and feces.
Sixty Properties Had Seventy-Seven Other Interior Deficiencies
Contrary to section C.5.2.3.17 of its contract, 60 of the 128 properties observed were not in
ready-to-show condition.8 The 60 properties had 77 other interior deficiencies. The following
items are examples of other interior deficiencies listed in the table: debris on the floor, dead
insects on windowsills, cobwebs on vents, dirty carpets, and rotting basement wall. In addition,
24-hour emergency contact signs were missing for three properties at the time of our
observations.
Fifty-One Properties Had Sixty-Eight Exterior Health and Safety Hazards
Contrary to section C.5.19 of its contract, the exteriors for 51 of the 128 properties observed were
not free of health and safety hazards. The 51 properties had 68 exterior health and safety
hazards. The following items are examples of exterior health and safety hazards listed in the
table: rippling exterior carpets, broken glass, large hole in yard, unsecured detached garage side
door, exposed electrical wires, and missing midrails (balusters).
Sixty-Eight Properties Had Seventy-One Other Exterior Deficiencies
Contrary to sections C.5.1 and C.1.610 of its contract, the exteriors for 68 of the 128 properties
observed were not clean and sanitary and did not reflect a high standard of care. The 68
properties had 71 other exterior deficiencies. The following items are examples of the other
exterior deficiencies listed in the table: landscaping not maintained, debris in a detached garage,
abandoned vehicles in backyard, and detached garage wall damaged by water.
The following photographs illustrate examples of the deficiencies noted during the property
observations of the 105 properties that were not maintained in accordance with PKMG’s contract
with HUD or its own requirements.
6
See appendix D for criteria.
7
See appendix D for criteria.
8
Ready-to-show condition is defined as a property free of debris, visible insect and rodent infestations, and health
and safety hazards. All cabinets, refrigerators, freezers, counter tops, and windows must have been wiped clean, and
the property must be free of bad smells. All floors and carpets must be clean. This requirement does not apply to
custodial properties.
9
See appendix D for criteria.
10
See appendix D for criteria.
7
Property #A34: Feces on
wall and floor
Property #A117:
Deteriorated basement
wall
8
Property #A119:
Broken window
Property #A125:
Property not secured;
missing door and
window
9
Property #A125:
Exterior debris
Property #A49: Interior
debris
10
Property #A122:
Missing flooring
covered up with carpet
Property #A114:
Unsecured vents
11
Property #A59: Hole in
backyard, creating
tripping hazard
Property #A123:
Missing midrails
(balusters) on second
floor
Inappropriate Property Management Fees Were Received for Services Not Provided
For three properties (FHA case numbers 131-990458, 137‐003836, and 137‐311574), HUD
asked PKMG to stop performing property preservation and protection services due to pending
demolition or removal from HUD’s inventory. For another property (FHA case number 137-
352298), HUD asked PKMG to stop providing property preservation and protection services
because the homeowner’s association dues owed on the property exceeded the appraised value.
12
PKMG stated that if HUD asked that services not be provided for a particular property that was
in its active inventory, it would stop servicing the property and then manually remove the
property from its monthly field service manager batch billing transmittals to HUD. However,
based on our review of monthly batch billing transmittals and payment receipts, we determined
that PKMG did not always exclude these four properties from its monthly batch billing
transmittals. Because the four properties were not always removed from the monthly batch
billing transmittals, PKMG inappropriately received more than $2,300 in property management
fees.
PKMG Lacked Adequate Oversight of Its Subcontractors
PKMG lacked adequate oversight of its subcontractors to ensure that property preservation and
protection services were performed in accordance with its contract and its own requirements.
According to PKMG, it regularly performed quality control inspections of the properties in its
active inventory to ensure that its subcontractors properly maintained the properties.
Additionally, PKMG stated that the percentage of its inventory that it inspected on a recurring
basis had increased from 10 to 30 percent of its active inventory. However, based on our review
of PKMG’s quality control inspections, we determined that PKMG performed quality control
reviews for less than 9 percent of its active inventory. For one month, it reviewed only 59 (3.7
percent) of the 1,594 properties in its active inventory. For the quality control reviews we
reviewed, deficiencies were noted in every property PKMG reviewed. However, the quality
control findings report did not contain the names or other identifiers to determine the
subcontractors that had performed the preservation and protection services for the properties that
were not maintained in accordance with PKMG’s contract. PKMG acknowledged that its
subcontractors’ information was not in the report. However, it stated that it knew which
subcontractors were responsible for the deficiencies based on the location of the properties and
the work orders11 issued.
We reviewed PKMG’s compliance reports for the most recent 6 months and determined that the
reports did not identify the individuals or subcontractors responsible for the deficiencies in
accordance with PKMG’s quality control plan. In addition, PKMG did not provide
documentation (1) to show how its subcontractors had rated or (2) a list of its subcontractors that
had received additional training or were terminated. Further, although PKMG required
management to review the findings and implement the necessary steps to resolve exceptions to
prevent a recurrence, similar deficiencies continued to be identified in later reviews.
Conclusion
PKMG lacked adequate oversight of its subcontractors to ensure that properties were maintained
in accordance with its contract and its own requirements. As a result, it inappropriately received
more than $19,000 in management fees for properties that were not adequately maintained. In
addition, it inappropriately received more than $2,300 in management fees for properties it had
not serviced. Based on our statistical sample, we estimate that over the next year, HUD will pay
11
Work orders are requests that PKMG used to send subcontractors back to a property to complete work they failed
to complete on a previous work order for no additional charge.
13
more than $2.5 million in management fees for properties that are not maintained in accordance
with its contract with PKMG.
