We audited the U.S. Department of Housing and Urban Development (HUD) real estate-owned (REO) Management and Marketing (M&M) III program at Innotion Enterprises, Inc., to determine whether Innotion performed property preservation and protection services according to contract requirements. The review was part of our efforts to improve the integrity of the single-family insurance programs. We selected Innotion’s Las Vegas, NV, branch based on the size and scope of its contract with HUD and because our previous auditability survey in the Las Vegas, NV, area revealed poor property management.

Innotion did not always perform property protection and preservation services according to contract requirements. Specifically, 38 of 96 (39.6 percent) of all properties selected materially failed our review because homes were not secured or properly maintained. As a result of Innotion not always following HUD’s and its own policies and procedures, compounded by its inadequate quality control, HUD did not have assurance that Innotion maintained REO homes at the high standard of care required in the performance work statement. HUD paid Innotion $11,210 for monthly services for 38 homes that did not reflect a high standard of care. If Innotion does not implement adequate controls and procedures to address property protection and preservation deficiencies, HUD will spend approximately $1 million for inadequate services over the next year.

We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing require Innotion to develop and implement adequate procedures and controls, including improving its quality control inspections, to ensure that all units meet HUD’s REO contract requirements and prevent more than $1 million in program funds from being spent over the next year on units that are in material noncompliance with the standards.