Audit of Foreclosed Property Management Contractor Oversight

We conducted this audit to determine if the Veterans Benefits Administration (VBA) Loan Guaranty Service (LGY) approved payments for allowable expenses submitted by VA’s foreclosed property management contractor. In addition, the audit determined whether LGY ensured properties met safety, preservation, and maintenance requirements. LGY made payments for 528 of 890 individual expense items not supported by vendor invoices. This occurred because LGY did not ensure the contractor complied with the contractual requirement to provide the documentation necessary to demonstrate the appropriateness and legitimacy of expenses claimed for reimbursement. As a result, we found LGY made approximately $64,400 in payments from October 2010 through March 2012, for expense reimbursements submitted by the contractor without adequate supporting documentation. In addition, LGY did not timely notify the contractor of property maintenance exceptions that posed safety hazards or risk of immediate deterioration, or consistently ensure correction of these issues. This occurred because LGY policies did not require LGY staff to report maintenance exceptions and ensure correction. We recommended the Under Secretary for Benefits ensure VBA’s contractor provides vendor invoices to substantiate claimed expenses prior to reimbursement by LGY, and determine whether it is cost effective to initiate recovery of improper payments. Additionally, we recommended the Under Secretary for Benefits develop policies that ensure LGY staff report maintenance exceptions when identified, and ensure contractor correction. The Under Secretary for Benefits concurred with Recommendations 1 and 3 but did not concur with Recommendation 2. We revised Recommendation 2 to recognize that LGY can decide if recouping these improper payments from the prior property management contractor is cost effective. However, we reiterate that VBA paid some expenses that were not supported by sufficient evidence. Without adequate documentation to support expenses claimed, LGY cannot ensure prudent use of taxpayer funds in compensating the contractor for managing VA-owned foreclosed properties.