[Final Report on Land Exchanges and Acquisitions, Utah State
Office, Bureau of Land Management]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 01-I-413

Title: Final Report on Land Exchanges and Acquisitions, Utah State
       Office, Bureau of Land Management

 
Date: July 31, 2001

**********DISCLAIMER********** 
This file contains an ASCII representation of an OIG report. No attempt has been made to
display graphic images or illustrations. Some tables may be included, but may not resemble those
in the printed version. A printed copy of this report may be obtained by referring to the PDF file
or by calling the Office of Inspector General, Division of Acquisition and Management
Operations at (202) 219-3841. 
****************************** 

Memorandum

To:  Piet deWitt
Acting Assistant Secretary, Land and Minerals Management 

From:  Michael P. Colombo Regional Audit Manager

Subject:  Final Report on Land Exchanges and Acquisitions, Utah State Office, Bureau of Land
Management (No. 01-I-413)

The attached report presents the results of our review of the Bureau of Land Management's
(BLM) land exchanges and acquisitions in Washington County, Utah.  We believe the report
balances BLM's attempt to meet its mission objectives in Utah and our concerns on safeguarding
the integrity of BLM's appraisal process and precluding any appearance of conflict of interest or
wrongdoing.  As agreed, the third-party peer review of BLM's appraisal process is a mutually
acceptable resolution that will help ensure an appraisal process that, in your words, Aprotects the
integrity and objectivity of the appraisal process and ensures accountability of appraisers in
conformance with professional and Federal appraisal standards."  

We appreciate the cooperative spirit shown by BLM staff in working with us to mediate the
issues addressed in this report.  Their professionalism and assistance enabled us to reach
consensus on important issues and produce a report that we believe reflects a balance between
our positions.  We particularly wish to thank Mr. Carson (Pete) Culp, Assistant Director for
BLM's Minerals, Realty, and Resource Protection, and Mr. Ray Brady, Lands and Realty Group
Manager at BLM's headquarters office, for their important contributions.  
     
Section 5(a) of the Inspector General Act requires us to list this report in our semiannual report to
Congress.  In addition, we provide audit reports to Congress.  If you have any questions or
comments regarding our report, please call me at (916) 978-5653.
     
Attachment
     
cc:  Director, Bureau of Land Management (MS 5660)
Audit Liaison Officer, Bureau of Land Management (MS 1000 L St.)
Audit Liaison Officer, Assistant Secretary for Land and Minerals Management (MS 6628)
(Focus Leader for Management Control and Audit Follow-up (MS 5412)











  Executive Summary
Bureau of Land Management 
Land Exchanges and Acquisitions, Utah State Office

Results In Brief

Integrity of BLM's Appraisal Process Should Be Protected

The Bureau of Land Management (BLM) should obtain a thorough and objective review of
its appraisal organization, policies, and procedures to identify changes to protect the integrity
of the appraisal process.  In trying to meet its land exchange and acquisition objectives in
Washington County, Utah, BLM may have compromised the integrity of its appraisal
process, a key control in ensuring the integrity of public land transactions and valuations and
precluding the appearance of conflict of interest and wrongdoing.  Appraisers performing
appraisals and reviews for BLM must be objective and provide independent, unbiased, and
professional analyses of market information.  We concluded, however, that BLM did not
sufficiently emphasize the independence and objectivity of the appraisal process or ensure
that appraisal reviews complied with appraisal standards.  

BLM's Utah State Office is acquiring land in Washington County near St. George through a
combination of land exchanges and direct purchases to provide protected habitat for plant and
animal  species listed as "threatened" by the U.S. Fish and Wildlife Service under the
Endangered Species Act.  For the most part, the land being acquired is located within the
boundaries of the 61,000-acre Red Cliffs Desert Reserve, a habitat conservation plan (HCP)
area intended to help protect the Mojave desert tortoise.  BLM's acquisition and protection of
land within the HCP area will allow private development to continue elsewhere within
Washington County.  For the 3-year period ended June 1999, BLM had exchanged about
1,169 acres of public land valued at approximately $3.2 million, acquired about 929 acres of
land valued at approximately $8.6 million, and was working to acquire an additional 18,000
acres.  

Initially, controversy regarding establishment of the HCP area delayed the acquisition
process.  Affected landowners in Washington County strongly opposed any decrease in the
value of their lands that could result from the listing of the desert tortoise and the creation of
the HCP.  They also strongly opposed the position taken by BLM's Utah appraisal staff that
federal appraisal standards required appraisers to consider the effect of the tortoise when
estimating the fair market value of land and were concerned that they would not be treated
fairly in BLM's appraisal process.  To overcome landowners' lack of confidence in its
appraisal process and to "jump start" the acquisition process, BLM transferred responsibility
for administering and reviewing Washington County appraisals to its Senior Specialist for
Appraisal in the Washington Office.  The Senior Specialist developed and implemented an
alternative approach, which opened up the appraisal process to involve landowners. 
According to the Senior Specialist, this approach increased the chances for acquiring the
property, potentially reduced the costs of delays associated with disputes, and improved local
landowner confidence in BLM's acquisition programs.  

