Interior's Land Appraisal Services: Actions Needed to Improve	 
Compliance with Appraisal Standards, Increase Efficiency, and	 
Broaden Oversight (28-SEP-06, GAO-06-1050).			 
                                                                 
To remedy decades of problems with its land appraisals, the	 
Department of the Interior (Interior) in 2003 removed the land	 
appraisal function from its land management agencies and	 
consolidated them into the Appraisal Services Directorate (ASD). 
However, Congress and ASD's clients have expressed concern that  
ASD's appraisal services have become less efficient and effective
than what previously existed. GAO was asked to assess (1) ASD's  
policies and procedures in ensuring compliance with appraisal	 
standards, (2) ASD's ability to meet its customers' needs, and	 
(3) the extent to which there are land appraisals under Interior 
for which ASD does not have oversight responsibility. To answer  
these objectives, we reviewed agency guidance, analyzed appraisal
data, and used independent expert appraisers to assess compliance
with standards. 						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-1050					        
    ACCNO:   A61613						        
  TITLE:     Interior's Land Appraisal Services: Actions Needed to    
Improve Compliance with Appraisal Standards, Increase Efficiency,
and Broaden Oversight						 
     DATE:   09/28/2006 
  SUBJECT:   Appraisals 					 
	     Federal property management			 
	     General management reviews 			 
	     Internal controls					 
	     Land management					 
	     Policy evaluation					 
	     Real property					 
	     Standards						 
	     Standards evaluation				 
	     Timeliness 					 

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GAO-06-1050

     

     * Results in Brief
     * Background
     * Interior's Appraisal Policies and Procedures Do Not Fully En
     * ASD's Client Relationships Are Hampered by Inefficient Opera
          * ASD Does Not Have a System to Ensure that Realistic Time Fra
               * ASD Does Not Negotiate Appraisal Delivery Time Frames with C
               * ASD Does Not Have a System for Prioritizing On-Going Project
               * ASD Lacks Clearly Defined Roles Delineating Information-Coll
          * Certain Business Practices Impede the Efficiency of ASD's Ap
               * Contract and Billing Functions Add Inefficiencies to ASD Ope
               * ASD Faces Challenges Finding Contract Appraisers with Federa
               * ASD Appraises Lands That Yield Little Revenues in Comparison
     * Interior Lacks Oversight of Appraisals under Some of Its Gra
     * Conclusions
     * Recommendations
     * Agency Comments and Our Evaluation
     * GAO Contact
     * Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Report to Congressional Requesters

United States Government Accountability Office

GAO

September 2006

INTERIOR'S LAND APPRAISAL SERVICES

Actions Needed to Improve Compliance with Appraisal Standards, Increase
Efficiency, and Broaden Oversight

GAO-06-1050

Contents

Letter 1

Results in Brief 5
Background 8
Interior's Appraisal Policies and Procedures Do Not Fully Ensure
Compliance with Recognized Appraisal Standards 13
ASD's Client Relationships Are Hampered by Inefficient Operations 22
Interior Lacks Oversight of Appraisals under Some of Its Grant-in-Aid
Programs 38
Conclusions 42
Recommendations 44
Agency Comments and Our Evaluation 45
Appendix I Scope and Methodology 49
Appendix II Comments from the Department of the Interior 51
Appendix III GAO Contact and Staff Acknowledgments 59

Tables

Table 1: Land Appraisals (November 2003 through February 21, 2006) That
Did Not Appear to Meet Standards, Compared with Total Appraisals Reviewed
15
Table 2: Independent Federal Review Requirements for Interior's
Grant-in-Aid Programs 39

Figures

Figure 1: Examples of Past Reports Issued between 1987 and 2003, and
Problems Found with Interior Agencies' Land Acquisition, Exchange, and
Appraisal Programs 10
Figure 2: Appraisal Checklist from the Uniform Appraisal Standards for
Federal Land Acquisitions 19

Abbreviations

ARRTS Appraisal Request and Review Tracking System

ASD Appraisal Services Directorate

BLM Bureau of Land Management

FWS Fish and Wildlife Service

NPS National Park Service

USDA U.S. Department of Agriculture

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separately.

United States Government Accountability Office

Washington, DC 20548

September 28, 2006

The Honorable Charles H. Taylor Chairman The Honorable Norman D. Dicks
Ranking Member Subcommittee on Interior, Environment, and Related Agencies
Committee on Appropriations House of Representatives

The Department of the Interior (Interior) has appraised more than 6.5
million acres of land typically for purchase, sale, or exchange from
November 2003 through May 2006, totaling more than $7 billion, for such
purposes as providing recreational opportunities for the public,
conserving critical wildlife habitat, and opening land to the development
of energy and mineral resources. Before entering into these land
transactions, Interior generally determines the market value of land using
an appraisal.1 Prior to November 2003, appraisals for land transactions in
Interior's Bureau of Land Management (BLM), the Bureau of Reclamation
(Reclamation), the Fish and Wildlife Service (FWS), and the National Park
Service (NPS) were conducted by staffs reporting to realty managers in
each of these management agencies. However, since 1987, our reports, in
addition to others issued by Interior's Inspector General and the
Appraisal Foundation,2 found that procedures used by BLM, FWS, and NPS did
not comply with recognized appraisal standards.3 In one case, Interior's
Inspector General reported that for a BLM land exchange, department
officials negotiated away a substantial interest in potentially valuable
resources and improperly valued other federal and state lands. According
to the U.S. Office of Special Counsel, the BLM's own internal estimates
showed that the federal government stood to lose between $97 and $117
million on this exchange. In a different report on this exchange,4 the
Appraisal Foundation concluded that appraisers at BLM lacked the
institutional independence necessary to conduct objective appraisals and
faced heavy pressure from their realty managers to conduct appraisals that
would expedite land transactions. Interior's Inspector General's reports
have reached similar conclusions about appraiser independence, and GAO
reports have highlighted multiple cases of land transactions using
misvalued land.

1Market value is the amount in cash, or on terms reasonably equivalent to
cash, for which in all probability the property would have sold on the
effective date of the appraisal, after a reasonable exposure time on the
open competitive market, from a willing and reasonably knowledgeable
seller to a willing and reasonably knowledgeable buyer, with neither
acting under any compulsion to buy or sell, giving due consideration to
all available economic uses of the property at the time of the appraisal.

2The Appraisal Foundation, a nonprofit educational organization dedicated
to the advancement of professional valuation, was established in 1987 and
authorized by Congress as the source of appraisal standards and appraiser
qualifications.

3In general, two sets of standards apply to appraisals of federal land:
(1) the Uniform Standards of Professional Appraisal Practice, developed in
1986-1987 and annually updated by the Appraisal Standards Board of The
Appraisal Foundation; and (2) the Uniform Appraisal Standards for Federal
Land Acquisitions, revised in 2000 by the Interagency Land Acquisition
Conference, a voluntary organization composed of representatives of
federal agencies that acquire land. Established in 1968, this organization
is chaired through the Department of Justice.

These findings brought considerable change in the way many Interior
appraisals are carried out. After the Appraisal Foundation report on BLM's
appraisal procedures was issued, officials in Interior formed a working
group to determine whether problems similar to those found in BLM existed
in the other land management agencies. The group concluded that a lack of
appraiser independence and inconsistent application of appraisal standards
were problematic within all four land management agencies. The group also
concluded that past efforts to remedy appraisal problems, which typically
included refining or augmenting program guidance, had proven ineffective
because revised guidance did not address issues of appraiser independence.
As a result, in November 2003, Interior removed appraisers from the realty
offices in each of the agencies and consolidated them in a new office, the
Appraisal Services Directorate (ASD), reporting to the National Business
Center. Interior primarily took this action to insulate appraisers from
institutional pressure, having them report to, and receive performance
evaluations from, other appraisers, rather than realty specialists
responsible for completing land transactions within their respective land
management agencies. ASD's appraisers have a dual responsibility:
performing appraisals as well as reviewing appraisals performed by
co-workers and contractors. In implementing the consolidation, Interior
directed that the efficiency of appraisal delivery, including timeliness
and costs, was not to be negatively affected.

4The Appraisal Foundation: Evaluation of the Appraisal Organization of the
Department of Interior Bureau of Land Management, Washington, D.C.,
October 9, 2002.

In addition to consolidating most appraisal services, Interior also
shifted administrative functions associated with appraisals-previously
conducted by each of the land management agencies realty offices-to other
units within Interior. Contracting for land appraisals was one such
function. Since ASD's inception, it has performed about 500 appraisals
in-house per year and contracted more than 1,200 appraisals per year. Upon
receipt of a contractor's completed appraisal, ASD reviews it for
compliance with recognized appraisal standards. In this regard, choosing
qualified contract appraisers is critical if ASD is to help ensure that
appraisals meet federal standards, and that the federal government makes
sound financial management decisions for land transactions. Given the
significant reliance on contractors to conduct the appraisals, Interior
officials decided to consolidate the functions for (1) awarding appraisal
contracts, (2) paying the contract appraisers, and (3) billing the land
management agency clients for the completed appraisals. These functions
were placed within Interior's National Business Center-a fee-for-service
organization-which has experience in financial management, acquisition
services, procurement, and human resource operations.

Land management agencies also conduct land transactions through various
grant-in-aid programs that are administered by offices other than their
realty offices. Appraisals of these transactions are usually arranged by
the nonfederal grant recipient, such as state or local governments.
Interior's Inspector General has identified long-standing problems with
appraisals conducted by non-federal partners, although not specifically
with the grant-in-aid programs, including pressure on review appraisers to
approve substandard appraisals. For example, between 1992 and 2001, eight
Interior Inspector General's reports documented significant problems with
appraisals conducted by non-federal partners, including incorrect
valuations based on questionable property dimensions, flawed assumptions
about the highest and best use5 of the land, and inaccurate comparable
sales analyses. Specifically, in a 1992 report,6 Interior's Inspector
General found that there was little assurance that fair market values were
accurately estimated because the bureaus did not follow established
standards regarding the appraisal process. More recently, a September 2005
Inspector General report7 found that these problems still remain with
appraisals conducted by Interior's non-federal partners.

5"Highest and best use" is defined as the land's use that is physically
possible, legally permissible, financially feasible, and maximally
profitable.

6Interior's Office of Inspector General, Land Acquisitions Conducted with
the Assistance of Nonprofit Organizations, Report No. 92-I-833,
Washington, D.C., May 1992.

Since ASD's inception, new problems have emerged. With the consolidation
of appraisers from BLM, Reclamation, FWS, and NPS, each of which had
unique appraisal procedures, realty managers have expressed concern about
the possible inconsistency of appraisal quality. In addition, one realty
specialist from NPS asserted that appraisal time frames have doubled from
pre-ASD days. ASD officials, in response, claimed that realty specialists
have unrealistic expectations regarding time frames, in part because the
time frames they were used to under the previous system-when realty
specialists had undue influence over the process-were inappropriately
short. ASD officials also explained that time frames have been affected by
new business practices-resulting from the consolidation of appraisal
services-over which they have no control. These disagreements have
continued since ASD's inception.

In this context, you requested that we determine (1) the extent to which
Interior's appraisal policies and procedures ensure compliance with
recognized appraisal standards for appraisals conducted within ASD; (2)
what, if anything, affects ASD's working relationships with its client
agencies and its overall efficiency in providing appraisal services; and
(3) the extent to which there are land appraisals under Interior for which
ASD does not have responsibility.

To determine if Interior's appraisal policies and procedures are
sufficient to ensure compliance with recognized appraisal standards, we
retained appraisal experts to evaluate 324 of the 2,905 appraisals
completed from ASD's inception through February 21, 2006, consisting of
appraisals for land transactions involving land exchanges; land valued
over $10 million; National Wildlife Refuge revenue-sharing; NPS
acquisitions; and lands having minerals, timber, or water rights. These
appraisals collectively represented 50 percent (nearly $3.2 billion) of
the total value of the land appraised from ASD's inception through
February 21, 2006. To determine what, if anything, affects the working
relationships between ASD and its client agencies (and what affects ASD's
overall efficiency in providing appraisal services), we assessed
agreements between ASD and its client agencies that dictate the terms of
ASD's service. We also analyzed timeliness data from Interior's Appraisal
Request and Review Tracking System (ARRTS) and cost data from Interior's
National Business Center. We also conducted structured interviews with ASD
officials and interviewed realty specialists in the agencies ASD serves.
To determine the extent to which there are land appraisals under Interior
that ASD does not have the responsibility for overseeing, we identified
Interior's grant-in-aid programs and appraisal requirements for each.

7Interior's Office of Inspector General, Managing Land Acquisitions
Involving Non-Federal Partnerships, Department of the Interior, Report No.
W-IN-MOA-0085-2004, Washington, D.C., September 2005.

We assessed the reliability of the data provided by Interior and
determined that these data were sufficiently reliable for the purposes of
this report. A more detailed description of our scope and methodology is
presented in appendix I. Our work was conducted in accordance with
generally accepted government auditing standards, including an assessment
of internal controls, from December 2005 through August 2006.

