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We conducted an audit of BLM Companies LLC’s controls and performance under its Management and Marketing III program field service manager contract with the U.S. Department of Housing and Urban Development (HUD) for area 1D.  Area 1D included HUD real estate-owned and custodial properties in New Mexico, North Texas, Utah, and Colorado.  During the audit period, BLM held 7 of 18 HUD field service manager contracts throughout the Nation.  Our audit objective was to determine whether BLM Companies LLC provided property preservation and protection services in area 1D in accordance with its contract and HUD requirements.  This audit aligns with two Office of Inspector General strategic objectives:  promoting fiscal responsibility and financial accountability and protecting the integrity of housing insurance and guarantee programs.

BLM did not comply with its HUD area 1D field service manager contract.  Observations of properties assigned under the contract had a 71 percent failure rate.  This condition occurred because BLM did not effectively manage the performance of vendors that provided property preservation and protection services on its behalf.  In addition, it did not consistently follow up on discrepancies reported during inspections.  Further, BLM focused more on meeting HUD-defined performance metrics for timeliness than on quality performance.  Lastly, it created an ineffective quality control system that failed to identify and resolve performance problems.  As a result, BLM did not protect and preserve HUD-held properties in accordance with the contract, increasing the risk to the Federal Housing Administration insurance fund related to health and safety hazards and reduced sales prices.  HUD paid BLM approximately $497,000 in unearned property management and inspection fees over the term of the contract.

We recommended that HUD require BLM to repay more than $8,000 in ineligible costs and support or repay approximately $489,000 in unearned property management and inspection fees.  We further recommend that HUD require BLM to implement an effective quality control system to ensure it complies with its contract, putting an estimated $891,000 to better use.  Additionally, HUD should assess BLM’s performance at least quarterly, and if its performance does not improve, coordinate with the Office of the Chief Procurement Officer to determine whether BLM was in default of its contract and take appropriate action.