The Federal Land Exchange Facilitation Act of 1988 "envisioned a cooperative approach in
completing land exchanges," and, according to the Senior Specialist, BLM's alternative
approach attempted to balance the relationship between the agency and the landowner and
improve the credibility of the appraisal report.  We recognize that appraising is not an exact
science and that differences in opinion on appraised values frequently occur, especially in
situations where comparable sales are limited or the potential for development is speculative. 
We found, however, that the alternative approach did not separate the appraisal process from
price negotiations.  We concluded that it was inherently risky and could not be effectively
controlled to protect the integrity of the appraisal process and preclude any appearance of
wrongdoing, such as altering land appraisal values to negotiate a price with the landowner. 
Also, BLM's appraisal approach did not provide assurance that lands were properly appraised
and valued.  

We also noted that the Senior Specialist, in presenting his alternative approach in an article
published in an industry magazine, discussed potential disadvantages, including the
"substantial risks to opening up the valuation process for voluntary acquisitions."  The Senior
Specialist stated:  "Others may feel that the appraisal review process has been compromised
and that it has been merged into the negotiation process.  Without adequate management
controls, the wall preventing fraud, waste, and abuse will have been weakened."  In our
opinion, this "wall" was indeed weakened in BLM's Utah land exchanges and acquisitions.

Opportunities to Improve the Land Valuation Process

To protect the integrity of its appraisal process and preclude the appearance of conflict of
interest or wrongdoing and to address the results of our review in Utah and the findings of
our prior audits of BLM land exchange activities in Nevada (see Appendix 2), we believe that
BLM should obtain a thorough and objective review of its appraisal process.  In that regard,
we note that the U.S. Forest Service (USFS), to address problems in its appraisal process
identified by the U.S. Department of Agriculture's Office of Inspector General, contracted
with The Appraisal Foundation for an independent review of USFS's appraisal organization,
policies, and procedures.  USFS specifically asked The Appraisal Foundation to determine
the steps needed to build a first-class appraisal system that protected the integrity of the
appraisal process.  

Recommendations 

Accordingly, we recommended that the Director of BLM:

1.  Obtain a peer review from The Appraisal Foundation of BLM's appraisal organization,
policies, and procedures, including an evaluation of the alternative approach implemented in
Washington County, Utah.
        
2.  Implement the changes recommended by the peer review to ensure that BLM has a first-
class appraisal system that protects the integrity and independence of the appraisal process.
        

Agency Response and Office of Inspector General Reply

In his June 6, 2001 response to the draft report (Appendix 3), the Acting Assistant Secretary
concurred with the report's two recommendations.  The Acting Assistant Secretary stated that
BLM would involve The Appraisal Foundation in conducting a review of BLM's appraisal
organization, policies, and procedures, including the appraisal review approach BLM used in
Washington County, Utah.  The review is to be initiated by contract with an anticipated
delivery of The Appraisal Foundation's final report by June 2002.  

BLM also would implement the changes recommended by The Appraisal Foundation that
protect the integrity and objectivity of the appraisal process and ensure accountability with
professional and federal appraisal standards.  Appropriate changes are to be implemented by
BLM Instruction Memorandum and updates of BLM's Appraisal Manual and Land Exchange
Handbook by October 2002.    Accordingly, the Acting Assistant Secretary's response is
sufficient to consider the two recommendations resolved, but not implemented.  The two
recommendations will be referred to the Assistant Secretary for Policy, Management and
Budget for tracking of implementation (Appendix 4).

We appreciate BLM's cooperative spirit in working together to resolve issues and obtain a
consensus so that recommended actions address the underlying issues and the report reflects
a balance between differing positions.  As BLM officials seek the services of The Appraisal
Foundation, we extend our cooperation and assistance in ensuring that the scope of the work
developed  "protects the integrity and objectivity of the appraisal process and ensures
accountability of appraisers in conformance with professional and Federal appraisal
standards," as stated in the Acting Assistant Secretary's response.