Recommendations
We recommend that the HUD’s Acting Deputy Assistant Secretary for Single Family Housing
require PKMG to
1A. Certify and provide supporting documentation showing that the applicable property
preservation and protection deficiencies have been corrected for the 105 properties cited
in this finding.
1B. Reimburse HUD $19,425 in ineligible monthly ongoing property management fees for
the 105 properties that contained property preservation and protection deficiencies.
1C. Reimburse HUD $2,314 for the ineligible monthly ongoing property management fees
received for services not performed.
1D. Improve its quality control procedures to ensure that all properties in its active inventory
comply with its contract with HUD and its own requirements to prevent $2,532,000 in
monthly ongoing property management fees from being spent for properties that are not
adequately maintained over the next year.
1E. Implement the improved quality control procedures12 to ensure that property preservation
and protection services are performed in accordance with its contract with HUD and its
own requirements, including but not limited to ensuring that (1) it provides proper
supervision and oversight of its subcontractors and (2) supervisory quality control
inspections are completed and feedback is provided to the subcontractors to correct
recurring deficiencies.
1F. Implement procedures and controls to ensure that it manually removes properties from its
monthly field service manager batch billing transmittals to HUD, when HUD asks that
services not be provided for a particular property that is in PKMG’s active inventory.
12
Improved quality control procedures from recommendation 1D.
14
Scope and Methodology
We performed our audit work between February and July 2016 at the Chicago regional office,
and we performed property observations in Illinois. The audit covered the period September 30,
2012, through February 2, 2016, and PKMG’s active inventory in HUD’s P26013 system, but our
scope was expanded as determined necessary.
To accomplish our review objective, we interviewed HUD’s staff at the Atlanta Homeownership
Center, the government technical representative for PKMG’s contract, and PKMG’s employees.
In addition, we obtained and reviewed the following:
PKMG’s contract with HUD; internal policies and procedures; property management
plan; quality control plan; HUD 3.6 property preservation contractor statement of work;
the inspector and contractor training guides; quality control reviews; and monthly batch
billing transmittals and receipts.
Information contained in HUD’s P260 system, including the active properties assigned to
PKMG’s inventory, routine inspection reports and photographs, property status, and
other related communication records obtained from HUD’s system.
From the 1,584 active properties in PKMG’s inventory, we statistically selected 104 properties to
observe. We completed observations of 24 properties during our survey. In the audit phase, we
checked the status of the remaining 80 (104-24) properties in HUD’s P260 system to determine
whether the properties were still in PKMG’s active inventory. After reviewing the data in P260,
we determined that we did not have enough statistical replacement samples to replace the
properties that had been sold or reconveyed to the lenders. Therefore, we did not complete the
field observations of the remaining 80 properties statistically selected during the initial sample.
Our survey review determined that 19 properties were not maintained in accordance with
PKMG’s contract with HUD and its own requirements. We included the results of our survey
observations in the finding; however, the results from the survey were not included in our
projection.
Because we did not have enough statistical replacement samples, we created an additional
statistical sample. Therefore, from the 1,433 active properties in PKMG’s inventory, we
statistically selected a stratified, two-stage cluster sample of 104 properties to observe. We used
a statistical sample so the audit results could be projected to the universe. Of the 104 selected
properties, we found that 86 properties were not maintained in accordance with PKMG’s
13
P260 is an Internet-based system that serves as the primary system of record for all HUD real estate-owned case
management transactions. The system will assign each HUD-owned property for contractors to track the disposition
activity from conveyance to sale.
15
contract with HUD or its own requirements. Projecting these results to the universe and
deducting a statistical margin of error, we can say, with a one-sided confidence interval of 95
percent that this amounts to at least 1,140 properties that were not maintained in accordance with
PKMG’s contract with HUD or its own requirements. Similarly, we found that of the fees paid,
an average of $147.70 per property was spent on properties that were not maintained in
accordance with PKMG’s contract with HUD or its own requirements. Projecting this amount to
the audit universe of 1,433 properties and deducting for a statistical margin of error, we can state,
with a one-sided confidence interval of 95 percent that at least $211,000 in ongoing monthly
property management fees was paid for properties that were not maintained in accordance with
PKMG’s contract or its own requirements for 1 month. Over the next year, this is equivalent to
an overpayment of $2,532,000 ($211,000 x 12 months) in property management fees paid for
properties that are not maintained in accordance with PKMG’s contract with HUD or its own
requirements.
Calculations below:
(83.62% - 1.8331 X 2.12%) x N = 79.7% x N ≈ 1,140 properties not adequately maintained
($155 - 1.8331 X $4.01) x N = $147.70 x N ≈ $211,000 spent monthly for properties not
adequately maintained
Data, Review Results, and Generally Accepted Government Auditing Standards
We relied in part on data maintained by PKMG and data entered into HUD’s P260 system by
PKMG and its subcontractors. Although we did not perform a detailed assessment of the
reliability of the data, we performed a minimal level of testing and found the data to be
adequately reliable for our purposes.
We provided our review results and supporting schedules to HUD’s Acting Deputy Assistant
Secretary for Single Family Housing; Chief of the Atlanta Home Ownership Center, Real Estate
Owned Division; and PKMG’s chief executive officer during the audit.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
16
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
Effectiveness and efficiency of operations,
Reliability of financial reporting, and
Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:
Effectiveness and efficiency of operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives.
Reliability of financial reporting – Policies and procedures that management has
implemented to reasonably ensure that valid and reliable data are obtained, maintained, and
fairly disclosed in reports.
Compliance with applicable laws and regulations – Policies and procedures that management
has implemented to reasonably ensure that resource use is consistent with laws and
regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:
PKMG lacked adequate oversight of its subcontractors to ensure that properties were
maintained in accordance with its contract and its own requirements (finding).