                                Results in Brief

Interior's appraisal policies and procedures do not fully ensure ASD's
compliance with recognized appraisal standards, although consolidation has
greatly improved the independence and objectivity of appraisals. ASD
appraisers have the responsibility of either performing appraisals or
reviewing those performed by co-workers or contractors. Of the 324
appraisals our appraisal experts reviewed, 192, or about 60 percent of
these, appeared to be in compliance with recognized appraisal standards.
For the remaining 132, or 40 percent, however, ASD performed and/or
approved appraisals that did not meet standards. For these appraisals, the
federal government has limited assurance that the land it appraised for
purchase, sale, or exchange, reflected market value. In 42 of these 132
appraisals, the property being appraised had unique characteristics, such
as minerals, timber, or water rights, which require specialty appraisal
skills. However, appraisers and reviewers either lacked or did not apply
specialty skills needed to estimate the value for the unique
characteristics-despite Interior's requirement that appraisers and
reviewers have the knowledge necessary to perform and review appraisals,
and apply proper skills in accordance with appraisal standards. In
addition, in 90 of the 132 cases which did not require specialty skills,
ASD review appraisers conducted cursory reviews of appraisals performed by
co-workers or contractors. As a result, they approved appraised values
that did not reflect key property characteristics, such as the presence of
roads allowing access to properties, which can substantially increase a
property's value. Information pertaining to these characteristics was
included in the appraisal reports reviewed by ASD review appraisers.
Appraisal review oversights were commonplace, however, because ASD has not
developed standardized appraisal review procedures, which can provide
greater assurance that appraisal reviews are consistent and that
appraisals meet recognized standards. Consequently, review appraisers have
discretion in deciding which appraisals should receive thorough or cursory
reviews. Furthermore, ASD has not developed a mechanism, such as a
compliance inspection program, for ensuring that the appraisals it
approves meet recognized appraisal standards. Such a mechanism is used by
other federal appraisal agencies, such as the Forest Service; this
mechanism, among other things, helps to prevent (1) appraisals being
performed by staff without proper skills and (2) cursory appraisal
reviews.

ASD's working relationships with its client agencies and its efficiency in
conducting appraisal services are hampered by inefficient operations.
Specific examples include the following:

           o  ASD does not have a system to ensure that it meets realistic
           time frames for appraisal delivery. Timely appraisal delivery is
           critical to the success of the agencies' land acquisition and
           management goals-agreements on land transactions between agencies
           and private landowners can fall apart if appraisals are not
           completed on a timely basis. Although customer-service agreements
           between ASD and its client agencies call for timely appraisal
           delivery, ASD does not have a process for establishing realistic
           or helpful deadlines for completing appraisals. Our analysis found
           that 2,520 (or 71 percent) of the 3,500 completed appraisals in
           ASD's database missed their client-agency-set deadlines, with an
           average delay of about 4 months. In addition, because ASD has not
           developed a system of prioritizing each agency's respective
           appraisal requests or of responding to changing priorities to
           address emergency appraisal needs, ASD does not coordinate
           appraisal requests with client agencies' other appraisal
           priorities, which adds to appraisal delays. Finally, unclear roles
           and responsibilities for obtaining information needed to complete
           appraisals-such as property descriptions, land deeds, title
           information, and sales histories-negatively impacts timely
           appraisal delivery. Without clearly defined roles and
           responsibilities for obtaining information, appraisals are often
           delayed-sometimes several months before being initiated.
           o  Likewise, several ASD business practices impede service
           delivery, add costs, and result in organizational inefficiencies.
           First, the contracting and billing functions add costs and time to
           appraisal delivery. Since Interior centralized contracting for
           appraisals in the National Business Center, contracts that, in the
           past, had been awarded within a few business days under each of
           the land management agencies' processes, now take on average about
           10 days to be awarded, with many taking significantly more time.
           Second, ASD has not found enough contract appraisers with
           government experience to assist them in their substantial
           workload. Relying on contract appraisers without this experience
           can end up being costly and time consuming; therefore, ASD relies
           on a handful of reliable contractors who often are not located in
           close proximity to the land being appraised and, therefore, charge
           high fees to cover travel expenses. Finally, ASD appraises lands
           that yield little revenues in comparison to the costs of
           performing the appraisals. With the inception of ASD, land
           management agencies required some of these appraisals to be
           performed by ASD appraisers, which can cost the federal government
           several thousand dollars per appraisal, according to an ASD
           regional appraiser, because ASD requires appraisers to visit the
           remotely located sites. Many of these private rights-of-way,
           however, yield less than $500 per year.

           When ASD was formed, it was not assigned responsibility for
           appraisals of land acquired under Interior's grant-in-aid
           programs. The total land acquisition budget for these programs was
           nearly $140 million in fiscal year 2005, or 60 percent of
           Interior's $240 million appropriated land acquisition budget.
           While ASD was formed as an independent organization to ensure that
           appraisals meet federal standards, in eight of the nine FWS- and
           NPS-administered grant-in-aid programs we reviewed, nonfederal
           entities receiving grant-in-aid funds are not required to submit
           appraisals for ASD review. Instead, appraisal review
           responsibilities within grant-in-aid programs are largely the
           responsibility of the state and local grant recipients. However,
           the grant manager for the only grant program we reviewed that
           requires ASD review told us that he recognizes the value of
           obtaining an independent "check" to ensure that they do not offer
           more or less than market value. Despite inconsistent requirements
           for ASD review of grant-in-aid appraisals, Interior has no clear
           policy on why some grant-in-aid programs require federal review of
           land appraisals while others do not. Secretarial Order 3258,
           issued in December 2004, outlines ASD's role in reviewing
           appraisals for nonfederal parties. However, several ASD regional
           appraisers told us that the order does not define "nonfederal
           parties" and, therefore, it is not clear whether the order applies
           to grant recipients under the grant-in-aid programs. Further, two
           ASD regional appraisers stated that official clarification on
           whether Secretarial Order 3258 applies to grant recipients would
           be helpful.

           We are making a number of recommendations designed to help resolve
           the compliance problems that persist, such as ensuring that ASD
           has (1) appraisers with specialized skills needed for some
           appraisals, (2) consistent appraisal review procedures, and (3) a
           periodic monitoring system for appraisals with a higher likelihood
           of noncompliance. We are also making recommendations to improve
           the accountability and efficiency issues that need to be addressed
           in order to build on the progress that ASD has made to date,
           including criteria for ensuring timely delivery of appraisals and
           the removal of some business practices that have added time and
           costs to appraisal delivery. Finally, we are also recommending
           that Interior clarify the terms of ASD's appraisal oversight in
           the review of grant-in-aid appraisals.

           In commenting on a draft of this report, Interior generally agreed
           with our findings and recommendations. It said that it welcomed
           the report's intent to improve the overall departmental appraisal
           process and services provided through ASD, and that ASD will
           continue to strive to provide high quality valuation services. It
           also said that the recommendations, once implemented, will further
           strengthen how Interior performs real property appraisals and that
           it is dedicated to addressing the recommendations promptly.
           Interior also offered several suggestions for updating information
           in the report and for technical clarifications; we have
           incorporated these suggestions, as appropriate.

           Background
			  
			  Interior's four land management agencies-BLM, FWS, NPS, and
           Reclamation-collectively manage nearly 450 million acres of parks,
           wilderness, forests, range, and other land. These land holdings
           comprise nearly one-fifth of the total area of the United States.
           Buying, exchanging, or leasing land is an integral part of these
           agencies' land management functions to, for example, better
           consolidate existing holdings or acquire land deemed important for
           public purposes. For several decades, these land transactions have
           generated considerable debate over how to balance, on federally
           managed lands, resource utilization (such as timber sales and
           minerals extraction) with resource protection and recreational
           use. Regardless of the decisions made about which lands to acquire
           or divest and for what purposes, however, Interior generally
           requires acquisitions to be based on market value.

           Objective land appraisals are at the heart of establishing market
           value. Without objective appraisals, estimates of land values can
           be subjected to the machinations of buyers and sellers, each of
           whom may have a vested interest in deviating from market value in
           order to obtain a more favorable "price" or complete a transaction
           more quickly. In creating ASD, the Secretary of the Interior
           required all of Interior's real estate appraisals to conform to
           the Uniform Appraisal Standards for Federal Land Acquisitions or
           the Uniform Standards of Professional Appraisal Practice-the two
           nationally recognized appraisal standards-which, when followed,
           help an appraiser to develop an objective and credible
           market-value estimate.

           These appraisal standards require appraisers to identify a
           property's highest and best use. A property's highest and best use
           can be influenced by the presence of resources, such as minerals
           or timber (which typically indicates income-generating potential),
           as well as functioning structures, such as grain silos. It can
           also be influenced by legal restrictions, such as limitations to
           water rights, lack of property access, or easements that restrict
           types of development and could impact the property's value. Taking
           these characteristics into consideration, one approach appraisers
           use is to compare, to the subject property, other properties with
           similar characteristics that have recently been sold in the same
           (or similar) markets within a reasonable time period. Appraisers
           use these comparable sales to estimate the subject property's
           market value. Before appraisals are approved for agency use,
           however, they are reviewed by a review appraiser. Upon obtaining
           an opinion of market value from an appraiser, Interior staff
           generally cannot deviate from it when completing a land purchase,
           sale, or exchange with a nonfederal entity.

           Since 1987, numerous audits and reviews have noted problems with
           Interior's ability to conduct appraisals that adhere to standards.
           For example, a 1998 Interior Inspector General's report on Nevada
           land exchanges involving BLM concluded that the federal government
           lost $18.2 million in three land exchanges because appraisers
           ignored relevant information and incorrectly identified the
           highest and best use of the property. The Inspector General
           concluded that these losses also occurred because the federal
           review of the appraisals-which is the final compliance check-were
           cursory and failed to comply with recognized appraisal standards,
           despite the fact that all relevant information was included in the
           appraisal reports to reach a correct conclusion of value.8 The
           October 2002 Appraisal Foundation report we cited earlier found
           the problems at BLM to be even more systemic: that appraisers
           lacked institutional independence, which manifested itself in
           inconsistent application of appraisal standards and resulted in a
           failure to assure objective and independent market-value opinions.
           Figure 1 provides examples of past reports issued between 1987 and
           2003, and problems found with Interior agencies' land acquisition,
           exchange, and appraisal programs.

8Interior, Office of Inspector General. Audit Report: Follow up of Nevada
Land Exchange Activities, Bureau of Land Management, Report No. 98-I-689,
Washington, D.C., September 1998.

Figure 1: Examples of Past Reports Issued between 1987 and 2003, and
Problems Found with Interior Agencies' Land Acquisition, Exchange, and
Appraisal Programs

Upon establishing ASD, Interior officials created a formal
appraisal-request process that relies exclusively on the ARRTS web-based
application and automated database. ARRTS allows land-management agency
realty specialists to electronically request an appraisal, specify its
priority (low, routine, high, or emergency), and set a requested
completion date. In addition, realty specialists can include, with the
appraisal request, pertinent information necessary for the appraisal,
including aerial maps, land title information, and legal descriptions.
Upon receipt of a request, the relevant ASD regional appraiser assigns the
appraisal project to an ASD appraiser, who will either undertake the
appraisal or give it to a contractor, depending on the ASD appraiser's
workload, the appraisal complexity, and other factors. When appraisals are
contracted, ASD appraisers prepare statements of work and solicit bids
from at least three certified appraisers. ASD appraisers send the bids
they receive to the National Business Center's contracting office at Fort
Huachuca, Arizona, (referred to hereafter as the "Southwest Branch") for
the contract award phase. Upon completion of the appraisal, whether
conducted in-house or by contract, an ASD review appraiser reviews the
appraisal for compliance with applicable appraisal standards. Once the
appraisal is deemed to meet the appraisal standards by the ASD review
appraiser, the appraisal is then approved for agency use and sent to the
requesting realty office.

At the time ASD was formed, officials in Interior's Office of Policy
Analysis decided that associated administrative aspects of the appraisal
function should be located, along with ASD, in the National Business
Center. Thus, the appraisal contract management function was removed from
the land management agencies and centralized at Interior's National
Business Center's Southwest Branch. In addition, the National Business
Center's Office of Budget and Finance inherited the responsibility for
processing payment for contract appraisers. This office receives
contractor invoices from the Southwest Branch and pays contractors out of
the National Business Center's Working Capital Fund and, subsequently,
seeks reimbursement from the land management agencies that requested the
appraisals. According to officials in this office, to ensure that the land
management agencies have the funds to reimburse the Office of Budget and
Finance, the agencies must obligate funds for the appraisal work prior to
award of the contract.

In creating ASD, Interior concluded that a new independent function was
needed; past efforts to remedy appraisal problems, which typically
included refining or augmenting program guidance, did not address the
independence issue and had therefore proved ineffective. However, Interior
officials focused exclusively on appraisal problems within the realty
divisions of the land management agencies, so appraisals for some land
transactions remained with the land management agencies. For example,
responsibility for appraisals of grant-in-aid acquisitions, which include
giving federal funds to nonfederal agencies for acquiring critical
wildlife habitat, remained within the land management agencies. Unless
requested by the land management agencies, appraisals for acquisitions
under the grant-in-aid programs are not reviewed by ASD.

Interior's Appraisal Policies and Procedures Do Not Fully Ensure Compliance with
                         Recognized Appraisal Standards

Interior's appraisal policies and procedures do not fully ensure that
appraisals performed and reviewed by ASD appraisers comply with
requirements set forth in the Uniform Standards of Professional Appraisal
Practice or the Uniform Appraisal Standards for Federal Land Acquisitions,
the two nationally recognized appraisal standards. While consolidating
appraisal services into ASD has vastly improved the independence of
appraisers and the objectivity of their products, some other problems
identified in prior audits still remain, particularly with high-value
appraisals and other complex appraisals completed by ASD.