       















 
Contents



Background . . . . . . . . . . . . . . . . . . . . . . . . . .1
Appraisal Process  . . . . . . . . . . . . . . . . . . . . . .2
Scope and Methodology  . . . . . . . . . . . . . . . . . . . .5

Integrity of BLM's Appraisal Process 
Questioned   . . . . . . . . . . . . . . . . . . . . . . . . .5
Appraisal Process Was Not Objective. . . . . . . . . . . . . .5
Appraisal Reviews Did Not Meet Standards . . . . . . . . . . .8
                       
Opportunities to Improve the Land Valuation
Process  . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Recommendations  . . . . . . . . . . . . . . . . . . . . . . 12

Agency Response and Office of Inspector 
General (OIG) Reply  . . . . . . . . . . . . . . . . . . . . 13

Appendices
1  Scope and Methodology  . . . . . . . . . 15
2  Prior Audit Coverage . . . . . . . . . . 16
3  Agency Response  . . . . . . . . . . . . 19
4 Status of Audit Recommendations  . . . . 22

Abbreviations

BLM  . . . . . . . . . . . . . . . . .Bureau of Land Management
CFR  . . . . . . . . . . . . . . . .Code of Federal Regulations
GAO  . . . . . . . . . . . . . . . . .General Accounting Office
HCP  . . . . . . . . . . . . . . . . .Habitat Conservation Plan
OIG  . . . . . . . . . . . . . . . .Office of Inspector General
UASFLA                  Uniform Appraisal Standards for Federal
 . . . . . . . . . . . . . . . . . . . . . . .Land Acquisitions
USC  . . . . . . . . . . . . . . . . . . . . United States Code
USFS . . . . . . . . . . . . . . . . . . . .U.S. Forest Service
USPAP  . . Uniform Standards of Professional Appraisal Practice



      Background

BLM manages and protects approximately 264 million acres of public land, including almost
23 million acres in the State of Utah.  As part of its responsibilities, BLM is authorized to
acquire additional land through fee purchase or land exchange; that is, trading public land for
land owned by corporations, states, or individuals.  Federal law requires that such
acquisitions and exchanges serve the public interest by protecting critical wildlife habitat,
enhancing recreational opportunities, consolidating or improving the management of public
lands, or promoting some other BLM mission-related goals and objectives.

BLM's Utah State Office is attempting to acquire land in Washington County near
St. George, Utah, through land exchanges and direct purchase.  For the most part, the land
being acquired is located within the boundaries of the 61,000-acre Red Cliffs Desert Reserve,
an HCP area intended to provide protected habitat for, and thereby assist in, the preservation
of the Mojave desert tortoise, a species listed as "threatened" by the U. S. Fish and Wildlife
Service.  BLM's acquisition and protection of land within the HCP area will allow private
development to continue elsewhere within Washington County. 

Initially, controversy regarding establishment of the HCP area delayed the acquisition
process.  Affected landowners strongly opposed any decrease in the value of their lands that
would result from the listing of the desert tortoise and the creation of the HCP area.  They
also strongly opposed the position taken by BLM's Utah appraisal staff that federal appraisal
standards required appraisers to consider the effect of the tortoise when estimating fair
market value.  BLM then removed the Utah appraisal staff from responsibility for
Washington County appraisals.  Local landowners remained concerned, however, that they
would not be treated fairly in BLM's appraisal process.  To overcome the landowners' lack
of confidence in the appraisal process and to allow land acquisitions to proceed, BLM's Utah
State Director requested that BLM's Washington Office Senior Specialist for Appraisal
assume responsibility for administering and reviewing Washington County appraisals.  The
Senior Specialist implemented an alternative approach that opened up the appraisal process to
involve landowners. 

BLM conducts land exchanges under the authority of Section 206 of the Federal Land Policy
and Management Act of 1976, including amendments pursuant to the Federal Land Exchange
Facilitation Act of 1988.  In passing this legislation, Congress sought to facilitate and
expedite land exchanges by directing BLM to ensure that public and private lands were
uniformly appraised in conformance with nationally recognized appraisal standards and by
giving BLM new authority to resolve disputed appraised values through arbitration or
bargaining.  Under this legislation, if the parties to an exchange cannot agree to accept the
appraised values, they can instead determine the value of the properties by submitting the
appraisals to arbitration or by using a bargaining process.

BLM's land acquisition activities are authorized by the Uniform Relocation Assistance and
Real Property Acquisition Policies Act of 1970 and other laws.  This Act and its
implementing regulations also established standards for the appraisal of land for acquisitions
by both purchase and condemnation.  These laws, together with implementing regulations
and BLM's supplemental appraisal policy guidance, require BLM to value the land it
acquires and exchanges based on appraisals prepared by qualified appraisers in accordance
with professional and federal appraisal standards.  The appraisal standards require that land
be appraised at its fair market value, which is defined as the amount for which land would be
sold, for cash or equivalent, by a willing and knowledgeable seller, who is not obligated to
sell, to a willing and knowledgeable buyer, who is not obligated to buy. 

Determining fair market value requires the appraiser to first identify the land's "highest and
best use."  According to federal appraisal standards, the highest and best use of land is
ordinarily its current use, and the appraiser must demonstrate a reasonable probability that the
land could and would be used for some other purpose before concluding there is a different
highest and best use.