17
Appendixes
Appendix A
Schedule of Questioned Costs and Funds To Be Put to Better Use
Recommendation Funds to be put
number Ineligible 1/ to better use 2/
1B $19,425
1C 2,314
1D $2,532,000
Total 21,739 2,532,000
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or Federal, State, or local
policies or regulations.
2/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
that are specifically identified. In this instance, if PKMG implements our
recommendations, HUD will stop incurring program costs for properties that are not in
ready-to-show condition or free of health and safety hazards and, instead, will spend
those funds for properties maintained in accordance with its contract. Once PKMG
improves oversight of its subcontractors, this will be a recurring benefit. Our estimate
reflects only the initial year of this benefit.
18
Appendix B
Schedule of OIG Property Observation Results
FHA case number
Deficiency type
Total deficiencies
Results
Identification
Health and safety Other deficiencies
number
Exterior
Exterior
Number
Number
Number
Number
Interior
Interior
exterior
exterior
interior
interior
Pass14
Fail15
Total
Total
S1 131-985663 X X 1 X 3 4 X 1 X 3 4 8
S2 137-686966 X X 4 4 X 1 X 2 3 7
S3 137-489893 X X 2 2 X 1 1 3
S4 137-213648 X X 1 X 3 4 X 1 1 5
S5 137-325834 X X 1 1 X 1 1 2
S6 137-331725 X X 2 X 3 5 X 1 X 2 3 8
S7 137-268143 X X 2 2 X 1 X 2 3 5
S8 137-597898 X
S9 137-510834 X
S10 137-641711 X X 1 X 4 5 X 1 1 6
S11 137-505799 X X 3 3 X 1 X 2 3 6
S12 131-686559 X X 1 1 X 1 1 2
S13 137-357996 X X 1 1 1
S14 137-283417 X X 2 X 2 4 X 1 1 5
S15 137-341857 X X 1 1 1
S16 137-345341 X X 1 1 X 1 1 2
S17 137-312086 X X 1 X 1 2 X 1 X 1 2 4
S18 137-372795 X X 1 X 1 2 X 1 X 1 2 4
14
Pass is defined as property preservation and protection services that were in accordance with PKMG’s contract
with HUD and its own requirements.
15
Fail is defined as property preservation and protection services that were not in accordance with PKMG’s contract
with HUD, its own requirements, or both.
19
Deficiency type
FHA case number
Total deficiencies
Results
Health and safety Other deficiencies
Identification
Number
Exterior
Number
Number
Exterior
Number
Number
exterior
interior
interior
exterior
Interior
Interior
Pass13
Total
Total
Fail14
S19 137-516750 X X 1 X 1 2 X 1 1 3
S20 137-352760 X X 2 2 X 2 X 2 4 6
S21 137-003836 X
S22 137-310214 X
S23 137-422937 X
S24 137-473116 X X 1 X 3 4 X 1 1 5
A25 132-183817 X X 1 1 X 1 1 2
A26 132-248687 X X 1 X 2 3 X 1 X 1 2 5
A27 132-183222 X X 1 1 1
A28 132-137243 X X 2 X 2 4 X 1 X 1 2 6
A29 132-210339 X X 2 X 2 4 X 1 1 5
A30 132-208981 X X 1 X 2 3 X 2 2 5
A31 132-239110 X X 3 3 X 1 X 1 2 5
A32 132-208622 X X 1 X 4 5 X 1 X 1 2 7
A33 132-256078 X X 1 1 X 1 1 2
A34 132-201054 X X 1 X 6 7 X 1 X 2 3 10
A35 132-169804 X X 1 X 6 7 X 1 X 1 2 9
A36 132-240521 X X 1 X 4 5 X 1 1 6
A37 132-204493 X X 1 1 1
A38 132-150096 X X 1 X 1 2 X 1 X 1 2 4
A39 137-468303 X X 2 2 X 1 X 1 2 4
A40 137-455521 X X 1 1 1
A41 132-156775 X X 1 1 1
A42 132-161794 X X 1 X 4 5 X 1 1 6
A43 132-280796 X X 1 X 2 3 X 1 1 4
A44 132-286484 X X 1 1 X 1 X 1 2 3
20
Deficiency type
FHA case number
Total deficiencies
Results
Health and safety Other deficiencies
Identification
Number
Exterior
Number
Number
Exterior
Number
Number
exterior
interior
interior
exterior
Interior
Interior
Pass13
Total
Total
Fail14
A45 132-223138 X X 2 2 X 1 X 1 2 4
A46 132-160338 X X 1 1 X 1 X 1 2 3
A47 132-221569 X X 2 2 X 1 1 3
A48 132-201201 X
A49 137-283662 X X 3 3 X 1 X 1 2 5
A50 137-447131 X X 1 X 1 2 X 1 1 3
A51 137-426336 X
A52 137-415828 X X 1 1 X 1 1 2
A53 131-803364 X X 1 X 1 2 X 1 1 3
A54 137-210541 X X 1 1 X 1 1 2
A55 137-576768 X X 1 1 1
A56 137-234852 X X 2 2 2
A57 137-337969 X X 4 4 X 1 1 5
A58 137-430391 X X 1 1 X 1 1 2
A59 137-590717 X X 1 X 3 4 X 2 2 6
A60 137-463175 X X 1 1 X 1 1 2
A61 137-334534 X
A62 137-651065 X
A63 137-709976 X X 1 X 1 2 X 1 X 1 2 4
A64 137-467809 X X 3 3 X 1 1 4
A65 137-332972 X X 3 3 X 2 2 5
A66 137-376662 X X 2 2 X 1 X 1 2 4
A67 137-351702 X X 2 X 4 6 X 1 X 2 3 9
A68 137-391816 X X 1 1 X 2 2 3
A69 137-376499 X X 1 X 5 6 X 1 X 1 2 8