ASD's appraisers have a dual responsibility: both to perform appraisals,
and to review appraisals performed by co-workers and contractors. We
evaluated, with the use of appraisal experts, 324 of the 2,905 appraisals
completed under ASD from its inception in November 2003 through February
21, 2006. We selected these 324 appraisals because they have
characteristics similar to appraisals that did not meet the appraisal
standards of previous audits. In addition, many of these appraisals are
for complex properties and, in many instances, more difficult to appraise.
In evaluating these appraisals, our appraisal experts found that 192 of
the 324 appraisals, or about 60 percent, appeared to be in compliance with
recognized appraisal standards. In addition, our appraisal experts-who
were familiar with appraisals produced by the Interior agencies prior to
ASD's inception-stated that ASD's appraisals are a vast improvement over
past appraisals. Our experts also believed that ASD's management has made
improvements in normalizing appraisal practices for appraisers from four
different agencies with four different land management objectives and land
acquisition goals. Accordingly, these improvements appear to have
prevented some appraisals with compliance problems from being used, such
as in the following examples:

           o  ASD reviewed an appraisal requested by FWS for 101 acres,
           including five mining claims, near St. George, Utah. The property
           was originally appraised for about $2 million by a contract
           appraiser. Upon review, ASD rejected the appraisal because the
           contract appraiser did not show that the buyers would have
           sufficient water rights to use the property for mining. ASD's
           review found that there were not sufficient water rights to
           support mineral production. Instead, ASD found that the highest
           and best use should be residential development, which resulted in
           an appraised value of $910,000-or over $1 million less than what
           the original appraisal identified. The property owner agreed to
           ASD's revised appraisal, according to the ASD Regional Appraiser.
           o  ASD reviewed an appraisal requested by BLM in Natrona County,
           Wyoming, which involved placing a conservation easement and a
           public fishing easement on 335 acres. The easements were
           originally valued by a contract appraiser at about $1.7 million,
           but ASD found that the appraiser included mineral interests that
           were not owned by the private landowner, such as sand and gravel,
           in the estimated value. As a result of ASD's findings, the
           contract appraiser changed her opinion of value to $1.16 million,
           which was over $500,000 less than what the original appraisal had
           identified.

           For the remaining 132 appraisals, or 40 percent of those our
           appraisal experts evaluated, however, ASD appraisers performed
           and/or reviewed and approved appraisals that did not meet
           recognized appraisal standards. According to ASD, a 40 percent
           noncompliance rate is well within industry norms for appraisal
           audits. Further, noncompliance with recognized appraisal standards
           does not necessarily mean that appraised value is incorrect, but
           it limits assurance that land the federal government appraised for
           purchase, exchange, or sale, reflected market value. Appraisals
           not meeting standards included 60 land exchanges and sales, 29
           easements, 8 NPS acquisitions, and 28 revenue-sharing appraisals,
           which total slightly more than $1 billion in appraised value.
           Table 1 shows, by appraisal type, the total number of appraisals
           our appraisal experts reviewed (for the period November 2003
           through February 21, 2006) and the number, percentage, and
           total-dollar land value determined by the appraisals that did not
           appear to meet standards.

           Table 1: Land Appraisals (November 2003 through February 21, 2006)
           That Did Not Appear to Meet Standards, Compared with Total
           Appraisals Reviewed
			  
			                               Number and percentage of appraisals not meeting
                              standards, and value of land covered by these
                                                appraisals
                                                         Land value (in       
Appraisal type     Total     Number    Percentage     dollars)             
Land exchanges and   147         60           41%     $943.6 million       
sales                                                 
Easements             63         29            46     22.3 million         
NPS acquisitions      47          8            17     13.3 million         
Revenue-sharing       44         28            64     7.2 million          
Othera                23          7            30     62.3 million         
Total                324        132           41%     $1.05 billionb       

           Source: GAO analysis of ARRTS appraisal data.

           aOther appraisals include acquisitions for BLM and Reclamation, as
           well as NPS permits.

           bNot all of the $1.05 billion was necessarily at risk. To
           determine what portion of this amount was at risk of being
           incorrectly valued would necessitate that the land be
           re-appraised.

           The Uniform Standards of Professional Appraisal Practices require
           an appraiser to have sufficient knowledge and experience to
           complete an appraisal assignment competently. For 42 of the 132
           appraisals that did not appear to meet standards (a total of
           nearly $119 million in appraised value), appraisers who performed
           appraisals and reviewed the appraisals did not have or apply
           specialized skills, such as those needed to assess the value of
           minerals, timber, or water rights present on the property-all
           factors that typically impact land values. As a result, while
           performing or reviewing the appraisals, the appraisers did not
           consider how the presence of these key characteristics affected
           the properties' values:

           o  In February 2004, ASD appraised a BLM parcel of land, as well
           as a parcel of private land, for potential exchange; the land
           exchange totaled 841 acres. Because the land contained substantial
           amounts of timber, its value should have been considered by the
           appraiser in performing or reviewing the appraisal. However, we
           found that proper timber valuations were not used in the
           appraisal. Therefore, ASD's conclusion that the properties being
           exchanged totaled about $2.3 million is not supported by the
           appraiser's analysis and is potentially incorrect.
           o  Between March 2005 and May 2005, ASD appraised two privately
           owned land parcels, totaling 154 acres, for potential exchange
           with BLM. The ASD appraiser assumed that water was available on
           each parcel, which can significantly increase the lands' value.
           However, the appraisal report did not resolve whether water was
           available on the property. Consequently, ASD's conclusion that the
           parcels' combined appraised value of nearly $1 million may not be
           supported. The private landowner did not accept the terms of the
           exchange because he believed the appraisal value was too low,
           especially in an appreciating real estate market, according to the
           ASD review appraiser for this land transaction.

           If the appraisal assignment cannot be performed competently, the
           Uniform Standards of Professional Appraisal Practice also requires
           the appraiser to add to the appraisal report a description of
           his/her lack of knowledge and/or experience, as well as the steps
           taken to correctly complete the assignment. In reviewing these
           appraisal reports, our experts also found that the reports did not
           disclose the appraisers' lack of specialized experience or the
           steps to address the needs of the assignment, as required by the
           standards.

           When ASD was formed, officials within Interior's Office of Policy
           Analysis decided to transfer into ASD all appraisers whose primary
           role was to perform appraisals consistent with recognized
           appraisal standards. In so doing, the officials decided that it
           was not necessary to transfer appraisers with some specialized
           skills, such as staff with minerals assessment expertise, into
           ASD. As a result, most ASD appraisers have only general appraisal
           skills. Interior officials believe that this offered a greater
           degree of flexibility in assigning appraisers to a wide variety of
           cases. However, the Uniform Appraisal Standards for Federal Land
           Acquisitions states that appraisers must have specialized training
           and experience to properly understand and apply the proper
           methodologies for estimating the market value of properties with
           minerals. A BLM geologist, who is licensed to perform minerals
           assessments, told us that without certified minerals appraisers,
           ASD cannot conduct adequate appraisals or reviews of minerals
           reports. He emphasized that mineral properties are complex, and
           that a specialist is needed to ensure proper valuations of those
           properties. He also said that an appraiser unfamiliar with
           minerals and their properties may have difficulty understanding
           some of the technical data used in determining their values.

           In addition to requirements that appraisers have the proper
           training for appraisals needing specialized skills, the Uniform
           Appraisal Standards for Federal Land Acquisitions also require
           that, when reviewing appraisals, a review appraiser must determine
           whether the appraiser's opinions of value are adequately
           supported. Despite this requirement, our appraisal experts found
           that for 90 of the 132 appraisals that did not meet
           standards-totaling about $930 million in appraised value-the
           review appraisers approved appraisals without using adequate
           analyses to support the conclusion of value. For example, ASD
           review appraisers conducted cursory reviews of these appraisals
           and, as a result, approved appraised values that did not reflect
           key property characteristics, such as the presence of roads
           allowing access to properties, which can substantially increase a
           land's value. According to the experts we employed to review these
           appraisals, sufficient information pertaining to these
           characteristics were, in most cases, included in the appraisal
           reports that ASD appraisers reviewed. This information should have
           triggered concerns about the adequacy of the appraisers' estimates
           of land values:

           o  In September 2004, ASD appraised about 10,100 acres outside
           Dillon, Montana, for placement of two conservation easements by
           FWS. Our appraisal experts found that the ASD reviewer accepted
           insufficient analysis of comparable sales in the appraisal report.
           For example, the easements on the sales chosen by the appraiser
           appeared not to be comparable to the subject property, according
           to the appraisal experts we retained, but the ASD reviewer
           overlooked these shortcomings and approved the appraised value of
           $6.8 million for both easements. FWS acquired one easement for
           $2.9 million, and is close to acquiring the second, for $3.9
           million, which will likely happen later in 2006.
           o  Between December 2005 and January 2006, ASD appraised multiple
           parcels totaling 64 acres near Roosevelt, Utah, for placement of
           an easement by Reclamation to install a pipeline. Our appraisal
           experts found that the ASD reviewer accepted the appraisal despite
           the fact that the appraiser overlooked the presence of utility and
           access easements-which may impact the land's value. Although this
           information was available in the appraisal report, the ASD
           reviewer did not require corrections to the appraisal and approved
           the appraised easement value of $41,700 to be used by Reclamation
           to purchase the easement. Reclamation acquired the easement in
           June 2006.
           o  In June 2005, ASD appraised 100 acres for sale by BLM in
           Douglas County, Nevada. Our appraisal experts found that the
           appraiser's analysis of market conditions did not comply with
           standards, but the ASD reviewer accepted the appraisal report
           anyway. For example, information in the appraisal report showed
           that lands with similar characteristics (comparables) had
           increased in value about 5 percent per month, over the previous
           year. However, the appraiser did not account for appreciation
           between the date of appraisal and the dates that the comparables
           sold-a period of about 1 year. Also, the ASD reviewer approved the
           appraisal without requiring this information to be reconciled. The
           appraiser estimated the parcel's value to be $10 million, but it
           sold for $16.1 million several months later.

           ASD does not have a system for ensuring that its appraisal reviews
           are performed consistently. As a result, ASD review appraisers
           exercise significant discretion in how they perform appraisal
           reviews-sometimes producing results that deviate from recognized
           appraisal standards. ASD's review appraisers are primarily those
           that performed appraisal reviews under each of their respective
           land management agencies within Interior. Several ASD regional
           appraisers, who were previously appraisers in the Interior
           agencies, told us that the quality of appraisal reviews differs
           dramatically between review appraisers from each of the different
           agencies. Several Regional Appraisers also said that the review
           appraisers seem to follow the procedures that they had when they
           were within their individual agency. However, each of the agencies
           had its own appraisal review procedures.

           One procedure that would aid the review process and add
           consistency, would be to require that reviewers use checklists,
           when appropriate, in conducting their appraisal reviews. The use
           of checklists are recommended by the Uniform Appraisal Standards
           for Federal Land Acquisitions because they typically remind
           appraisers to consider, among other things, key physical and legal
           characteristics that can affect a property's use and value. For
           instance, our appraisal experts found that checklists not only
           remind reviewers that the appraisers considered key appraisal
           characteristics, but they can also help improve the quality and
           completeness of appraisals. For example, appraisers had used
           checklists for 97 of the 324 appraisals our appraisal experts
           reviewed. For the appraisals that had checklists, nearly 80
           percent met standards. Figure 2 shows an appraisal checklist
           recommended by the Uniform Appraisal Standards for Federal Land
           Acquisitions.

           Figure 2: Appraisal Checklist from the Uniform Appraisal Standards
           for Federal Land Acquisitions

           Overall, as evidenced by the information presented in this section
           of our report, ASD lacks a management control program to ensure
           that appraisers conduct appraisals and reviews in accordance with
           applicable standards. Internal control standards for the federal
           government indicate that management should ensure that skill needs
           are continually assessed, and that the organization is able to
           obtain a workforce that has the required skills that match those
           necessary to achieve organizational goals. In addition, internal
           controls should generally be designed to assure that ongoing
           monitoring occurs in the course of normal operations, including
           regular management and supervisory activities, comparisons,
           reconciliations, and other actions taken in the performance of
           duties.

           The Forest Service's appraisal office faced similar management
           control challenges several years ago, but in response to a 2002
           U.S. Department of Agriculture (USDA) Inspector General's
           report-which found that the Forest Service's appraisers often
           relied on inaccurate information when estimating lands' values-it
           established a compliance inspection program. In this program, the
           Chief Appraiser of the Forest Service annually assesses appraisals
           for compliance with the Uniform Standards of Professional
           Appraisal Practice, the Uniform Appraisal Standards for Federal
           Land Acquisitions, and the Forest Service's appraisal procedures.
           To do this, the Chief Appraiser, a regional appraiser, and two
           senior review appraisers, visit each region at least once every 3
           years and review a sample of appraisal reports that have a higher
           probability of not meeting appraisal standards. As part of the
           inspection, the team determines whether appraisal staff and
           contract appraisers have the proper knowledge, experience, and
           training for the appraisals they perform.

           Since 2002, the Forest Service's compliance inspection program has
           successfully identified appraisals that did not meet standards,
           rescinded them, and taken steps to ensure that such problems do
           not occur in the future, according to the Forest Service's Chief
           Appraiser. For example, in July 2005, a Forest Service review
           appraiser approved an appraisal for an access easement near the
           Cibola National Forest in New Mexico, but did not require the
           contract appraiser to produce a complete appraisal. In valuing
           easements, appraisers are to use a method known as a "before and
           after appraisal," which is an appraisal of a property's value
           before and after the easement-thus setting the price of the
           easement equal to the difference. However, the contract appraiser
           did not complete the "after" appraisal; instead, he simply
           deducted 90 percent of the property's value where the access road
           was to be placed. According to the evaluation performed by the
           compliance inspection team in September 2005, the 90-percent
           figure was not supported by market data. As a result, the
           compliance inspection team rescinded the appraisal and determined
           that it could not be used as the basis for making an offer of
           compensation to the landowner.

           The Forest Service's compliance inspection program has also served
           as a valuable tool in identifying appraisal-staff training needs
           and ensuring that staff have the proper skills to perform
           appraisals of complicated land transactions. Specifically, while
           performing a compliance inspection at the Forest Service's Pacific
           Northwest Region, the Chief Appraiser and team found that two
           senior review appraisers approved appraisals with technical
           deficiencies. As a result, the Chief Appraiser required these two
           senior review appraisers to take appraisal review courses offered
           by one of the Appraisal Foundation's sponsoring organizations.