Professional and federal appraisal standards and federal regulations (49 CFR 24.103) also
require that appraisers identify, verify, analyze, and reconcile all pertinent information to
develop their appraised value opinion.  They must then report their opinions and conclusions
clearly and accurately in a manner that is not misleading and conveys sufficient information
to facilitate understanding of the report. 

Appraisal standards, regulations, and BLM's Manual also require that appraisal reports be
reviewed by a qualified review appraiser to ensure that they meet applicable appraisal
standards.  Review appraisers must provide an independent, unbiased, and professional
analysis of the technical adequacy of the appraisal report and value estimate and document
their review in a written report prepared in compliance with professional appraisal standards
and supplemental requirements in the BLM Manual.  If the reviewer does not accept the
appraiser's opinion of value and substitutes a different value, the reviewer must, among other
things, identify and state the additional data relied upon and the reasoning and basis for a
different opinion of value. 

The entire appraisal process, including appraisal reviews, is a key control in protecting the
integrity of BLM's land acquisition program.  Unlike other transactions that depend on
competitive sales procedures such as auctions or sealed bidding to establish a fair price,
BLM's land exchanges and acquisitions are voluntary transactions that rely on appraisals to
establish the fair market value of the land involved.  The independence and objectivity of the
appraiser and review appraiser, as well as sufficient documentation of their valuations, are
therefore critical factors in ensuring the acquisition or exchange of land based on fair market
value and in precluding the appearance of conflict of interest or wrongdoing.  

We recognize that appraising land is not an exact science and that qualified appraisers, in
applying their analytical skills and judgments, can reach markedly different opinions of value
for the same land.  This is especially true when unique or unusual land is involved or when
similar sales are not available for comparison.  In our opinion, the review appraiser is a key
control in addressing differences, maintaining independence and objectivity, estimating  fair
market value, and protecting the integrity of the appraisal process and public confidence in an
agency acquisition program.  
Scope and 
Methodology

We reviewed 10 land exchange and acquisition case files administered by BLM's St. George
Field Office involving the exchange of about 1,169 acres of public land valued at
approximately $3.2 million and the acquisition of about 929 acres of land valued at
approximately $8.6 million.  Within these case files, we selected and analyzed eight appraisal
review reports to determine whether they complied with professional and federal appraisal
standards and supplemental BLM policies.  The scope and methodology of our review are
further detailed in Appendix 1.  Prior audits of BLM land exchange activities are summarized
in Appendix 2.

Integrity of BLM's Appraisal Process Questioned 

BLM may have compromised the independence and objectivity of its appraisal process by
using an alternative approach that did not separate the appraisal process from price
negotiations.  BLM also did not ensure that its appraisal reviews complied with appraisal
standards or that land was acquired and exchanged based on fair market value.  Although
BLM undertook the alternative approach to more effectively meet its land acquisition
objectives in Washington County, we believe that use of this approach increased the
appearance of conflict of interest and wrongdoing and brought the integrity of BLM's land
acquisition program into question.

Appraisal Process Was Not Objective 

To overcome landowners' lack of confidence in BLM's appraisal process and to help
accomplish BLM's land exchange and acquisition objectives, BLM's Senior Specialist for
Appraisal, in effect, used his reviews to assist in negotiating land values acceptable to
landowners.  Under this approach, the Senior Specialist reviewed appraisals but did not
immediately prepare review reports documenting the results of his reviews or conclusions. 
Instead, he shared appraisal reports with the landowner and then met with the landowner, the
appraiser, and BLM realty and field office management staff to identify and resolve any
disagreements the landowner might have with the appraiser's techniques, facts, assumptions,
and value conclusions.  When agreement was reached on an appraised value satisfactory to
the landowner, the Senior Specialist finalized a review report and recommended a value for
the proposed acquisition or exchange to BLM's Utah State Director for approval.   
According to BLM, its goal was "to reach agreement on market value," and to that end,
appraisals reviewed and approved by the Senior Specialist "reflected the views of the affected
property owners regarding the interpretation and usefulness of data relied on by the
appraiser."  According to the Senior Specialist, his appraisal review approach was
specifically tailored to "enhance the development of trust between the property owner and the
acquiring agency" and was "based on an assumption that the current approach is outmoded
and that the property owners should have an opportunity to be more involved in the appraisal
and acquisition" process.  We found, however, that BLM's intent to make the appraisal
process a more cooperative one with the landowner diminished the objectivity of the process
and appeared to adjust the appraised value to the landowner's desired selling/exchange
values, thereby ensuring that an exchange or acquisition would occur without the need for
formal bargaining or arbitration.  For example:

In one transaction, the Senior Specialist, in an appraisal review report to BLM's Utah State
Director, stated that the values recommended were "for purposes of reaching agreement with
[the landowner]."  For one of the parcels appraised, the Senior Specialist established a value
less than the amounts estimated by any of the other appraisals because the landowner was
"apprehensive in taking [the public land] at the appraised values."  The Senior Specialist also
stated that he "met with [the landowner] . . . . regarding the appraisal reports.  Because of the
disparity in the appraised values, we reached preliminary agreement . . . on the relative values
of the properties involved in this land exchange."