A70 137-351397 X X 1 X 1 2 X 1 X 1 2 4
21
Deficiency type
FHA case number
Total deficiencies
Results
Health and safety Other deficiencies
Identification
Number
Exterior
Number
Number
Exterior
Number
Number
exterior
interior
interior
exterior
Interior
Interior
Pass13
Total
Total
Fail14
A71 137-691393 X X 2 2 X 1 X 2 3 5
A72 137-546029 X X 1 1 X 2 2 3
A73 132-251209 X
A74 132-179529 X X 3 X 1 4 X 1 X 1 2 6
A75 132-274617 X X 1 1 X 1 X 1 2 3
A76 132-252141 X X 1 1 X 1 X 1 2 3
A77 132-202870 X X 2 X 3 5 X 1 X 1 2 7
A78 132-269848 X X 1 1 1
A79 132-265446 X X 2 X 2 4 X 1 X 1 2 6
A80 132-183178 X X 1 1 X 1 1 2
A81 137-517783 X X 2 2 X 1 1 3
A82 137-540757 X X 1 1 X 1 1 2
A83 137-532521 X X 1 X 1 2 2
A84 137-209879 X X 1 1 X 1 1 2
A85 137-492843 X
A86 137-510637 X X 1 1 1
A87 137-743340 X
A88 137-572438 X X 2 2 X 1 1 3
A89 131-724704 X X 2 2 2
A90 137-384507 X X 1 1 X 1 1 2
A91 137-531695 X
A92 137-487290 X X 2 X 1 3 X 1 X 1 2 5
A93 137-224604 X X 1 1 1
A94 137-369902 X X 2 X 2 4 X 1 1 5
A95 131-815376 X
A96 137-439021 X X 2 2 2
22
Deficiency type
FHA case number
Total deficiencies
Results
Health and safety Other deficiencies
Identification
Number
Exterior
Number
Number
Exterior
Number
Number
exterior
interior
interior
exterior
Interior
Interior
Pass13
Total
Total
Fail14
A97 137-254648 X
A98 131-870142 XX X 2 2 2
A99 137-297870 X X 3 3 X 1 1 4
A100 137-342145 X
A101 137-336623 X X 1 1 X 1 1 2
A102 137-312086 X X 3 3 X 1 1 4
A103 137-550862 X
A104 137-325075 X X 1 1 X 1 1 2
A105 137-462456 X
A106 137-428291 X X 2 X 1 3 X 2 2 5
A107 137-352940 X X 1 1 X 1 X 1 2 3
A108 137-549783 X X 1 X 4 5 X 1 1 6
A109 137-260669 X X 2 2 2
A110 137-484054 X X 1 X 3 4 X 1 1 5
A111 137-484490 X
A112 131-751253 X X 1 1 1
A113 137-582063 X X 4 4 X 1 1 5
A114 137-548120 X X 3 3 X 1 1 4
A115 137-343264 X X 1 X 4 5 X 2 2 7
A116 137-539247 X X 5 5 X 1 1 6
A117 137-429301 X X 2 X 4 6 X 1 1 7
A118 137-590823 X
A119 137-282288 X X 1 X 3 4 4
A120 137-443002 X
23
Deficiency type
FHA case number
Total deficiencies
Results
Health and safety Other deficiencies
Identification
Number
Exterior
Number
Number
Exterior
Number
Number
exterior
interior
interior
exterior
Interior
Interior
Pass13
Total
Total
Fail14
A121 137-614827 X X 1 X 4 5 X 2 2 7
A122 137-415866 X X 1 X 3 4 X 1 1 5
A123 131-896274 X X 3 X 1 4 X 1 1 5
A124 137-430834 X
A125 137-483342 X X 1 X 3 4 X 1 X 1 2 6
A126 137-353296 X
A127 137-463027 X X 2 X 3 5 X 1 X 1 2 7
A128 137-516228 X X 3 3 X 2 2 5
Totals 23 105 51 68 92 208 276 68 71 60 77 148 424
24
Appendix C
Auditee Comments and OIG’s Evaluation
Ref to OIG
Evaluation Auditee Comments
Comment 1
Comment 2
Comment 3
25
Ref to OIG Auditee Comments
Evaluation
Comment 3
Comment 4
Comment 5
Comment 6
Comment 7
Comment 8
Comment 9
26
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 10
Comment 11
27
Ref to OIG Auditee Comments
Evaluation
Comment 5
Comment 11
Comment 11
Comment 11
Comment 11
28
Ref to OIG Auditee Comments
Evaluation
Comment 11
Comment 12
Comment 11
Comment 13
29
Ref to OIG Auditee Comments
Evaluation
Comment 14
Comment 15
Comment 16
Comment 17
Comment 18
30
Ref to OIG Auditee Comments
Evaluation
Comment 18
Comment 18
Comment 18
Comment 19
31
Ref to OIG Auditee Comments
Evaluation
Comment 19
Comment 19
Comments 8,
11, 15, and
17
Comment 20
Comments 8,
11, 15, and
17
Comment 21
Comment 5
Comments 8,
11, 15, and
17
32
Ref to OIG Auditee Comments
Evaluation
Comment 22
Comments 8,
11, 15, and
17
Comment 16
Comment 19
Comment 19
Comment 19
33
OIG Evaluation of Auditee Comments
Comment 1 PKMG states that it had reviewed the information and supporting photos that we
provided for each property that contained deficiencies. It contends that it re-
reviewed the inspections that were previously conducted at each property and
determined that there were no previous reports that matched 68 percent of the
findings that we reported. Therefore, many of the issues we identified were first-
time reported cases. It also contends that our findings were not dissimilar to the
findings it was accustomed to seeing during its own reviews of routine inspections
and quality control inspections.
