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
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
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.
ASD�s 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 ASD�s 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.
*** End of document. ***