           Finally, we found problems with ASD's Pacific Region's appraisal
           document retention practices. Appraisal documents must be retained
           to verify-if challenged-that appraisers and review appraisers are
           independent and, thus, qualified to approve an appraised value for
           Interior's use in land transactions. Specifically, the Uniform
           Standards of Professional Appraisal Practice requires an appraiser
           to retain appraisals and related documents for at least 5 years
           after preparation or at least 2 years after the final disposition
           of any judicial proceeding, whichever period expires last.
           Moreover, ASD's Appraisal Policy Manual requires ASD to maintain
           their appraisal documents for at least 7 years after preparation.
           However, in addition to the 324 appraisals our appraisal experts
           evaluated, appraisers in ASD's Pacific Region could not locate
           nearly two-thirds, or 96 of the 150 appraisal reports, we
           requested for evaluation of compliance with recognized appraisal
           standards-each of which was well within the document retention
           time frames set by ASD and the Uniform Standards of Professional
           Appraisal Practice. The Regional Appraiser stated that the 96
           appraisal reports were lost when appraisers were moved from the
           land management agency workspaces into ASD workspaces. Because our
           appraisal experts were unable to evaluate these 96 appraisals, we
           could not verify whether they met recognized appraisal standards.

           ASDï¿½s Client Relationships Are Hampered by Inefficient Operations
			  
			  Although ASD is a service organization, its service delivery and
           client relationships are hampered by operational inefficiencies.
           For instance, ASD does not have a system for establishing
           realistic time frames for client appraisal requests for which it
           can be held accountable. Specifically, it lacks (1) a process for
           ensuring that appraisal services are delivered within negotiated
           time frames, (2) a system for prioritizing on-going projects and
           incorporating new appraisal requests, and (3) clearly defined
           roles delineating information-collection responsibilities between
           it and its client agencies. In addition, ASD's operations are
           hampered by delays in appraisal contracting and billing practices,
           difficulty in finding qualified contract appraisers, and costly
           appraisals for low-value land. Collectively, these conditions
           contribute to delays in meeting client needs, which negatively
           affects ASD's clients' ability to complete land transactions, as
           well as adding unnecessary costs to the appraisal process.

           ASD Does Not Have a System to Ensure that Realistic Time Frames
			  for Appraisals Are Met
			  
			  ASD does not have a system for ensuring that it meets realistic
           time frames for client appraisal needs. Specifically, ASD's
           accountability to its clients for providing timely appraisal
           service is impaired by the lack of (1) negotiated time frames for
           appraisal delivery, (2) a system for prioritizing on-going
           projects and incorporating new appraisal requests, and (3) clear
           responsibilities for ASD appraisers and land management realty
           specialists in obtaining critical appraisal information. Timely
           delivery of appraisals, by ASD to its client agencies, is critical
           to the success of Interior's land management agencies in carrying
           out their land acquisition objectives. Lengthy delays in appraisal
           delivery can cause land management agencies to lose land deals and
           associated funding; they also have a marked effect on landowners'
           trust in the land management agency and the land transaction
           process. This trust, according to agency realty specialists, is
           critical for the successful purchase of privately held land. If
           landowners perceive that trust has been violated, they may turn to
           the private sector to sell their land. Furthermore, the efficiency
           of the appraisal delivery process was an important consideration
           when Interior decided to consolidate appraisal services into ASD
           in 2003-in a September 2003 letter defending the consolidation
           effort, Interior's Assistant Secretary for Policy, Management, and
           Budget assured the House Committee on Appropriations' Subcommittee
           on Interior, Environment, and Related Agencies that, over time,
           the efficiency of appraisal services would be improved as a result
           of consolidation.

           ASD Does Not Negotiate Appraisal Delivery Time Frames with Clients
			  
			  In setting up ASD and forging its working relationships with the
           land management agencies it serves, Interior required both ASD and
           its client agencies to sign agreements-called Service Level
           Agreements-which define parameters for appraisal (i.e., service)
           delivery, including time frames for the completion of appraisals
           and appraisal reviews. However, these agreements are limited in
           their effectiveness because time frames-specifically, appraisal
           delivery dates-are arbitrarily set by the clients, and ASD is not
           held accountable for meeting them. For instance, although the
           agreements call for appraisal delivery on the basis of agreed-upon
           time frames, which are meant to reflect both the needs of the
           client agencies and the appraisal workload of ASD, we found that
           ASD and the client agencies do not have a method for negotiating
           and agreeing on such time frames. Instead, client realty
           specialists enter a requested completion date for an appraisal
           into ARRTS. ASD appraisers, upon receipt of a request, estimate a
           projected completion date for the appraisal, which they enter into
           ARRTS. However, the dates entered by the client realty specialist
           and the ASD appraiser often differ and are not reconciled. Realty
           specialists from all four land management agencies that ASD serves
           told us that ASD appraisers regularly set appraisal completion
           dates that are weeks or months later than the original requested
           date, often without notifying the requesting realty specialist.

           Furthermore, realty specialists do not routinely access ARRTS to
           identify project completion dates entered by ASD appraisers so as
           to take follow-up actions to reconcile any differences. Of the 728
           appraisal products that clients requested from October 2005
           through May 2006, more than 40 percent had a projected completion
           date later than the requested completion date,9 with an average
           difference of more than 60 days. On the other hand, ASD appraisers
           told us that realty specialists often request unreasonably short
           time frames, so they have to set projected completion dates later
           than the original request. According to these appraisers,
           appraisals take at least 60 to 90 days to be completed, and many
           complex appraisals take much longer. However, since October 2004,
           realty specialists have set requested delivery dates of less than
           60 days for 515 appraisals. For example, according to ASD, between
           August 18, 2006 and August 31, 2006, ASD received six ARRTS
           appraisal requests with requested due dates that were within six
           days of the request. One of these was for a relatively complex
           appraisal and another was received with a requested delivery date
           for the day after the request. ASD acknowledges that it along with
           its client bureaus need to develop mutually realistic expectations
           for appraisal delivery time frames.

           ASD policy requires ASD appraisers to keep realty specialists
           updated when unforeseen problems might affect timely delivery of
           an appraisal. Realty specialists with each of the land management
           agencies, however, told us that ASD appraisers are not keeping
           them informed of appraisal progress-particularly when unforeseen
           impediments to appraisal delivery occur, such as delays in
           obtaining contract appraisers. These officials described many
           specific cases where delays during the appraisal process went
           unreported until they requested that ASD provide a progress
           update. The delays often affected project completion by weeks or
           months and, according to land management agency realty officials,
           may have contributed to the loss of some land acquisitions and
           exchanges, as in the following examples:

           o  A FWS realty specialist submitted an appraisal request in
           August 2003 for the potential acquisition of 893 acres in
           Tallahatchie National Wildlife Refuge in north-central
           Mississippi. ASD received an initial contract appraisal in
           November 2003, but did not begin the review until February 2004.
           When that appraisal was rejected, ASD ordered another appraisal,
           which was delivered in October of 2004, and subsequently rejected.
           An ASD appraiser then completed the appraisal in-house in April
           2005-20 months after the appraisal request and 12 months after the
           requested completion date. The landowner rejected the appraised
           amount offered and informed FWS that she thought it had lost
           interest in acquiring the land, since so much time had elapsed
           since the appraisal was requested.
           o  An NPS realty specialist submitted an appraisal request in
           November 2004 for the purpose of acquiring 8 acres in the Indiana
           Dunes National Lakeshore in northern Indiana. NPS requested ASD to
           provide a status update on January 31, 2005, on the appraisal
           request after not having received an update since December 15,
           2004. ASD did not respond to NPS until March 2, 2005, after being
           informed by the realty official that the land owner (1) was
           unhappy, (2) believed that ASD had been "stonewalling and lying"
           to him all along, and (3) was threatening to call his congressman.
           In response to NPS, ASD officials said that the appraisal request
           "fell through the cracks" and that the appraiser would start the
           work on it immediately. At that time, the contract appraiser had
           not begun the appraisal. An appraisal contract was awarded in
           April 2005 and completed on October 20, 2005, almost a full year
           after the initial appraisal request. According to the NPS realty
           specialist assigned to the case, the landowner was angered by the
           lengthy delay in getting him the offer and thus declined to sell
           the property to NPS.
           o  In May 2004, a FWS realty specialist requested the appraisal of
           a 40-acre parcel in Upper Ouachita National Wildlife Refuge in
           Louisiana. ASD later informed FWS that it did not immediately act
           upon the request because the request was overlooked and, as a
           result, it was scheduled to be awarded in February 2005. The
           realty specialist requested a status update in June 2005; however,
           at that time, ASD informed FWS that it was unsure if the contract
           had yet been awarded. In September 2005, a contractor appraisal
           was rejected for agency use. In January 2006, an ASD appraiser
           took over the project as an in-house appraisal assignment. The
           completed in-house appraisal was finally approved on February 16,
           2006-21 months after the initial request. Because of the
           substantial delay, the landowner rejected the offer to purchase
           his land.

           According to realty specialists in the land management agencies
           and officials at nonprofit partners, they need reliable estimates
           of appraisal delivery time frames to plan the use of land
           acquisition funds. The officials said that without knowledge of
           when appraisals will be obtained, and without a say in setting
           delivery dates, agencies' ability to request and use acquisition
           funds is compromised. For instance, NPS-Midwest realty specialists
           told us they were unable to use more than $800,000 from their land
           acquisition budget for fiscal year 2005 because of land deals that
           were not finalized. These officials stated that, had certain
           appraisals been completed by the requested completion date, it is
           likely that at least a portion of this money would have been spent
           on the acquisitions. In addition, without accurate knowledge of
           the expected date for appraisal completion, realty specialists
           told us they cannot keep willing buyers or sellers up-to-date on
           project status; also, they may unintentionally provide these
           parties with inaccurate estimates of appraisal completion, thus
           harming the relationship between the government and the willing
           buyers and sellers.

           According to realty specialists in the land management agencies
           and officials at nonprofit partners, appraisal delays also strain
           Interior's relationship with nonprofit conservation partners.
           These partners play a critical role in initiating and facilitating
           many land transactions between landholders and Interior's land
           management agencies. Nonprofit conservation partners leverage
           resources to purchase land from private sources, later to be sold
           to the government when funds are available. However, some partners
           have been negatively affected by unpredictable and oft-delayed
           appraisals. According to officials at two nonprofit partners with
           whom we spoke, their ability to secure land deals-much like the
           land management agencies-depends on landowners trusting their
           operations. They said that when an appraisal is significantly
           delayed, the nonprofit's funds are locked up in deals that are on
           hold while awaiting the completion of the appraisal. The officials
           said that if the appraisal results were delivered in a timelier
           fashion, they would know sooner whether the land owner will accept
           it and, if not, they could free up their funds sooner to assist
           land management agencies with other conservation projects.

           ASD Does Not Have a System for Prioritizing On-Going Projects and
			  Incorporating New Appraisal Requests
				
			  ASD also does not have a system for prioritizing on-going projects
           and incorporating new appraisal requests from its clients so as to
           adjust its workload when client needs change. As a result, ASD has
           no assurance that the most immediate appraisal needs of its client
           land management agencies are being met. The ARRTS database allows
           the requesting realty specialist to assign a priority label to
           each appraisal request (e.g., emergency, high priority, routine,
           or low priority). However, ARRTS does not allow ASD managers to
           determine the relative priority of new appraisal requests compared
           to those already in the system, nor does it provide a mechanism
           for reestablishing priorities. Further, ASD has no procedures for
           weighing each of its client agencies' respective appraisal request
           priorities. Realty specialists and ASD appraisers told us that, as
           a result, routine appraisals often get labeled as high priority-a
           practice that one ASD appraiser dubbed "priority inflation." For
           appraisal products requested in fiscal year 2005, for example,
           over 40 percent were labeled as "emergency" or "high" priority.
           Consequently, there is little meaning to current priorities
           labeled in ARRTS for the appraisal requests, and there is a risk
           that some high-priority appraisal projects are not performed as
           rapidly as necessary.

           On April 20, 2005, a FWS realty specialist asked ASD to perform a
           "high priority" appraisal for a 2.4-acre parcel of land in
           Washington County, Nebraska; the requested completion date was
           June 6, 2005. In late June, the realty specialist requested that
           ASD provide a status update, and was told that the appraisal
           contract had not yet been awarded. Furthermore, the reality
           specialist was told that ASD had placed a completion date of
           January 20, 2006, into ARRTS. The FWS Regional Realty Chief
           expressed concern in an October 5, 2005, e-mail to the ASD
           official concerning (1) the arbitrariness of the completion date
           set by ASD, (2) ASD's delay in requesting additional information
           from the realty specialists prior to beginning the appraisal
           project, and (3) ASD's lack of communication with FWS on the
           revised delivery date and need for additional information. In
           response to these concerns, the ASD-Midwest Regional Appraiser
           said that a backlog of appraisal requests contributed to the delay
           in initiating the project. ASD completed this appraisal on
           December 20, 2005-1 month ahead of its estimated completion date
           but nearly 7 months later than the date that it was initially
           requested. According to the FWS realty specialist, the landowner
           turned down the offer and accepted a 24-percent higher offer from
           a private buyer.

           ASD and the land management realty staffs generally do not
           collaborate in prioritizing appraisal needs. Instead, the
           prioritization of each appraisal request is determined on an ad
           hoc basis by ASD's appraisers. According to land management agency
           realty specialists, ASD officials seem to ignore the priorities
           and dates placed on the appraisal request by the realty
           specialists and, instead, revise the priority and completion dates
           arbitrarily. Some realty specialists said that they have resorted
           to calling their ASD regional appraiser to request that an
           appraisal is given high priority, but this approach has had little
           success. ASD regional appraisers acknowledged that their appraisal
           staff cannot always address these high-priority requests because
           they already have a heavy workload of such requests.