PKMG did not provide documentation of the various inspections referred to in its
comments. We obtained the routine inspection reports for each property from
HUD’s P260 system and reviewed the inspections that occurred before and after
our observations. We determined that the location of the deficiencies, such as
kitchen, front lawn, etc., were not always captured in the inspection reports.
Therefore, because the location of the deficiencies we cited were not always
captured in PKMG’s inspection reports, it is difficult to accurately compare the
reports for corrections or recurring issues.
Comment 2 PKMG contends that (1) it was not required to make improvements to the
properties because the properties were sold in as-is condition and (2) the
deficiencies we reported were minor defects. We agree that PKMG was not
required to make improvements to the properties. However, we disagree that the
reported deficiencies were minor. As stated in the report, 100 properties had 276
interior or exterior health and safety hazards, and 92 properties had 148 other
interior and exterior deficiencies. According to PKMG’s contract and its own
internal policies, the identified deficiencies required corrective actions. Further,
in a meeting with PKMG on April 29, 2016, it agreed that the deficiencies
identified during the review related to its contract or its own internal policies and
procedures.
Comment 3 PKMG contends that it reviewed HUD’s P260 system and determined that HUD’s
asset managers reported that one property observed during the survey was not in
ready to show condition, and that two properties observed during the audit were
not in ready to show condition. However, PKMG did not provide documentation
to support its assertions. Additionally, this audit was not a review of HUD’s asset
managers.
Comment 4 PKMG states that HUD’s asset manager was obligated to conduct routine
inspections and monitor and assess whether properties were being properly
maintained by the field service manager. As mentioned in comment 3, this audit
was not a review of HUD’s asset manager; therefore, we did not review its role
and responsibilities in the management and marketing process.
34
Comment 5 PKMG states that it was required to complete routine inspections every 14 days
and that many issues (deficiencies) can arise from weather, neighbors, and
vendors. PKMG also states that our observations were reported 2 months after
the inspections were completed. We acknowledge that issues may occur between
inspections. According to section C.5.2.3.2 of PKMG’s contract, it was required
perform routine inspections at a minimum of once every 2 weeks. However,
based on geography, climate, age, and community needs, some properties may
require more frequent inspections and a higher level of maintenance than others.
Further, in reviewing PKMG’s routine inspection reports, we determined that 52
inspections were completed within 3 days before or after our property
observations. However, we could not determine whether the deficiencies that we
identified during our observations were also identified and corrected by PKMG.
Specifically, the routine inspection reports and accompanying photographs
generally did not include the areas or locations we cited as being deficient. For
example, we observed the property associated with FHA case number 137-
516228 on May 12, 2016. During the observation, we identified the following
deficiencies: (1) water leaking in the kitchen, (2) debris, (3) exposed wiring, (4)
missing basement flooring, and (5) water overflowing from the sump pump in the
basement. When we reviewed the routine inspection report, we determined that
PKMG’s subcontractor had inspected the property after we left the property that
same day. However, the subcontractor addressed only the overflowing water
from the sump pump in the basement. The routine inspection report did not
contain notes or supporting photographs showing that the subcontractor reported
or addressed the (1) water leak in the kitchen, (2) debris, (3) exposed wiring, or
(4) missing basement flooring. According to PKMG, all inspection reports should
have been clear and legible and included date-stamped photographs of all
deficiencies identified on all visits to the property. Further, if corrections were
made, the reports should have been included before and after photographs.
Comment 6 PKMG contends that if the majority of the deficiencies we cited met the intent of
imminent health and safety concerns, we would have notified PKMG of the
deficiency within 24 hours. We acknowledge that not all of the deficiencies that
we observed presented imminent health and safety concerns. However, as
mentioned in the report, 100 properties contained 276 health and safety
deficiencies. We reported our results to PKMG and HUD throughout the audit.
See comment 5.
Comment 7 PKMG states that it was using the findings we cited to conduct additional training
for its employees and subcontractors. We commend PKMG for taking necessary
actions to improve its inspection process. PKMG should work with HUD to
resolve the recommendations cited in this report.
Comment 8 PKMG contends that all of the deficiencies have been resolved and that HUD
received its full expected value for the contract with PKMG. PKMG also states
that its contract does not contain provisions that require properties in its active
35
inventory to be free of deficiencies at all times. We disagree. PKMG did not
provide documentation to support its assertion that all of the deficiencies cited in
the audit report had been resolved. In addition, section C.5.1 of PKMG’s contract
states that PKMG must maintain all properties in a manner that results in
properties that are clean, safe, secure, and sanitary and preserve property value.
Further, section C.5.2.3.1 of PKMG’s contract states that the contractor must
ensure that the properties remain in ready-to-show condition until sold.
Comment 9 PKMG states that there was no demonstrable impact on HUD holding times,
marketability, or sales pricing and value based on our findings. PKMG did not
provide documentation to support its assertions. Our review was not of HUD
holding times, marketability, or sales pricing and value. Our review was of the
property preservation and protection services provided by PKMG as part of its
contract.
Comment 10 PKMG contends that we did not request information on all of its quality control
inspections. We disagree. Our review was of the property preservation and
protection services provided by PKMG as part of its contract. Section B.1 of
PKMG’s contract with HUD states that PKMG must provide Field Service
Management services to successfully manage HUD-owned Single Family
Properties and provide property maintenance and preservation services consisting
of but not limited to inspecting the property, securing the property, performing
cosmetic enhancements or repairs, and providing on-going maintenance. During
the audit, we requested information and documentation regarding PKMG’s
quality control inspections. PKMG states that it does two types of quality control
inspections, one for initial inspections, and one for recurring inspections. PKMG
defined its initial quality control inspections as a review of 100 percent of the
newly acquired HUD-vacant properties after the HUD Property Inspection Report
and initial clean out were completed.