In another transaction, the Senior Specialist asked the appraiser to consider comparable sales
that were not reflected in the original appraisal report so as "to reach agreement on values" of
a parcel of public land with a landowner.  The appraisal addendum provided by the appraiser
and used by BLM to complete an exchange reduced the estimated value of the federal land by
27 percent.  We found that the appraiser's revised comparable sales analysis was not
adequately supported.  In addition, the appraisal addendum did not reconcile the new, lower
value estimate to the significantly higher development approach value the appraiser estimated
in his original appraisal report and did not explain/reconcile the conflicting approaches.

In another transaction, the Senior Specialist asked the appraiser to prepare a development
approach analysis estimating the value of a parcel of private land.  The appraiser provided the
Senior Specialist with an appraisal addendum that increased the estimated value of the
private land by 12 percent based exclusively on the development approach analysis.  We
found that the appraisal addendum did not reconcile the new, higher value estimate to the
lower comparable sales approach value the appraiser estimated in his original appraisal
report.  Moreover, we found that the appraiser's development approach analysis for the
property was not supported by site-specific engineering, marketing, and cost data, even
though the appraiser's original report stated that it would be inappropriate to use the
development approach without these data.

In one larger and more difficult transaction, the Senior Specialist recommended to BLM's
Utah State Director the higher of two appraised values to help acquire a parcel of land.  The
value recommended was 30 percent higher than the value estimated by the landowner's own
appraiser and was based on a questionable comparable sales analysis, which concluded that
the highest and best use of the land was a mixture of commercial, business or industrial use,
but which did not use any comparable sales with a similar highest and best use.  Instead, the
appraiser used residential properties as comparable sales and increased his estimate of value
by 20 percent to compensate for the use of noncomparable sales. 

The Senior Specialist's approach to the appraisal reviews was not consistent with
professional and federal appraisal standards, which emphasize the necessity of independence
and objectivity.  We believe that by allowing the Senior Specialist to directly involve
landowners in appraisal reviews, BLM compromised the independence and objectivity of the
appraisal process as a meaningful quality control function to protect the integrity of the land
acquisition process.

In commenting on a preliminary draft of this report, BLM stated that the Senior Specialist's
appraisal review approach complied with the Federal Land Exchange Facilitation Act, which
was enacted to facilitate and expedite land exchanges and which "envisioned a cooperative
approach in completing land exchanges."  In passing this legislation, however, Congress
authorized and directed BLM to use a two-pronged approach which clearly identifies and
separates the appraisal process from the process of resolving disputes over appraised values. 
First, BLM was directed to issue land exchange regulations ensuring that all lands were
appraised in conformance with nationally recognized appraisal standards (USPAP and
UASFLA).  Second, BLM and the landowner can seek arbitration or some other mutually
agreed on process, if they do not agree on the appraised value of the land.  

We found, however, that despite disagreements over appraised values, none of the
transactions that we reviewed involved arbitration or formal bargaining.  We believe that the
Senior Specialist, in seeking to encourage landowner participation in the appraisal process to
help accomplish BLM's land acquisition objectives, combined valuation, negotiation, and
arbitration of disputes under a single alternative approach.  We note that in his article, the
Senior Specialist, in describing his alternative approach, stated: "Others may feel that the
appraisal review process has been compromised and that it has been merged into the
negotiation process.  Without adequate management controls, the wall preventing fraud,
waste, and abuse will have been weakened."  In our opinion, this "wall" was indeed
weakened in BLM's Utah land exchanges. 

Appraisal Reviews Did Not Meet Standards

The appraisal reviews performed by the Senior Specialist did not provide assurance that
appraisals met professional and federal appraisal standards or that BLM acquired and
exchanged land based on fair market value.  Professional standards require that the review
appraiser express opinions on the completeness and adequacy of the appraisal.  Without these
opinions, users of the review reports do not have assurance that (1) appraisals were complete;
(2) appraisal data were adequate and relevant and adjustments appropriate; (3) appraisal
methods and techniques were appropriate; and (4) analyses, opinions, and conclusions were
appropriate.  The standards also require the review appraiser to certify that his or her review
meets appraisal review standards and that the reviewer is independent and unbiased.
We found that five of the eight reports we reviewed did not include one or more of the
required opinions and four of the five did not include any of the required opinions.  We also
found that the appraisal review certification requirements were not met.  For example:

In one transaction, the appraisal review report did not express any opinions or include the
required certifications.  As a result, there was no assurance that the appraised values
represented fair market value or that the appraisal review complied with appraisal standards. 
In this case, we noted that the Senior Specialist recommended the use of unsupported values
"to expedite the land exchange and eliminate the need for a second appraisal report."
       