           Since the use of the ARRTS system has not been effective in
           establishing appraisal priorities, some officials have taken other
           measures to address this issue. For example, since the formation
           of ASD, the Midwest Region's Regional Appraiser meets with FWS
           realty managers within the region on a monthly basis to discuss
           pending appraisals, as well as upcoming appraisal requests. These
           discussions direct changes in appraisal project priority and
           facilitate status updates of ongoing appraisal projects. According
           to one FWS regional realty official, these meetings are extremely
           helpful for planning purposes. For example, when appraisals need
           to be done quickly, these meetings provide a venue to discuss how
           the timelines of other projects might be affected by the
           higher-priority project. The ASD-Midwest Regional Appraiser told
           us that she meets similarly with NPS realty officials on a monthly
           basis.

           Similarly, the ASD Southwest Region's lead appraiser in Nevada
           told us that he provides a status update on outstanding appraisal
           projects to his client realty specialists on a monthly basis.
           According to him, this status update is a great help for
           successfully prioritizing appraisal projects between the land
           management agencies and encourages communication between ASD and
           the realty specialists it serves. The appraiser also told us that
           rearranging appraisal priorities through this process is quite
           common. For instance, at the Stillwater National Wildlife Refuge
           in northern Nevada, the FWS is actively interested in purchasing
           water rights. Therefore, when land with water rights becomes
           available, appraisals of these lands are moved to a
           higher-priority status over other appraisals.

           Although the consolidation of appraisal services into ASD only
           applied to Interior agencies, we discussed appraisal services with
           USDA's Forest Service to ascertain whether the Forest Service had
           implemented processes that would assist ASD in implementing its
           program. With regard to prioritization of appraisal requests, the
           appraisal services staff of the Forest Service has had success
           using quarterly meetings and teleconferences to: coordinate time
           frames for appraisal requests and completion dates, prioritize new
           requests, and update the status of appraisals in progress. In
           addition, the Forest Service appraisal services staff supplies
           monthly or quarterly status updates to its clients, line officers,
           and realty specialists. The Forest Service's Chief Appraiser said
           that this system works well, and there are few problems or
           complaints about appraisal prioritization or the timeliness of
           appraisal delivery. While this may be successful for the Forest
           Service, ASD faces additional challenges because it has four
           equally important clients with potentially conflicting priorities.

           ASD Lacks Clearly Defined Roles Delineating Information-Collection
			  Responsibilities between It and Its Client Agencies
			  
			  ASD has not defined the responsibilities for ASD appraisers and
           realty specialists involved in the appraisal process, particularly
           with respect to specifying who has responsibility to gather the
           information needed to complete an appraisal. Significant
           "up-front" information, including such data as maps, property
           descriptions, aerial photographs, land deeds, title information,
           and sales histories are needed before conducting an appraisal. The
           Service Level Agreements between ASD and the client agencies state
           that the client agency is responsible for providing "clear,
           specific information on project needs for appraisal services,"
           primarily through ARRTS, but also by other means (as necessary).
           However, there is no definition of what this "specific
           information" should entail. Further, these agreements do not
           specify how much should be provided and by whom. According to FWS
           realty officials, this creates considerable confusion because
           information needs can vary quite significantly, depending on the
           complexity of the appraisal. Additionally, FWS stated that ASD
           requires the best information available, but does not define what
           this entails.

           Realty specialists and ASD appraisers with whom we spoke disagreed
           over who should have responsibility for obtaining and providing
           appraisal information. Part of this disagreement stems from the
           different responsibilities that existed among the agencies' realty
           specialists and appraisers prior to the formation of ASD. For
           instance, one FWS realty specialist stated that, prior to the
           formation of ASD, appraisers were responsible for much of the
           information-gathering; the information obtained and provided by
           realty specialists was minimal. On the other hand, appraisers
           formerly with BLM told us that, before the formation of ASD,
           realty specialists routinely acquired most of the information
           before giving it to appraisers. The lack of clarity in the Service
           Level Agreements with regard to who is to gather the needed
           information for the appraisal has led to delays in starting and
           completing appraisals. For example:

           o  A FWS realty specialist submitted a request to ASD on November
           22, 2005, for an appraisal of an approximately 1,000-acre tract in
           the Trinity River National Wildlife Refuge near Liberty, Texas.
           However, the FWS official did not provide sufficient information
           for the ASD appraiser to prepare the scope of work needed to
           request a cost estimate from contract appraisers. The ASD
           appraiser notified the requesting FWS realty specialist on
           December 9, 2005, that, to do the request for a cost estimate, he
           needed a map of the property boundary, a legal description of the
           land to be appraised, land title information, aerial photographs,
           and topographic maps for use in assessing the land's timber
           inventory. The FWS realty specialist provided the ASD appraiser
           the title information, information on an easement on the property,
           and an aerial photo, on March 8, 2006. The ASD appraiser replied
           to the FWS realty specialist on March 21, 2006, outlining what
           information remained outstanding. The realty specialist did not
           reply to ASD's request and, as a result, ASD cancelled the
           appraisal request.
           o  A FWS realty specialist submitted a high-priority request to
           ASD on May 19, 2006, for the preparation of a statement of work.
           The statement of work would be used by a nonprofit partner to
           solicit contractor bids for the appraisal of a 405-acre tract in
           Balcones Canyonlands National Wildlife Refuge near Austin, Texas.
           However, the FWS realty specialist did not provide sufficient
           information for the ASD appraiser to prepare a statement of work
           for the contractor bidding. The ASD appraiser notified the
           requesting realty specialist on June 6, 2006, that he needed land
           title information, details of an access easement on the property,
           a legal description of the land to be appraised, and information
           on improvements to the land. As of the issuance of this report,
           the ASD appraiser had not received the requested information.

           Realty specialists from the land management agencies informed us
           that ASD appraisers often require the "perfect package" of
           material before they will begin work on a project and that, in
           some cases, the correspondence requesting and providing
           information can go back-and-forth for weeks. ASD appraisers, on
           the other hand, told us that, depending on the specific
           circumstances involved, certain information is absolutely
           necessary before appraisers can begin an appraisal. For instance,
           in the case where an appraisal will be contracted out, ASD
           appraisers said they require a full package of
           information-including maps, property descriptions, aerial
           photographs, land deeds, title information, and sales
           histories-before a statement of work can be correctly developed
           for bid solicitations. Some ASD appraisers commented that realty
           specialists should receive training on the appraisal process and
           information requirements, so that they can better understand the
           challenges faced by the appraisers.

           Certain Business Practices Impede the Efficiency of ASDï¿½s Appraisal
			  Delivery, Resulting in Delays and Costs
			  
			  Certain business practices affect the efficiency of ASD's
           appraisal delivery. Specifically, ASD is hampered by delays in
           appraisal contracting and billing practices, difficulty in finding
           contract appraisers with government experience, and costly
           appraisals for low-value land. As a result, ASD's operations are
           more time-consuming and costly than necessary.

           Contract and Billing Functions Add Inefficiencies to ASD Operations
			  
			  Both the contract and the billing functions result in additional
           costs and contribute to appraisal delays. ASD currently contracts
           out approximately 70 percent of its appraisal requests, which
           requires the services of the National Business Center's Southwest
           Branch (for awarding contracts) and the Office of Budget and
           Finance (for paying contractors). In fiscal year 2006, data
           provided by National Business Center budget officials showed that
           the contracting and billing functions incurred approximately
           $350,000 in expenses, or about 3 percent of ASD's budget. While
           the costs of these services were borne by the land management
           agencies prior to ASD's inception, the agencies did not have data
           identifying these costs. Further, ASD appraisers believe the
           contract and billing functions would be more efficient if they
           were handled within the land management agencies. They also said
           that implementing the responsibility for receiving bids and
           awarding contracts at the Southwest Branch, as well as paying
           contractors through the Office of Budget and Finance, has resulted
           in considerable delays in the appraisal process and significant
           frustration from both the client-agency realty specialists and ASD
           appraisers. Specifically, we found the following:

           o  Longer turn-around time for contract award: According to
           officials at the Southwest Branch, awarding contracts after the
           proposals have been received should take, on average, about 3 to 5
           business days. On the basis of data provided by ASD Regional
           Appraisers, however, we determined that it has taken an average of
           about 10 business days to award contracts-and fewer than one-third
           of the contracts have been awarded in 5 days or less since the
           Southwest Branch assumed this responsibility.10 According to
           officials at the Southwest Branch, these delays largely resulted
           from significant turnover of staff with contracting experience and
           the inexperience of remaining staff.
           o  Cancellation of expedited contracting practices: Prior to the
           formation of ASD, agency contracting officers regularly employed
           "indefinite delivery/indefinite quantity" contracts and
           "blanket-purchase agreements," which are designed to expedite the
           contracting process by establishing multi-year agreements with
           private appraisers who become pre-approved for appraisal work
           conducted within the time frame of their agreements. These
           contracting practices expedite the process and can save time and
           resources. Southwest Branch officials, however, canceled more than
           100 pre-existing indefinite delivery/indefinite quantity contracts
           and blanket-purchase agreements when they assumed the contracting
           function. National Business Center officials at the Southwest
           Branch told us that they cancelled these contracts and agreements
           because the procurement systems of each of the agencies were not
           compatible with the Southwest Branch's procurement system, and it
           became easier to cancel them as opposed to redoing them to make
           them compatible. The National Business Center told us that these
           contracts were canceled because of a lack of justification to
           continue their use.
           o  Appraisal contracts awarded based on "lowest bid" rather than
           "best value": ASD appraisers recommend contract appraisers based
           on "best value to the government" considerations, but Southwest
           Branch officials routinely award contracts using "lowest bid"
           criteria. Under the "best value" consideration, bids are evaluated
           on a range of criteria in addition to price-including past
           performance, quality of appraisals, familiarity with the area the
           land is located in, and the type of land to be appraised.
           According to ASD regional appraisers, National Business Center
           officials informed them in 2004 that the Southwest Branch would
           evaluate contract proposals based on "best value"
           considerations.11 Officials at the Southwest Branch told us that
           they do not usually do this because ASD appraisers do not
           correctly solicit proposals for "best value" consideration. ASD
           officials, on the other hand, said they have not received any
           information from Southwest Branch officials on how to "correctly"
           solicit.12 As a result, according to officials at the Southwest
           Branch, in the first year of operation, all contracts were awarded
           based on lowest price because the solicitation from ASD-when sent
           out to the contractors-did not properly specify that the contract
           would be awarded based on "best value" considerations. This
           decision can have major ramifications for the timeliness and cost
           of an appraisal. For instance, in one case the lowest bid was $200
           less than the second lowest bid, and the ASD appraiser recommended
           the contractor with the slightly higher bid-based on past
           experience with ASD and familiarity with the land and property
           type. However, officials at the Southwest Branch awarded the
           contract to the low-bid contractor. The delivered appraisal was
           deemed unacceptable for agency use due to insufficient comparable
           sales data. After a 7 month delay, the appraisal was successfully
           completed.
           o  Inefficient contractor billing and reimbursement functions: The
           process currently used to bill client agencies for contract
           appraisal services has caused confusion and frustration within the
           land management agencies. According to ASD officials and realty
           officials with each of the land management agencies, problems
           included (1) being billed in one lump sum at the end of the fiscal
           year, (2) the inability to track reimbursement requests back to
           contractor invoices, and (3) double-billing for some contracts.
           These officials complained about the burdensome and arduous
           process of reconciling the reimbursement billing with the
           contractor invoices-a necessity to ensure that funds were not
           inappropriately spent. In addition, there have been problems with
           the land management agencies obligating sufficient funds to allow
           for reimbursement payments to go to the National Business Center
           in a timely manner. Realty officials with BLM, FWS, and NPS also
           stated that it would be more efficient if their agencies handled
           the billing directly. For example, if billing for contract
           appraisals came directly from the land management agencies, there
           would be no need to obligate funds for reimbursement or tracking
           of appraisal costs, and linking such costs to specific appraisals
           would be done within internal systems.

           Over the past 6 months, in response to concerns over the
           contracting and billing functions outlined above, ASD and the
           National Business Center undertook a comprehensive reengineering
           of the contract appraisal and billing processes. Under this
           reengineered plan, the contracting function would be moved to
           GovWorks in its Herndon, Virginia office.13 The invoicing and
           billing function would be transferred to GovWorks' electronic
           invoicing system. The reengineered plan is intended to address all
           relevant issues that have been brought to the attention of ASD and
           the National Business Center over the period in which the National
           Business Center has been supporting ASD's operations, including
           the use of "indefinite delivery/indefinite quantity" contracts,
           the use of "best value" contract award criteria, and the series of
           issues surrounding contractor payment and agency reimbursement.
           According to officials with the National Business Center, a July
           2006 meeting with ASD officials resulted in an agreement to move
           the contracting function to GovWorks beginning October 1, 2006.
           Under the reengineered plan, each contract service provided by
           GovWorks will be assessed up to a 4-percent fee depending on the
           cost of the contract. Although these officials offered assurances
           that moving the contracting function to GovWorks will address
           concerns about the timeliness of awarding appraisal contracts,
           contractor payments, and agency reimbursements, we cannot assess
           the effectiveness of a future change.

           Regardless of whether the change in the contracting function will
           be successful, however, ASD appraisers generally believe that this
           function would be more efficient if it were handled within the
           land management agencies. Many of the ASD Regional Appraisers,
           along with realty specialists within the land management agencies,
           told us that placing the contracting function within the land
           management agencies, as it was previously done, would not threaten
           the integrity of the appraisal process. These officials also
           believe that having the contracting function in each of the
           agencies would facilitate closer contact and better communication
           between ASD appraisers and the contracting officers, likely
           resulting in less confusion and easier status updates. ASD
           officials also said that, currently, staff at the Southwest Branch
           contracting office have little incentive to provide services in a
           timely manner because ASD has no choice but to use its services.
           Of note, this would not change under the current plan to relocate
           the appraisal contracting function to Virginia. According to
           agency realty specialists, contracting officers within the
           agencies regularly awarded contracts in a much timelier manner
           than the Southwest Branch. These officials said that this was due,
           in part, to the ease by which they could communicate the need for
           expedited awards and changing priorities with the contracting
           function located in-house. Also, because they were part of the
           same organization and had a stake in its land acquisition goals,
           the contracting officers had an incentive to be responsive to
           realty specialists' appraisal contract needs.