Section C.5.1 of PKMG’s contract with HUD states that PKMG must maintain
all properties in a manner that results in properties that are clean, safe, secure, and
sanitary and preserve property value. Further, section C.5.2.3.1 of PKMG’s
contract with HUD states that the contractor must ensure that the property remains
in ready to show condition until sold. Because (1) the initial quality control
inspections are completed before the property moves to step 1C Ready to Show
Condition, (2) PKMG reviews 100 percent of the initial inspections, and (3)
PKMG uses subcontractors to complete the property preservation and protection
services, we determined that the recurring quality control inspections of the
subcontractors were more relevant to our review. PKMG did not mention or
provide documentation to support that it performed more than one type of quality
control inspection for its recurring inspection reviews. Further, its quality control
plan did not include information regarding the various types of quality control
inspections mentioned in its comments. PKMG also did not provide
documentation to support its assertions that it completed the inspections in the
36
chart or that it increased its quality control reviews of recurring inspections from
10 to 30 percent.
Comment 11 PKMG states that it disagrees with the accounting used to determine that the loss
to HUD was more than $19,000 and that the fee was for all recurring services to
the properties cited in the audit report. PKMG also states that (1) we arbitrarily
and without logical rationale labeled the findings as contractor deficiencies and
(2) our conclusion that HUD’s payments to PKMG were inappropriate was not
justified. While we agree that the monthly ongoing property management fee was
for more than biweekly inspections, we disagree that we arbitrarily concluded that
the fee was inappropriately paid to PKMG.
PKMG did not provide a cost allocation plan to demonstrate the amount or
percentage of the monthly property management fee that was attributable for
preservation and protection services for HUD’s vacant or custodial properties.
Therefore, we questioned the entire fee it earned for the properties that were not
appropriately maintained for the month in which our observation occurred. In
addition, PKMG provided a chart showing work orders it had completed for
deficiencies that were identified during the audit. However, it did not provide
documentation of the work orders or property inspection reports that included
before and after pictures in accordance with its policies. See comments 1 and 5.
Comment 12 PKMG contends that HUD and the HUD asset manager determined that 96
percent of the properties we observed were in ready-to-show condition.
Therefore, the properties were promoted to step 1C. It also contends that the asset
manager’s initial inspections determined that 77 percent of the properties we
observed were free of health and safety hazards initially or throughout HUD’s
holding time. PKMG also states that 100 percent of all not-ready-to-show
conditions and health and safety hazards we reported have been corrected.
Although the properties had been promoted to step 1C, according to section
C.5.2.3.1 of PKMG’s contract, the properties must remain in ready-to-show
condition until sold. As mentioned in comment 3, the audit did not include a
review of HUD’s asset manager. In addition, PKMG did not provide
documentation to support that all of the issues cited in the audit report had been
corrected.
Comment 13 PKMG states that vacant properties were an ongoing source of vandalism and
blight for many cities across the country, especially Illinois, which was number
one in all of the States that it manages for HUD. Further, included with its written
comments was a list of incidents reported by the asset manager for the properties
that we observed during the audit. However, the incident reports did not
necessarily involve any of the findings we reported. PKMG also contends that it
had corrected all of the deficiencies we reported.
Section C.5.2.3.2 of PKMG’s contract states that based on geography, climate,
age, and community needs, some properties may require more frequent
37
inspections and a higher level of maintenance than others. Further, PKMG did
not provide documentation to support that all deficiencies cited in the report had
been corrected.
Comment 14 PKMG states that health and safety issues directly related to the volume of its
cases were beyond its control until the issues were discovered or it was notified of
such deficiencies. PKMG also states that we do not present any cases in which
PKMG failed or refused to correct a deficiency in a timely manner. We partially
agree. We acknowledge that PKMG generally corrected the deficiencies that we
identified during the survey phase. However, it did not provide documentation to
support that it had corrected the deficiencies observed during the audit phase. In
addition, we commend PKMG for its willingness to correct the deficiencies cited
during the audit. However, it needs to improve its oversight of its subcontractors
to ensure that properties are maintained in accordance with its contract and its
own requirements.
Comment 15 PKMG contends that our review and findings were not supported contractually or
by regulation and that we failed to cite any basis to recommend a reduction or
recapture of PKMG’s monthly ongoing property management fee. We disagree.
Our property observations determined that 105 (82 percent) of the 128 properties
observed were not maintained in accordance with PKMG’s contract with HUD or
its own requirements. We believe that this noncompliance is material enough to
support the recapture of payments for services not performed or for subpar
performance.
Comment 16 PKMG agrees that it owed HUD the monthly ongoing property management fee
for the properties for which HUD asked it to stop providing services. However, it
contends that it had reimbursed HUD for the fees cited in this audit report.
PKMG further states that it will continue to subtract fees related to these cases.
PKMG did not provide documentation to support the reimbursement. However,
we commend PKMG’s commitment to ensure that it properly removes the fees
from its monthly batch billing transmittals to HUD. It should work with HUD to
ensure that it continues to remove the fees for these and other properties for which
HUD requests the discontinuation of services.
Comment 17 PKMG contends that we are not permitted to report information that identifies its
pricing structure for services under its contract. We removed the information that
we believe was proprietary from the audit report.