In another transaction, the appraisal review report did not express any opinions or include all
of the required certifications.  The Senior Specialist did not explain or support the values he
established for four of the five parcels involved, despite the existence of three separate
appraisals.
       
We noted that required certifications concerning the scope and quality of the appraisal
reviews were omitted or were so significantly different from language suggested by the
appraisal standards that we could not determine what assurance the Senior Specialist
intended.  The USPAP certification statements most often omitted or revised were those
which would have assured users of the appraisal review report that the review appraiser (1)
used and reported accurate facts and data, (2) expressed opinions and conclusions that were
the result of unbiased professional analyses, and (3) developed analyses, opinions, and
conclusions and prepared the review report in conformity with USPAP.  

The lack of the opinion statements and certifications, by themselves, might be considered
nothing more than a technical violation of appraisal standards.  Our concern, however, is that
these omissions occurred in cases where we also found that appraised values were not
adequately supported and that the appraisal process had not been separate from price
negotiations.  The combination of these factors, in our opinion, undermined public
confidence in the appraisal process and raised questions as to whether the appraisal process
resulted in estimates of fair market value.

Opportunities to Improve the Land Valuation Process

To protect the integrity of its appraisal process and preclude the appearance of conflict of
interest or wrongdoing, we believe BLM should obtain a thorough and objective review of its
appraisal organization, policies, and procedures, including the alternative approach
implemented in Washington County.  The appraisal process is the key control for ensuring
that BLM exchanges and acquires land based on fair market value as required by laws and
regulations.  For this control to be effective, however, appraisers performing appraisals and
reviews for BLM must be independent, objective, and free of agency influence.  In this
regard, we looked at problems in the USFS's Nevada land exchange program identified by
the U.S. Department of Agriculture's Office of Inspector General.  Problems included
overvaluing land by relying on appraised values that were not supported by credible evidence
and appraisals that did not meet federal appraisal standards.  

Among the corrective actions taken by USFS was the award of a contract to The Appraisal
Foundation to independently review USFS appraisal policies, procedures, staff, and
organization and recommend the actions needed to constitute a first-class appraisal system,
including procedures to (1) protect the integrity of the appraisal process; (2) hold appraisers
accountable for conforming with federal and agency appraisal standards, (3) establish
controls precluding management interference with the valuation system through
inappropriate direction, (4) ensure the separation of negotiations and the appraisal process to
reinforce the accountability provided to the public and management by the appraisal process,
and (5) require full documentation of data considered in the appraisal process.  
Appraisal Foundation's report concluded that USFS appraisal policies and procedures were
generally sound, but included recommendations for additional safeguards in the appraisal
review process, improving the efficiency of appraisal operations, and ensuring appraiser
independence.  Appraisal Foundation particularly emphasized the critical importance of
independence and objectivity in the appraiser's role.  The report stated:

Without independence and objectivity the appraiser does not serve the client or society.  In all
phases of the appraisal profession the appraisal provides a test of the validity of the proposed
transaction, or an objective opinion of the value of the transaction.  In this role the appraiser
protects the interest of the parties who have some interest in the transaction but are not
directly involved.

The appraiser's role is not to assist the Forest [USFS] in acquiring, exchanging, transferring,
or renting real estate, nor is it to obstruct these transactions.  The appraiser's role is to ensure
that appraisals used in the decision making process are reasonable, adequately supported and
comply with the Forest Service Policy, the UASFLA and the USPAP.  In order to accomplish
this, the appraiser must remain independent.

To preclude attempts by parties with vested interests in transactions to influence appraisers,
The Appraisal Foundation recommended that USFS institute a policy for all staff personnel
against influencing or attempting to influence any staff or contract appraiser or reviewer. 
Appraisal Foundation also noted that the current organizational structure of USFS placed line
officers in a position to influence or overrule an appraiser's professional opinion, a situation
which could limit an appraiser's ability to independently fulfill his or her role.  For this
reason, Appraisal Foundation recommended that USFS establish an organizational structure
in which all staff appraisers are directly supervised by Regional Appraisers, who in turn are
directly supervised by the USFS Chief Appraiser.  We noted that BLM's organization
structure was similar to that of USFS in that BLM appraisal staff report directly to line
managers. 

The Appraisal Foundation also stated that when an agency targets a property for acquisition
and the owner is aware that the agency wants to obtain that specific property, the owner may
ask for a price higher than fair market value.  The Appraisal Foundation further stated that if
the agency is to pay more than fair market value for a property, the agency must document
that "premium," based on the agency's need for the property and "not through alterations to
the appraisal process.  The appraiser should not justify a purchase price based upon 'public
interest value' disguised as 'fair market value.'"