           ASD Faces Challenges Finding Contract Appraisers with Federal
			  Government Appraisal Experience
			  
			  ASD faces difficulty obtaining contract appraisers with federal
           government appraisal experience, which contributes to delayed and
           costly appraisals. According to ASD's Deputy Chief Appraiser and
           ASD Regional Appraisers, each of ASD's regions have experienced
           problems, to varying degrees, in obtaining contract appraisers
           with federal experience. ASD has a workforce of 68 appraisers
           nationwide and it receives about 1,800 appraisal requests for
           appraisal products per year from its clients. To address its
           workload demands, which include both conducting and reviewing
           appraisals, ASD uses private contractors for many of its
           appraisals. During fiscal year 2005, ASD contracted out about 70
           percent of the appraisal requests to private contract appraisers.
           However, ASD headquarters and regional officials told us that many
           private contract appraisers are unwilling to do business with the
           federal government because their appraisals must meet standards
           that are higher than what they are accustomed to. Additionally,
           they face unique circumstances that make it more challenging to
           conduct the appraisals. For example, most private appraisers are
           most familiar with appraising commercial or residential
           properties, but the locations of lands to be appraised for
           Interior agencies are often in remote, rural areas-making it more
           difficult to access, as well as identify, comparable land sales.
           One ASD regional appraiser stated that her office has attempted to
           find contract appraisers with federal experience, but it has had
           extreme difficulty finding contractors who can perform appraisals
           in accordance with government standards. This regional appraiser
           also stated that her office must sometimes use appraisers who do
           not have prior work experience with the government and with whom
           ASD has no previous working relationship. As one ASD Regional
           appraiser stated, each land transaction is important, and if a
           contractor fails to deliver an acceptable appraisal, ASD will
           experience significant delays in completing the appraisal.

           ASD takes substantial risks when it has to use contract appraisers
           without prior experience doing appraisals for Interior. We found
           the following examples:

           o  A BLM realty specialist submitted a request for a high-priority
           appraisal on July 12, 2005, for nearly 3,800 acres near Kremmling,
           Colorado. The Southwest Branch awarded the appraisal contract on
           August 12, 2005, in the amount of $13,500 to an appraiser who,
           according to ASD officials, had little experience working with ASD
           or the land management agencies. The contract had an appraisal
           completion date on or before October 14, 2005. After granting the
           contractor two extensions, ASD received the draft appraisal from
           the contractor on January 13, 2006, but, upon review, ASD found it
           to have a number of serious flaws, including problems with the
           appraiser's highest and best use determination and property rights
           analysis. As a result, the ASD reviewer determined that the
           appraisal needed substantial revision, and on March 14, 2006,
           sought clarification and corrections from the contract appraiser.
           Three days later, on March 17, the contractor notified ASD that he
           would be withdrawing from the project. ASD decided to complete the
           appraisal in-house and, on March 24, 2006, assigned one of its
           appraisers to perform the remaining work. As of July 5, 2006, the
           staff appraiser was still working to complete the appraisal.
           o  An NPS realty specialist submitted a high-priority appraisal
           request on June 10, 2005, for 119 acres in Chickamauga and
           Chattanooga National Military Park near Chattanooga, Tennessee.
           The Southwest Branch awarded the appraisal contract to an
           appraiser with no prior federal land appraisal experience on
           October 25, 2005. ASD received a draft appraisal on November 5,
           2005. ASD rejected this appraisal on the basis that it was a
           "nonsupported appraisal report of technical incompetence." ASD
           subsequently assigned the appraisal to an in-house appraiser on
           April 14, 2006. As of July 5, 2006, the appraisal has yet to be
           completed-more than 13 months after it was initially requested.
           o  A FWS realty specialist submitted an appraisal request in
           August 2003 for 33 acres in Panther Swamp National Wildlife Refuge
           in west-central Mississippi. After receiving the contract
           appraisal in November 2003, the ASD reviewer worked with the
           contract appraiser to try to clear up problems with the appraisal,
           but the appraisal was ultimately rejected in August 2004. A second
           contract appraisal was ordered, received in February 2005, and
           subsequently rejected in May 2005. A third appraisal was then
           ordered, received, and ultimately approved in April 2006, 32
           months after the initial appraisal request.

           Complicating contractor selection, many contract appraisers are
           not located in close proximity to the lands needing appraisal. As
           a result, realty officials and ASD regional appraisers said that
           contractors (many of which are not located in the same state where
           the property is located) include the cost of traveling to work
           locations in their estimate. According to an experienced realty
           specialist familiar with these types of contracts, appraisals
           performed by out-of-state contractors often cost more than
           $10,000, compared to less than $1,000 per appraisal when local
           appraisers might sometimes be used. ASD officials, in response,
           said that the more costly appraisals may be due to the fact that
           the appraisals did not meet standards, which necessitated
           additional work-though they did concede that travel costs are
           higher when local appraisers are not used. ASD also commented that
           appraiser fees are also based on business requirements including
           such things as direct and indirect costs, the complexity of the
           appraisal problem, the time required to develop and report a
           credible value opinion, and other issues. ASD's Chief Appraiser
           and Deputy Chief Appraiser are aware of the difficulties in
           finding contract appraisers and has taken steps to help remedy the
           problem. These steps include meeting with appraisal organizations,
           such as the American Society of Farm Managers and Rural
           Appraisers,14 to see how ASD can work with the organization to
           increase the number of contract appraisers willing to contract
           with the government. In addition, one ASD Regional Appraiser
           hosted an open house and training/information sessions with local
           appraisers who expressed interest in doing business with the
           government, in hopes that his region can find a wider range of
           private appraisers capable of meeting federal appraisal standards.
           The ASD Deputy Chief Appraiser told us that he hopes to expand the
           use of these types of interactions with private appraisal
           contractors. He believes that if private contract appraisers
           better understand the policies and requirements of ASD, and about
           how ASD functions, they will be more willing to offer their
           services.

           ASD Appraises Lands That Yield Little Revenues in Comparison to the
			  Costs of Performing the Appraisals
			  
			  ASD performs appraisals for lands that yield little revenue to the
           government when compared to the costs of doing the appraisal. For
           example, ASD appraisers routinely perform appraisals to calculate
           rent payments for private uses of public lands. These include
           short-term uses requiring a permit, and leases for oil and gas
           production infrastructure, water wells, and storage tanks, among
           other things. Appraisals for these uses are expensive to conduct
           and, for the most part, bring in very low rental revenues to ASD.
           From June 2005 through May 2006, appraisers completed 270 of these
           appraisals. More than half of these appraisals estimated land
           rents to be less than $1,000 per year. In some cases, when ASD
           performed an appraisal, the appraisal cost more than the revenue
           received by the agency for the land-especially when the appraiser
           visited the site. For example, an appraisal completed in May 2006
           for the use of four access roads to a reservoir and water pumping
           station cost approximately $17,000 for the appraiser's time and
           travel. The appraised value was $13,777 for a 10-year lease of
           these rights. In other cases, less costly alternatives exist. ASD
           appraisers can, in some instances, undertake less time-consuming
           and less costly appraisals by appraising multiple parcels at once.
           These appraisals are less time-consuming and less costly than a
           full appraisal-often, they do not require the appraiser to visit
           the site-but each appraisal must still go through the ARRTS
           process and associated paperwork.

           Land management agencies' policies for some rights-of-way require
           appraisals for some of these transactions to be performed by ASD,
           while in other cases the agencies can use an administrative
           formula-in lieu of an appraisal-developed and designed for the
           purpose of simplifying the calculation.15 The formula uses market
           analysis of real estate transactions and helps determine rental
           payments for non-communications land uses, such as water wells and
           reservoirs, and oil well pads. BLM had implemented guidance
           allowing its offices to use similar rental schedules for
           communications uses (e.g., cell phone towers) and linear
           rights-of-way (e.g., power lines) that are formula-based for
           determining land values in lieu of a full land appraisal. BLM's
           Idaho State office recently developed a formula, to be used in
           lieu of appraisals, for land valuations expected to be under
           $10,000. According to BLM officials, the formulas yield quicker
           valuation results at less cost compared to the results and costs
           of performing a full appraisal. The formulas are used by BLM, so
           ASD appraisers do not have to be involved. According to ASD
           officials, the expanded use of formulas for low-value land
           transactions would avoid the cost and time associated with using
           ASD appraisers to conduct appraisals for these transactions.16

           Interior Lacks Oversight of Appraisals under Some of Its
			  Grant-in-Aid Programs
			  
			  Interior lacks independent oversight of appraisals for land
           acquisitions under some of its grant-in-aid programs-specifically,
           those administered by FWS and NPS-because when ASD was formed, it
           was not assigned responsibility for appraisals of land acquired
           under these programs. Interior's grant-in-aid programs, for
           example, provide nonfederal agencies, such as state and local
           governments, with federal funds to acquire land-typically for the
           purposes of conserving critical wildlife habitat. As ASD was being
           formed, Interior officials did not place appraisals for these
           transactions under ASD's purview because grant-in-aid programs
           were separate from agencies' realty functions. Instead, this
           authority remained with the land management agencies, where the
           nonfederal grant recipient is responsible for obtaining an
           appraisal, which may or may not be reviewed by the grantor agency.
           In fiscal year 2005, Interior expended over $240 million in
           appropriated funds for land acquisitions by nonfederal agencies,
           of which nearly $140 million (or about 60 percent) was under nine
           FWS and NPS grant-in-aid programs. However, eight of the nine
           grant-in-aid programs, representing nearly $135 million of the
           approximately $140 million, do not require independent federal
           review of grant recipients' appraisals.17 As we reported earlier,
           it was the lack of required independent review for land management
           agencies' appraisals that led to the creation of ASD. Table 2
           shows the nine grant-in-aid programs we reviewed and, of these,
           which programs require independent federal appraisal review.

           Table 2: Independent Federal Review Requirements for Interior's
           Grant-in-Aid Programs
			  			  
                                                      Requirement for federal 
Grant-in-aid program                               review                  
FWS Cooperative Endangered Species Conservation    No                      
Fund Grants - Habitat Conservation Plan Land       
Acquisition                                        
FWS Cooperative Endangered Species Conservation    No                      
Fund Grants - Recovery Land Acquisition Grants     
FWS Landowner Incentive Program                    No                      
FWS North American Wetlands Conservation Act -     No                      
Standard Grants                                    
FWS North American Wetlands Conservation Act -     No                      
Small Grants                                       
FWS State Wildlife Grants Program                  No                      
NPS American Battlefield Protection Program        Yes                     
NPS Land and Water Conservation Fund State         No                      
Assistance Program                                 
NPS Shenandoah Valley Battlefields Foundation      No    

           Source: GAO analysis of FWS and NPS grant-in-aid policies.

           The requirement for federal review for the NPS American
           Battlefield Protection program identified in table 2 is found in
           the guidance provided by NPS to the grant applicant. This guidance
           requires grant recipients to have land appraisals reviewed by the
           federal government. The grant manager responsible for
           administering this program said that he requires federal review
           because he recognizes the value of obtaining an independent
           "check" to ensure that they do not offer more or less than market
           value.

           While there is no requirement for federal review for the other
           eight programs, grant managers for some of these programs
           occasionally seek ASD's assistance on an ad hoc basis. For
           example, at three of seven FWS regions, federal assistance
           officials, who administer several FWS grant-in-aid programs listed
           above, seek ASD appraisal reviews for some or all of their
           appraisals. In FWS' Northeast Region, for instance, the Division
           of Federal Assistance uses ASD's appraisal review service for all
           of their acquisitions. The FWS federal assistance officials in the
           Great Lakes-Big Rivers Region seek ASD assistance for appraisal
           reviews of lands valued over $1 million. Additionally, federal
           assistance officials in FWS' Pacific Region state that they
           request that ASD review appraisals on a case-by-case basis,
           typically when a state-agency-grant recipient does not have an
           in-house review appraiser, or if the appraisal is complex or of a
           high dollar value. In the other four FWS regions, however, ASD is
           not involved in the review of appraisals for grant-in-aid
           acquisitions.

           Grant officials for some of these programs told us that ASD's
           inconsistent involvement is due to the working relationships,
           between grant and realty divisions, that existed prior to ASD's
           formation. According to FWS officials in the Great Lakes-Big
           Rivers and Pacific regions, prior to the formation of ASD, grant
           office and realty offices shared the costs of review appraisers.
           Following the transition to ASD, the Division of Federal
           Assistance grants offices in both regions continued to request
           assistance for some appraisal reviews. Furthermore, the NPS
           official who administers the Shenandoah Valley Battlefields
           Foundation grant program said that he asked NPS realty-division
           review appraisers to review appraisals for his program prior to
           ASD's formation, and he continued that policy after those review
           appraisers transferred to ASD. On the other hand, in FWS'
           Southwest Region, a grant official said there was no such
           relationship in the past between the realty office and the Federal
           Assistance Grants Office.