Comment 18 PKMG agrees with our references to the contents of its property management plan
submitted to HUD as a contract requirement. However, it does not agree that we
should cite the requirements of its property management plan, in the audit report
as it believes the information to be proprietary and confidential. PKMG also
contends that if the excerpts of its property management plan were to be released,
it would give potential bidders insight into PKMG’s processes and procedures
when the contract is released on a competitive basis less than 30 days after the
38
date of its response to us. We removed all references to PKMG’s property
management plan from the audit report.
Comment 19 PKMG states that it agrees with our findings but emphasizes that issues noted in
the audit report were not previously reported to PKMG. In addition, PKMG
states that it has used the information we provided to improve its services to HUD
by implementing key personnel changes for all three management positions; more
intense and frequent one-on-one and group training; review of deficiencies
directly in the field by walking with the subcontractors and discussing the
deficiencies and acceptable corrections of deficiencies and recommendations for
improvement; further training; increased internal training for PKMG staff;
improved oversight of staff and subcontractors; and increased evaluations,
training, and realignment of quality control inspection companies performing
work for PKMG.
We commend PKMG on the steps it has taken to ensure that it has proper
supervision and oversight of its subcontractors. PKMG should work with HUD to
ensure that it has adequately improved its quality control procedures and that the
improved quality control procedures have been fully implemented.
Comment 20 PKMG contends that there was no logic to our extrapolation of its audit results to
the universe and our estimation of future savings to HUD has no validity. We
disagree. Our methodology for projecting the audit results to the universe, as
detailed in the scope and methodology of this report, is a valid statistical estimate
of future savings. Funds to be put to better use, as defined by the Inspector
General Act of 1978, as amended, are estimates of amounts that could be used
more efficiently if an OIG recommendation is implemented and authorized.
Comment 21 PKMG contends that the deficiencies could have been the result of the weather,
inspectors, asset managers, appraisers, buyers, brokers, or vandalism. Therefore,
it was not possible to quantify which deficiencies HUD should be reimbursed for.
We disagree. Section C.5.1 of PKMG’s contract states that PKMG must maintain
all properties in a manner that results in properties that are clean, safe, secure, and
sanitary and preserves property value. In addition, section C.5.2.3.1 of PKMG’s
contract states that the contractor must ensure that the property remains in ready-
to-show condition until sold. See also comments 5 and 6.
Comment 22 PKMG states that it agrees with our recommendation 1A and that it will supply
the certification and supporting documentation to its government technical
representative. We commend PKMG for undertaking necessary actions to
remediate the deficiencies identified in recommendation 1A. PKMG should work
with HUD to resolve the recommendation.
39
Appendix D
Contract Requirements
Section C.1.6 of PKMG’s contract with HUD states that the purpose of this contract is to obtain
property management services as detailed in section 5.2 field service managers are companies
that provide property maintenance and preservation services consisting of but not limited to
inspecting the property, securing the property, performing cosmetic enhancements/repairs, and
providing on-going maintenance.
HUD has identified six primary objectives for its field services managers. They are to ensure
that: (1) FHA insured properties are maintained in a manner that preserves communities, (2)
HUD has real time access to all property related information, (3) properties are secured and safe
from hazardous conditions, (4) property values are preserved, (5) properties are maintained in a
manner that reflects a high standard of care, and (6) there is a high level of customer satisfaction
with HUD’s property disposition program.
Section C.2.2 of the contract defines HUD-owned properties as those properties that HUD owns
by reason of payment of an insurance claim or another acquisition method. Unless otherwise
indicated the term includes vacant land and occupied conveyed properties. HUD-owned
properties are also referred to as HUD REO or HUD-homes.
Section C.2.2 of the contract states that secured properties was defined as a property where all
windows, doors and openings are locked, boarded (where authorized), or otherwise secured to
prevent unauthorized entrance by person or animal into any portion of the dwelling, including
exterior entrances to crawl spaces, and any other structures on the property, e.g. garages and
sheds. Broken window - A pane of glass that has a visible opening that permits entry or
exposure to the elements or which is so badly cracked as to constitute a hazard, e.g. a window
with a crack that divides a single pane into two or more pieces.
Section C.2.2 of the contract defines health and safety hazards as conditions or situations at the
property that exposes the government to abnormal risk, which presents a source of danger, which
could cause an accident, or poses the threat of injury, harm to the public or property, that must be
corrected within 1 day of discovery or notification.
Section C.5.1 of the contract states that the purpose of this performance based contract is to
obtain property management and preservation services to achieve the outcomes described in
Section 1.6 (purpose and objectives). In general, the contractor must perform inspections,
preservation, maintenance, and property management services for HUD-owned properties.
Property management responsibilities under this performance work statement include:
Initial inspections to confirm whether property meets conveyance conditions;
Preservation of property from conveyance to sale;
Maintenance and preparation of properties intended for sale;
Management of rental properties;
40
Management and maintenance of properties in the custody of, but not owned by HUD.
Regardless of the type of acquisition or the property management services required, the
contractor must maintain all properties in a manner that results in properties that are clean, safe,
secure and sanitary and preserves property value.
Section C.5.1.7.1 of contract states that the contractor should update, maintain, and implement a
comprehensive quality control plan. The contractor’s quality control plan will ensure that all
aspects of this performance work statement, in accordance with the performance standards listed
herein, are performed completely and appropriately, and will contain a plan for corrective action
when deficiencies or insufficient performance are identified by either HUD or the contractor.
The quality control plan will be designed and implemented to result in quality and timely
contract performance. The quality control plan will, at a minimum, include: a detailed inspection
oversight program covering all general and specific tasks; specify tasks or areas to be inspected
on either a scheduled or unscheduled basis including the manner in which inspection is to be
conducted; a description of the techniques to be employed for producing and validating services
and deliverables that conform to the acceptable quality standards in the contract; a description of
the “checks and balances” that will be used to ensure an acceptable level of quality; provisions
for responding to technical directions and comments; and provisions that will be used to prevent
and eliminate the potential for fraud, waste and abuse of HUD funds or other funds and resources
received in the performance of this contract.