Additional recommendations made by The Appraisal Foundation to ensure the independence
and objectivity of appraisers and reviewers and the preparation of unbiased appraisal reports
included (1) ensuring that land was always appraised by either a qualified staff appraiser or
an appraiser selected by and directly under contract to the agency; (2) retaining the current
policy, as stated in UASFLA, requiring all appraisals for public land acquisitions to be
prepared based on "fair market value," and (3) preparing detailed documentation of the
appraisal review process from the initial submission of an appraisal report to its approval,
disapproval, or rejection.




Recommendations

We recommend that the Director, BLM:

1.  Obtain a peer review from The Appraisal Foundation of BLM's appraisal organization,
policies, and procedures, including an evaluation of the alternative approach implemented in
Washington County, Utah.  The review should recommend any changes needed to (a) protect
the integrity of the appraisal process, (b) ensure the accountability of appraisers in
conformance with professional and federal  appraisal standards, (c) establish controls to
prevent managers from interfering with the appraisal process through inappropriate direction,
(d) separate negotiations from the appraisal process, (e) ensure that landowner involvement
does not compromise the appraisal process, and (f) ensure the conduct of appraisals and
appraisal reviews in conformance with data, documentation, and reporting standards of
federal and professional appraisal standards.

2.  Implement the changes recommended by the peer review to ensure that BLM has a first-
class appraisal system that protects the integrity and independence of the appraisal process.

Agency Response and Office of Inspector General Reply

In the June 6, 2001, response to the draft report (Appendix 3), the Acting Assistant Secretary
concurred with the report's two recommendations.  The Acting Assistant Secretary stated that
BLM would involve The Appraisal Foundation in conducting a review of BLM's appraisal
organization, policies, and procedures, including the appraisal review approach BLM used in
Washington County, Utah. The review is to be initiated by contract with an anticipated
delivery of The Appraisal Foundation's final report by June 2002.  BLM also would
implement the changes recommended by The Appraisal Foundation that protect the integrity
and objectivity of the appraisal process and ensure accountability with professional and
federal appraisal standards.  Changes are to be implemented by BLM Instruction
Memorandum and updates of BLM's Appraisal Manual and Land Exchange Handbook by
October 2002.  The responsible official is the Bureau of Land Management's Assistant
Director, Minerals, Realty and Resource Protection.  The Acting Assistant Secretary also
stated that BLM believes the Senior Specialist for Appraisal acted within his discretionary
authority and that the appraisal process was appropriately used to facilitate agreements of
value with property owners.  BLM also has taken numerous steps to improve the appraisal
function and will continue to emphasize compliance with applicable laws and regulations.  

Accordingly, the Acting Assistant Secretary's response is sufficient to consider the two
recommendations resolved, but not implemented.  The two recommendations will be referred
to the Assistant Secretary for Policy, Management and Budget for tracking of implementation
(Appendix 4).  The Acting Assistant Secretary's response also made specific comments on
the draft report.  These comments and our reply are as follows:  

BLM Comment.  In its response, the Acting Assistant Secretary believed that references to
"fair market value" in the report were misleading, since BLM's land exchange regulations
(43 CFR 2200) define and use the term "market value" and provide the context in which
"market value" is considered by the appraiser and review appraiser.  The Acting Assistant
Secretary stated that the report should provide a clear distinction between BLM's
responsibility to provide an appraisal that represents an estimate of "market value," and "fair
market value," which is reflected in the amount BLM offers a property owner based on the
appraisal and other information considered by the authorized official within the bargaining
authority provided by 43 CFR 2201.4. 

OIG Reply.   The term "fair market value" is used in the report because it is defined by
professional and federal appraisal standards as the criteria to be used by appraisers to value
land.  This terminology also has been used by both GAO and The Appraisal Foundation in
their recent reports on BLM and USFS land exchanges and appraisals activities.  In addition,
the regulations cited by BLM (43 CFR 2200) relate only to land exchanges and would
therefore not be applicable in cases where appropriated funds were used to purchase private
land.  We did not change the terminology in the report and believe that the issue of
consistency in terminology and interpretation raised by BLM would be best addressed by The
Appraisal Foundation in its review of BLM's appraisal policies and procedures. 

Appendix 1 Scope and Methodology
                                
We concentrated our review on BLM's land exchanges and acquisitions in Washington
County, where the most significant land exchanges and acquisitions in Utah were occurring
and where BLM officials told us they were using a different approach to the appraisal review
process.  BLM officials identified 22 land exchange and acquisition case files administered
by the St. George Field Office between June 1, 1996 and June 30, 1999.  We reviewed 10
case files that resulted in BLM conveying about 1,169 acres of public land valued at
approximately $3.2 million and acquiring about 929 acres of land valued at approximately
$8.6 million.  Within these case files, we selected and analyzed eight appraisal review
reports to determine whether they complied with professional and federal appraisal standards
and supplemental BLM policies.