           Federal review of appraisals provides some assurance that
           appraisals meet recognized standards to include independence, and
           that federal funds are being spent appropriately. The following
           examples illustrate the importance of federal review:

           o  In 2004, Travis County, Texas, received nearly $6.5 million in
           FWS grant funds from the Endangered Species Conservation-Habitat
           Conservation Plan Land Acquisition program to purchase about 320
           acres, which included habitat for the golden-cheeked warbler-an
           endangered bird. Under Texas state law, land designated as habitat
           preserve or endangered species habitat is to be appraised as if
           these designations were not in place, although some land uses-such
           as building roads or structures-may be prohibited on lands bearing
           these designations.18 Recognized appraisal standards require
           appraisers to consider the impact of land-use regulations on the
           utility and value of the land being appraised. The FWS Regional
           Director stated that he would accept the appraisal for Travis
           County if it followed state law. An ASD regional appraiser
           familiar with this case told us that he would not have approved
           this appraisal (if he was asked to review it) because it ignored a
           key legal characteristic, which would have substantially reduced
           the appraised value of the property.
           o  In 2005, the Minnesota Department of Natural Resources received
           federal funds through the Federal Assistance State Wildlife grant
           program to acquire a 441-acre property in Minnesota-valued at
           about $1.3 million. ASD was asked by the FWS grant office to
           review the appraisal, and upon its review found numerous technical
           errors. The ASD review appraiser concluded that the contract
           appraiser significantly overvalued the land because the appraiser,
           along with committing other technical errors, used five comparable
           sales with a different highest and best use as a basis for his
           value conclusions. Specifically, ASD found that all five
           comparables sales were maximally profitable as farmland; however,
           the property being appraised could not be used as farmland and, as
           a result, its highest and best use is recreation-primarily
           waterfowl hunting. In that region of Minnesota, since farmlands
           averaged over $2,000 per acre and recreational land generally
           averaged half that amount, the appraiser's estimate was too high.
           According to a federal assistance grant program official, the
           Minnesota Department of Natural Resources is having the property
           re-appraised.

           ASD review could also help ensure that appraisals conducted by
           grant-in-aid recipients accurately estimate lands' values. For
           example, under the Land and Water Conservation Fund State
           Assistance Program, NPS performs periodic program reviews of the
           state's Land and Water Conservation Fund programs, which includes
           appraisals for land acquisitions funded, in part, by Land and
           Water Conservation Fund State Assistance grants. In 2005, as part
           of its periodic review, NPS asked ASD's northwest office to help
           review a sample of appraisals prepared for the Oregon Parks and
           Recreation Department under NPS's Land and Water Conservation Fund
           partnership program. ASD found deficiencies in each of the six
           appraisals it reviewed, including failures to (1) accurately
           identify the subject property, (2) explain the valuation approach,
           and (3) provide adequate sales histories. These deficiencies
           should have prompted the Oregon Parks and Recreation Department's
           review appraiser to ask the contract appraiser for additional
           information to support the value conclusions. An ASD senior
           appraiser familiar with these appraisals told us that the
           appraisal review in each case was clearly inadequate.

           In addition, the official who administers grants under NPS's
           Shenandoah Valley Battlefields Foundation grant program uses ASD
           for independent federal review of all appraisals to ensure
           compliance with recognized standards. An ASD regional appraiser
           stated that his reviews of Shenandoah Valley Battlefields
           Foundation's appraisals, like reviews of other appraisals, have
           uncovered minor technical and factual flaws that were easily
           corrected, as well as major report weaknesses that resulted in
           ASD's rejection of appraisals.

           Some grant officials believe that a federal review is not
           necessary to ensure independence and that their policies, which
           require grant recipients to use a state-licensed appraiser and
           review appraiser, are sufficient for assuring that market value is
           attained for the land transactions. However, an ASD regional
           appraiser told us that state certifications are not high enough
           and provide little assurance of adequate appraisal knowledge. One
           ASD regional appraiser said that, because the appraisal community
           is small in some regions, contract appraisers and reviewers hired
           by grant recipients often find themselves reviewing each others'
           work. He believes this is a potential threat to appraisal
           objectivity because, in order to continue receiving requests for
           appraisal assistance, appraisers have an incentive to approve each
           others' appraisals.

           Interior has no clear policy on why some grant-in-aid programs
           require federal review of land appraisals while others do not.
           Secretarial Order 3258, issued in December 2004, outlines, among
           other things, ASD's role in reviewing appraisals prepared for
           nonfederal parties. This order directs ASD to review appraisals
           if, among other things, the nonfederal party consults with ASD on
           the scope of work and selection of contract appraiser prior to
           initiation of the appraisal. According to senior ASD officials,
           this requirement helps ensure that appraisals will meet appraisal
           standards. A Regional Appraiser told us, however, that the order
           does not define nonfederal parties and, therefore, it is not clear
           whether the order applies to grant recipients under the
           grant-in-aid programs. Furthermore, the order does not apply
           unless a nonfederal party consults with ASD. Two ASD Regional
           Appraisers with whom we spoke stated that official clarification
           on whether the order applies to grant recipients would be helpful.
           Moreover, since ASD is reviewing some appraisals under the grant
           programs, the officials are unsure whether doing so is consistent
           with the order.

           Conclusions
			  
			  Consolidating, into ASD, the appraisal functions that had
           previously been under the agencies' realty offices, appears to
           have been effective in remedying prior concerns about appraiser
           independence. With ASD now having these responsibilities, it needs
           to ensure that it is capable of upholding the public trust,
           assigned to it by law, in representing the federal taxpayer when
           appraising land for purchase, sale, and exchange. While ASD has
           made great strides in ensuring this, there is wide variation in
           appraisal quality for billions of dollars of potential land
           transactions. Although many appraisals did not meet standards, it
           is uncertain whether the market value determinations would have
           changed as a result of re-doing the appraisals. However, given the
           reasons for the appraisals not meeting standards, many of the
           examples show that the outcome may have changed-which could have
           affected the amount that the federal government paid for a
           particular land transaction. A critical factor contributing to
           these appraisal quality differences is that existing federal
           representation in critical land transactions is often delegated to
           individuals who may not have (or may not apply) the necessary
           specialized appraisal skills; these delegations are approved by
           individuals who have considerable discretion in deciding how
           thoroughly appraisals should be reviewed. Without a standard set
           of appraisal characteristics and considerations evaluated in each
           appraisal review-such as detailed descriptions of comparable
           sales, justification for valuation procedures, and documentation
           of legal and physical characteristics-appraisals that did not meet
           standards have been approved for government use. Moreover, based
           on the compliance problems we found with high value and complex
           appraisals, caused in large part by these concerns, ASD lacks an
           oversight mechanism to guarantee that the federal government is
           represented as fervently as the private parties that have a vested
           interest in transacting land at a more favorable price than that
           dictated by market value.

           ASD must also make sure that, in the process of devoting attention
           to improving the quality of appraisals, it does not stymie its
           clients' abilities to complete critical land acquisitions or
           divestitures. Delays in delivery of appraisals can have
           substantial negative consequences on the ability of the land
           management agencies to carry out agency land acquisition
           objecitves, and some land deals have been scuttled as a result. In
           addition, realty specialists with whom we spoke consistently
           warned of the potential for greater problems in the future if
           frustration with dealing with what is seen, by landowners, as
           inefficient government bureaucracy, worsens. While trying to fix
           the systemic and egregious problems that threatened appraisal
           integrity in the past, the centralization of the appraisal
           function has unintentionally caused inefficiencies in other
           processes that aid appraisal services. First, accountability for
           predictable and timely appraisal delivery has not been given
           proper attention. For instance, without a requirement for ASD to
           deliver appraisals in a timely or predictable manner, appraisers
           rarely negotiate appraisal time frames with client realty
           specialists, seek critical information from clients, or prioritize
           appraisal requests, which have led to lengthy delays in appraisal
           delivery. Lengthy delays can cause land management agencies to
           lose land acquisition opportunities and lose funding for these
           opportunities. Second, some highly visible ASD business practices
           have unintentionally impacted appraisal delivery. The contracting
           function, for example, represents an additional cost to ASD, and
           adds substantial time to appraisal delivery compared to when the
           function was within the client agencies. While Interior has
           recognized the inefficiencies caused by having the contracting
           function in the National Business Center's Southwest Branch
           location, it hopes to remedy this by relocating the function to
           GovWorks in its Virginia office. It is too soon to tell whether
           this change will make the processes more efficient. If such
           efficiencies do not result from this change, Interior may wish to
           consider other alternatives, which could include relocating these
           functions back into the land management agencies.

           While Interior gave much attention to ensuring independence and
           objectivity of appraisals, it kept appraisals for a majority of
           its land acquisition dollars outside of ASD's purview-thus
           allowing these appraisals to be subject to the same pressures that
           affected Interior's appraisers prior to the formation of ASD.
           Despite significant efforts to reform Interior's appraisal
           services, the majority of Interior's land acquisition dollars are
           tied to programs not requiring any federal review of appraisals.
           Consequently, the government has limited assurance that land
           valuations are accurate in real estate transactions with private
           parties valued at hundreds of millions of dollars each year.

           Recommendations
			  
			  To ensure that land transactions are based on appraised values
           that adhere to recognized appraisal standards, the Secretary of
           the Interior should take the following steps:

           o  Ensure that ASD assigns appraisals requiring specialized
           skills-such as minerals, timber, and water competencies-to
           appraisers and review appraisers with these skills.
           o  Establish and implement standardized review procedures for
           ASD's review appraisers, such as the use of appraisal checklists
           from the Uniform Appraisal Standards for Federal Land
           Acquisitions.
           o  Establish and implement a compliance inspection program,
           focusing particularly on appraisals with a higher likelihood of
           noncompliance.

           To establish a better accountability framework for ASD to help
           meet clients' appraisal needs, we recommend that the Secretary of
           the Interior-in collaboration with ASD and the land management
           agencies it serves-take the following actions:

           o  Require ASD appraisers and land management agency realty
           specialists requesting work to negotiate and reach agreement on
           completion dates for appraisal requests, and hold ASD accountable
           for meeting these dates.
           o  Develop a system to prioritize appraisal requests that allows
           higher priority and more time-sensitive land transactions to be
           appraised in a timely fashion.
           o  Clarify, in the Service Level Agreements, who has
           responsibility for obtaining and providing appraisal information
           needed in order to complete an appraisal and review.

           To help ensure greater efficiency of operations, we recommend that
           the Secretary of the Interior direct ASD to develop formulas
           reflecting market value for partial acquisitions that yield little
           revenue to the federal government-which are allowed by recognized
           appraisal standards.

           To ensure that Interior's grant-in-aid land transactions currently
           conducted outside ASD's purview conform to recognized standards,
           we recommend that the Secretary of the Interior direct the head of
           ASD, in collaboration with grant-in-aid program officials, to
           clarify the terms of ASD's involvement in the review of grant
           recipients' appraisals.

           Agency Comments and Our Evaluation
			  
			  We provided Interior with a draft of this report for review and
           comment. Its written comments are provided in appendix II.
           Interior generally agreed with our findings and recommendations
           and welcomes the report's intent to improve the overall appraisal
           process and services provided through ASD. Interior also said that
           ASD will continue to strive to provide high quality valuations
           services, that the recommendations further strengthen how it
           performs real property appraisals, and that it is dedicated to
           addressing the recommendations promptly. With regard to our
           recommendations to ensure that ASD assigns appraisal workload
           requiring specialized skills to appraisers with such skills,
           establish and implement standardized review procedures, and
           establish and implement a compliance inspection program, Interior
           said that it was taking or planning several actions. On the issue
           of assigning appraisers with specialized appraiser skills, it said
           that ASD, in cooperation with DOI University, is developing
           appraisal-specific training that will be first offered in January
           and February 2007 and will be training sessions in appraisal
           review, which are required by the American Society Farm Managers
           and Rural Appraisers for their appraisal-review designations. It
           said that ASD has also established the Office of Minerals
           Evaluation in Denver, headed by a minerals expert, which is being
           staffed to meet the minerals valuation needs of ASD. Also, it said
           that it has begun better lines of communication with the client
           bureaus for expertise in such things as water rights. In addition,
           it said that as staff retire, it is replacing them with
           individuals who have greater levels of expertise. With respect to
           standardizing review procedures and implementing a compliance
           inspection program, it said that ASD has drafted and circulated an
           outline of such a program with the charge of finalizing a review
           process to be implemented during fiscal year 2007. It said that
           its intent is to use the compliance review process as a management
           tool to identify appropriate staffing levels and allocations,
           identify and target training needs, and assign accountability at
           the appraiser and reviewer levels.

           Interior provided the following in response to our recommendations
           to (1) establish a better accountability framework for ASD to help
           meet client's appraisal needs by requiring ASD appraisers and land
           management agency realty specialists to reach agreement on
           appraisal completion dates, (2) develop a system to prioritize
           appraisal requests, and (3) clarify responsibility for obtaining
           and providing appraisal information. It said that ASD will be
           reinforcing the need for timely response to requests and that
           adherence will be monitored through the compliance review process.
           Also, accountability will be reinforced. It said that while ARRTS
           has an automatic notification feature if the requested completion
           date and projected completion date differ, the notification does
           not get generated if information in not entered in a timely manner
           into ARRTS. It also said that ASD recognizes that prioritization
           is a requisite to timely service to its clients. In this regard,
           it said that ASD has recognized the process used by the Midwest
           Region's Regional Appraiser's meetings with FWS realty managers as
           a best practice and has instituted this concept with all its
           client bureaus. Furthermore, Interior has established the National
           Appraisal Coordination Team, comprised of ASD management and
           client bureau management, which meets quarterly to discuss
           prioritization issues. Interior also said that ASD will work with
           the bureaus to clarify the instructions found in ARRTS and in the
           Service Level Agreements for gathering and providing appraisal
           information.