Section C.5.1.8 of the contract states that PKMG should develop and implement a
comprehensive property management plan that fully describes how PKMG intends to meet or
exceed its contract requirements. PKMG’s contract with HUD, section C.5.2.3 states that the
contractor must maintain properties in a manner that is clean, safe, sanitary, and secure.
Section C.5.2.2.1.2.1 of the contract states that if the inspection identifies any health and safety
conditions, or there is a need for any emergency repairs, the contractor must remedy those
conditions within 1 day of the inspection and update P260 with work orders and before and after
photographs within (2) days of completion of the remedial action.
Section C.5.2.2.3.6 of the contract states that the contractor must stop active leaks that may cause
deterioration of the property or pose an imminent health or safety hazard.
Section C.5.2.3 of the contract states that the contractor must maintain properties in a manner
that is clean, safe, sanitary and secure. The contractor should be liable for damages to all
acquired properties due to failure to inspect or secure property or other act, neglect, failure, or
misconduct of the contractor, a subcontractor, or any management official of any of the
foregoing. The contractor must indemnify HUD for losses due to any act, neglect, failure, or
misconduct of the contractor, a subcontractor, or any management official of any of the
foregoing. The contractor must not be held liable for casualty damage as long as, before and
after such casualty, the contractor takes immediate and reasonable action to protect the property.
Section C.5.2.3.1 of the contract states that before the asset manager lists any HUD-owned
property for sale, the contractor must ensure that it is in ready to show condition which means
41
the property is free of debris, visible insect/rodent infestations and health and safety hazards. All
cabinets, refrigerators, freezers, counter tops, and windows must have been wiped clean and the
house must be free of bad smells. All floors and carpets must be clean. All repairs required to
correct safety hazards and any approved repairs to be done prior to listing the property must be
completed in order for the house to be in ready to show condition. The yard must be free of trash
and debris. The grass must be cut, bushes trimmed and holes patched, and or properly secured to
protect the public. The contractor must also ensure that the property remains in ready to show
condition until sold.
Section C.5.2.3.2 of the contract states that the contractor must routinely inspect and take all
actions necessary to ensure that properties are free from health and safety hazards, free of debris,
refuse, and personal property that corrective actions are taken on broken windows and doors, that
properties are properly secured, that winterization is maintained, and active leaks are promptly
addressed. At a minimum, the contractor should inspect the property once every 2 weeks and
report data on field service manager property inspection form. Based on geography, climate,
age, and community needs; some properties may require more frequent inspections and a higher
level of maintenance than others. Upon HUD’s request, the contractor must provide within 2
business days the routine inspection forms used by the contractor to perform the inspections.
Section C.5.2.8 of the contract states that vandalism may occur before or after the acceptance of
a sales contract. In the event a property is vandalized prior to or after acceptance of a sales
contract, the contractor should, once vandalism is discovered: (1) remove all graffiti from private
and public surfaces on the property even if the graffiti was present at acquisition; (2) repair to its
prior condition any damaged locks, doors or windows; and (3) immediately repair any health or
safety hazard. These repairs will be completed at the contractor’s expense.
Section C.5.2.10 of the contract states that custodial properties are vacant properties secured by a
secretary-held mortgage, including a home equity conversion mortgage. By virtue of its security
interest, HUD has certain rights and responsibilities to ensure that the property is preserved and
protected. HUD does not hold title to custodial properties and therefore they are not offered for
sale. Custodial properties will be assigned to the contractor through the government technical
representative. Within two (2) calendar days of notification of assignment the contractor should
complete the HUD Property Inspection Report, secure the property, and perform initial services
in accordance with Section 5.2.2.2 to the extent that such requirements can be met without
constituting an illegal trespass, and upload the HUD Property Inspection Report in P260. If the
property is occupied, the contractor should immediately notify the government technical
representative and await instructions prior to taking further action.
The contractor must maintain vacant custodial properties in accordance with the contractor’s
property management plan and at the direction of the government technical representative,
subject to the following conditions:
C.5.2.10.2 Ready to Show Condition – The contractor should not be required to keep the
interior of the property clean and ready to show as described in Section C-5.2.3.1 (ready
to show condition), unless the unclean condition constitutes a health or safety hazard.
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C.5.2.10.3 Personal Property – The contractor should not remove any personal property
unless it constitutes an imminent health or safety hazard.
Section C.5.2.16 of the contract states that the financial control manual for HUD's Real Estate
Owned Division provides instructions and guidance for processing and monitoring all financial
transactions associated with the disposition of HUD-owned single family properties. This
ensures that during HUD's ownership or custody, all Real Estate Owned Division disbursements
are valid, reasonable, sufficiently documented, appropriately authorized, and comply with
contracting and program guidelines, regulations, and or statutes as appropriate.
Section C.5.1.8 of the contract states that the contractor must develop and implement a
comprehensive property management plan that fully describes how the contractor intends to meet
or exceed the performance objectives of this performance work statement. The property
management plan should address, at a minimum, the methodology and/or standards for:
Maintenance and level of care;
Conducting and uploading inspection data into P260;
Validating work performed at a satisfactory level;
Subcontracting control and oversight;
Emergency response;
Utilizing construction/improvement cost estimating application;
Ensuring compliance with local and state laws and regulations regarding evictions;
vacancies and any other property related compliance issues;
Servicing properties across geographic areas and in varying ranges of property value.
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P.K. Management Group, Inc., Doral, FL, Did Not Always Provide Property Preservation and Protection Services in Accordance With Its Contract With HUD and Its Own Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)