           We are encouraged by the actions Interior has outlined above for
           addressing the deficiencies noted in the report. With regard to
           the issue of assigning appraisers with specialized skills to
           perform appraisals requiring such skills, the training programs
           and staffing initiatives are steps in the right direction.
           However, some of these initiatives will take time before the staff
           have developed the skills needed to ensure that these specific
           appraisals in question meet appraisal standards. Providing the
           training, in and of itself, is no guarantee that the proper skills
           are used. Accordingly, we are also encouraged that the compliance
           inspection program being developed will involve processes to
           assess these efforts. However, as with any compliance program, the
           assessments occur after the fact with the intent of identifying
           actions to prevent future occurrences. Thus, until such time as
           the compliance program is in place, Interior should closely
           monitor the appraisals currently underway to assess compliance
           with appraisal standards, giving specific attention to the types
           of appraisals identified in our report. The steps outlined to
           address the timeliness of appraisal delivery are also positive.
           The key to their successes, particularly with regard to
           prioritizing appraisals, appear to be centered on the frequency
           with which meetings occur between ASD and the clients. Interior
           said that ASD has instituted the concept of meetings with all of
           its clients. It is not clear from these comments, however, the
           frequency with which these meetings will take place and what
           processes ASD and the clients will employ-such as negotiating time
           frames for each appraisal request-to ensure that the correct
           priorities are placed on the lands needing appraisals and the
           appraisals already underway.

           On our recommendation to develop formulas reflecting market value
           for partial acquisitions that yield little revenue to the federal
           government, Interior agreed that a more efficient process for
           these low-value products must be developed. It identified several
           possible solutions, such as mass appraisal techniques,
           computer-assisted mass appraisals, or automated valuation models,
           that it will research and subsequently implement if deemed
           appropriate-which should result in both efficiency and cost
           savings in the long term. It said that, as this effort progresses,
           regulatory changes may be required to eliminate firm requirements
           that bureaus charge fair market value for these minor land uses.
           These, too, are positive steps. However, in its comments, Interior
           does not outline the time frames in which these actions will
           occur. As the report points out, the costs of doing these
           appraisals are greater than the revenues generated. Thus, valuable
           resources for performing these appraisals could be used elsewhere
           on higher-priority needs. Accordingly, it is our view that
           Interior should identify a specific time frame for taking the
           actions it plans.

           Lastly, Interior agreed with our recommendation to clarify the
           terms of ASD's involvement in the review of grant recipients'
           appraisals. It said that it will evaluate procedural and resource
           implications of ASD's involvement in the many grant-in-aid
           programs and clarify the terms of ASD's involvement. These actions
           are also positive, but as mentioned above, Interior did not
           outline the time frame for initiating and completing these
           actions.

           Interior provided other comments for updating information in the
           report or for providing technical clarifications that we have
           incorporated, as appropriate.

           Copies of this report will be sent to the Secretary of the
           Interior and other interested parties. We will also make copies
           available to others upon request. In addition, this report will be
           available at no charge on the GAO Web site at www.gao.gov .

           If you have any questions about this report or need additional
           information, please contact me at (202) 512-3841 or
           [email protected] . Contact points for our Office of Congressional
           Relations and Public Affairs can be found on the last page of this
           report. Key contributors to this report can be found in appendix
           III.

           Robin M. Nazzaro Director, Natural Resources and Environment

           Appendix I: Scope and Methodology
			  
			  To determine the extent to which the Department of the Interior's
           (Interior) appraisal policies and procedures ensure compliance
           with recognized standards for appraisals, we examined current
           federal laws, regulations, and guidance regarding land appraisal
           requirements for Interior, as well as guidance for the Appraisal
           Services Directorate (ASD), the Bureau of Land Management (BLM),
           the Bureau of Reclamation (Reclamation), the Fish and Wildlife
           Service (FWS), and the National Park Service (NPS). We also
           evaluated 324 of the 2,905 appraisals completed from November 2003
           through February 21, 2006 that, based on past audit reports and
           our experts' opinions, have a higher probability of noncompliance.
           These consisted of appraisals for land transactions involving land
           exchanges; land valued over $10 million; National Wildlife Refuge
           revenue-sharing; NPS acquisitions; and easements. These appraisals
           collectively represented 50 percent (nearly $3.2 billion) of the
           total value of the land appraised since ASD's inception through
           February 21, 2006. We identified these appraisals using ASD's
           appraisal database, the Appraisal Request and Review Tracking
           System (ARRTS). We identified 563 appraisals that met the criteria
           listed above. Ninety-six could not be obtained because appraisers
           in the Pacific Region could not locate them. Additionally, 143
           appraisals from the 563 were not evaluated by our experts because
           the appraised dollar value was low and, after further
           consideration, the type of appraisals was not one identified in
           prior audits as having a higher probability of noncompliance.
           After testing the data for reasonableness and interviewing the
           administrator of ARRTS, we determined that the data from ARRTS was
           sufficiently reliable for our purposes. To evaluate these
           appraisals, we contacted the Appraisal Foundation-an independent,
           nonprofit educational organization dedicated to the advancement of
           professional valuation and authorized by Congress to establish,
           improve, and promote professional appraisal standards-to retain
           appraisal experts to assist in our evaluation.

           We retained four nationally recognized appraisal experts
           recommended by the Appraisal Foundation: Don Dorchester, Ron
           Hendricks, Henri LeMoyne, and John Widdoss. These appraisal
           experts evaluated the 324 appraisals, which included the
           associated ASD appraisal review, for compliance with appraisal
           requirements outlined in the two nationally recognized appraisal
           standards: Uniform Standards of Professional Appraisal Practices
           or Uniform Appraisal Standards for Federal Land Acquisitions.
           While we aimed to evaluate the entire population of appraisals
           having a higher likelihood of noncompliance, appraisers in ASD's
           Pacific Region could not locate nearly two-thirds of the 150
           appraisal reports we requested. The Regional Appraiser stated that
           the 96 appraisal reports were lost when appraisers were moved from
           the land management agency workspaces into ASD workspaces. Because
           we were unable to evaluate 96 appraisals we requested from ASD's
           Pacific Region, we could not evaluate whether they met recognized
           appraisal standards.

           To determine what, if anything, affects ASD's working
           relationships with its client agencies and its overall efficiency
           in providing appraisal services, we examined the guidance
           governing relationships between ASD and the National Business
           Center, and the client agencies in Interior: BLM, FWS, NPS, and
           Reclamation. This guidance includes federal laws and regulations,
           Interior regulations, agency and bureau policy manuals, and
           interagency agreements. We used ARRTS to analyze ASD's timeliness
           with completing appraisals and appraisal reviews. To assess ASD's
           working relationships with its client agencies, we conducted
           structured interviews with ASD's seven regional appraisers, who
           served as points-of-contact for communication between ASD and its
           client agencies. We also interviewed officials from ASD's client
           agencies regarding current appraisal procedures and the effect of
           these on the timeliness of appraisal delivery. To evaluate the
           overall efficiency of appraisal services, we identified ASD's
           billing and contracting procedures. In so doing, we talked to
           National Business Center officials in Washington, D.C.; Denver,
           Colorado; and the National Business Center's Southwest Branch in
           Fort Huachuca, Arizona, to identify the services they provide ASD,
           the cost of these services, and the effect of these services, if
           any, on the timeliness of the appraisal process. We also spoke
           with officials from non-government agencies involved in Interior
           land acquisitions in California, Colorado, and New Mexico.

           To determine the extent to which there are land appraisals under
           Interior that ASD does not have the responsibility of overseeing,
           we interviewed ASD officials and grant officials from FWS and NPS.
           Through these interviews, and through ARRTS, we identified nine
           grant programs that we found to have land acquisition activities.
           For these nine grant programs, we obtained appraisal requirements
           through documents such as policy manuals, agency regulations, and
           the guidance provided to grant recipients. We also interviewed
           officials that manage these grant programs. To obtain funding
           levels for land acquisitions conducted by the grant programs in
           fiscal year 2005, we reviewed budget documents and/or received
           budget information from grant officials.

           Our work was conducted in accordance with generally accepted
           government auditing standards, including an assessment of internal
           controls, between December 2005 and August 2006.

           Appendix II: Comments from the Department of the Interior
			  
			  Appendix III: GAO Contact and Staff Acknowledgments
			  
			  GAO Contact
			  
			  Robin Nazzaro (202) 512-3841 or [email protected]

           Staff Acknowledgments
			  
			  In addition to the individual named above, Roy Judy, Assistant
           Director; Nathan Anderson; Phillip Farah; Richard Johnson; Paul
           Kinney; Michael Krafve; Jay Smale; Bill Woods; and Arvin Wu made
           key contributions to this report.

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9Similar data for fiscal year 2005 is not available due to a limitation in
the ARRTS data system at that time.

10Officials at the Southwest Branch did not supply comprehensive data in
this regard, despite our request.

11The Uniform Appraisal Standards for Federal Land Acquisitions states
that it is "important to obtain the contract services of the best
qualified appraisers available within the agencies' rules governing the
contracting process. While price is certainly a consideration, more
important factors are general appraisal experience, education,
professional reputation, experience in conducting appraisals for federal
land acquisitions under these standards...and demonstrated competency."

12Under "best value" considerations, agencies take into account other
factors in addition to price in awarding a contract, including the quality
of the services offered and the bidder's prior performance

13GovWorks is a fee-for-service organization that delivers
regulation-compliant contract administration and support. It joined
Interior's National Business Center in October 2005.

14The American Society of Farm Managers and Rural Appraisers is dedicated
to maintaining a professional group of farm managers, rural appraisers,
and review appraisers.

15The Uniform Appraisal Standards for Federal Land Acquisitions allows for
low land valuations to be completed through an alternative method of
valuation, such as an administrative formula.

16FWS and NPS do not use similar schedules because they have so few cases
of such land use by private entities, according to officials with these
agencies. Instead, they rely solely on appraisals conducted by ASD.
Reclamation's land management policies currently call for full land
appraisals to be used to calculate lease payments.

17While federal regulations generally require a person acquiring land with
federal assistance to have an appraisal review process, many acquisitions
under grant-in-aid programs qualify for exceptions to the regulations.
                
18UASFLA D-6, see also USPAP Standard Rule 1-3(a).

(360637)

www.gao.gov/cgi-bin/getrpt? GAO-06-1050 .

To view the full product, including the scope 
and methodology, click on the link above.

For more information, contact Robin M. Nazzaro at (202) 512-3841 or
[email protected].

Highlights of GAO-06-1050 , a report to the Subcommittee on Interior,
Environment, and Related Agencies, Committee on Appropriations, House of
Representatives

September 2006

INTERIOR'S LAND APPRAISAL SERVICES

Actions Needed to Improve Compliance with Appraisal Standards, Increase
Efficiency, and Broaden Oversight

To remedy decades of problems with its land appraisals, the Department of
the Interior (Interior) in 2003 removed the land appraisal function from
its land management agencies and consolidated them into the Appraisal
Services Directorate (ASD). However, Congress and ASD's clients have
expressed concern that ASD's appraisal services have become less efficient
and effective than what previously existed. GAO was asked to assess (1)
ASD's policies and procedures in ensuring compliance with appraisal
standards, (2) ASD's ability to meet its customers' needs, and (3) the
extent to which there are land appraisals under Interior for which ASD
does not have oversight responsibility. To answer these objectives, we
reviewed agency guidance, analyzed appraisal data, and used independent
expert appraisers to assess compliance with standards.

What GAO Recommends

We are making a number of recommendations to strengthen ASD appraisal
services, such as establishing a compliance inspection program, taking
steps to increase timeliness, and clarifying ASD's oversight of
grant-in-aid appraisals.

In commenting on the draft report, Interior generally agreed with our
findings and recommendations.

Although the quality of appraisals has improved since ASD's inception,
Interior's appraisal policies and procedures do not fully ensure
compliance with recognized appraisal standards. ASD appraisers perform
appraisals and/or review appraisals performed by co-workers or
contractors. Of 324 appraisals we evaluated-representing 50 percent
(nearly $3.2 billion) of the total value of the land appraised since ASD's
inception-192 appraisals appeared to be in compliance with recognized
appraisal standards. The remaining 132, however, did not meet standards
primarily because (1) ASD appraisers appeared to not apply specialized
skills needed to perform or review the appraisals of lands involving
minerals, timber, and water rights; and (2) ASD review appraisers
performed cursory reviews of appraisals and approved them without
considering property characteristics that can increase the lands' value,
such as the presence of roads. ASD also lacked standardized appraisal
review procedures, which can provide greater assurance in the consistency
of appraisal reviews, as well as assurance that appraisals meet recognized
appraisal standards. Furthermore, ASD has not developed a mechanism, such
as a compliance inspection program, for ensuring that its appraisals meet
standards. Other federal agencies doing appraisals have developed
compliance systems and used them successfully.

ASD's relationships with its client agencies are hampered by inefficient
operations. ASD does not have a system for ensuring that it meets
realistic time frames for appraisal delivery. This often occurs because
ASD has no process for (1) establishing realistic, agreed-upon deadlines
for completing appraisals; (2) balancing appraisal requests with other
appraisal priorities; and (3) clarifying roles for obtaining information
needed to complete appraisals. In addition, some ASD business practices
impede efficient appraisal delivery, add costs, and result in
organizational inefficiencies. For instance, ASD performs appraisals for
lands that yield little revenue to the government when compared to the
cost of doing the appraisal. Also, ASD has not found enough contract
appraisers with federal experience to assist their workload and have, on
occasion, had to use appraisers that were not in close proximity to the
land being appraised, which increased appraisal costs.

When ASD was formed, it was not assigned responsibility for appraisals of
land acquired under Interior's grant-in-aid programs, even though the
grant-in-aid land acquisition budget in fiscal year 2005 represented 60
percent of Interior's $240 million total for land acquisition. Under
Interior's grant-in-aid programs, many nonfederal entities receiving
federal grant-in-aid funds from Interior's Fish and Wildlife Service and
National Park Service are not required to obtain ASD review of appraisals
for land acquisitions. Instead, appraisal and review responsibilities
typically remain with the grant recipient, such as a state agency.
However, there are indications that appraisal mistakes are occurring, and
some Interior grant expenditures for land acquisitions may be based on
appraisals that do not meet standards.
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