Our review was made in accordance with the "Government Auditing Standards," issued by
the Comptroller General of the United States.  Accordingly, we included such tests of records
and other auditing procedures that were considered necessary under the circumstances.  To
accomplish our review, we visited BLM's headquarters office in Washington, D.C.; its Utah
State Office in Salt Lake City, Utah; and its St. George Field Office in St. George, Utah.  We
reviewed case file documentation and discussed the exchanges and acquisitions with
responsible BLM officials.  We also visited the offices of two of BLM's contract appraisal
firms to obtain explanations and documentation in support of the appraisal reports BLM used
to complete exchanges or acquisitions.  In addition, we interviewed representatives of the
Utah School and Institutional Trust Lands Administration to obtain its perspectives on the
history of appraisal and valuation issues in Washington County.





Appendix 2 Prior Audit Coverage

BLM has not always appropriately valued the lands involved in exchanges.  We and the
General Accounting Office (GAO) have expressed serious concerns about the integrity of
BLM's appraisal process in recent reports.  Specifically, in 1996 and 1998, we reported that
BLM's practices in administering land exchange activities in Nevada did not ensure that land
was exchanged at fair market value.  In a June 2000 report, GAO identified similar concerns
about BLM's land exchange activities and concluded that BLM and USFS had not ensured
that land being exchanged was appropriately valued and stated that Congress might wish to
consider directing these agencies to discontinue their land exchange programs.  Summaries of
our audit reports are as follows.

In July 1996, we reported that BLM's Nevada State Office did not consistently follow
prescribed land exchange regulations or procedures or ensure that fair and equal value was
received in completing three exchanges.  In one exchange, for example, review appraisers
inappropriately increased the appraised value of private land by $1.2 million and decreased
the value of public land by $157,000.  A BLM Chief Appraiser from another state office
initially reviewed the contract appraisal and approved an appraised value of $1.5 million. 
The land exchange proponent complained that the value was too low, however, and a second
review was performed at the direction of the Nevada State Director, resulting in a
significantly higher approved appraised value of $2.7 million.  BLM acquired the land at the
higher value without reconciling the $1.2 million difference.  BLM could not support
overriding the value approved by the first review appraiser, and we questioned the propriety
of the second appraisal review and the use of its $2.7 million approved value.  We also found
that BLM's Nevada Chief Appraiser approved an appraised value for BLM's land that
inappropriately discounted the land's value by $157,000. 
       
In 1998, we performed a followup review of BLM's corrective actions, including work done
by a BLM technical review team, and identified significant continuing problems with BLM's
appraisal and valuation process in Nevada.  We found that BLM's Washington Office failed
to detect or report these problems in its technical review report.  In particular, BLM was still
not adhering to applicable laws, regulations, and BLM policies and procedures and was not
documenting significant deviations from procedural requirements that adversely affected land
valuations.  We found that in two separate exchanges, BLM accepted appraisals that were not
performed in compliance with appraisal standards, resulting in a $12.3 million loss because
the land acquired by BLM was overvalued.
       
As part of our 1998 followup review, we evaluated BLM's processing of the Del Webb land
exchange and found that BLM's Washington Office overrode procedural safeguards
ensuring the appraisal of public land in accordance with federal appraisal standards.  We
were particularly concerned that the Washington Office allowed the landowner to select both
the appraiser and the review appraiser to estimate the value of public land, removed BLM's
Nevada State Chief Appraiser to appease the landowner, and accepted the appraised value of
$43 million even though the appraisal did not comply with federal appraisal standards.  After
we announced plans to review the exchange, BLM contracted for a second appraisal, which
complied with federal appraisal standards and valued the public land at $52.1 million.  Had
BLM consummated the exchange using the appraisal initially accepted by BLM's
Washington Office, the public land would have been undervalued by more than $9 million. 

As a result of our concerns, we recommended that BLM (1) identify its land exchange
program as a material weakness at the Departmental level; (2) establish a land exchange
review team that included non-BLM members and appraisal experts to provide independent
and expert advice and oversight on all significant exchanges; and (3) place a moratorium on
land exchanges in the State of Nevada pending establishing the independent land exchange
review team.  We also recommended that BLM ensure that its appraisals complied with
federal appraisal standards and revise its land exchange handbook and other BLM guidance
for consistency with established law and regulations.  

In June 2000, GAO reported that BLM and USFS had given more than fair market value for
land they acquired and received less than fair market value for public land they conveyed
because the appraisals used to estimate land values did not always meet federal standards. 
GAO noted that BLM and USFS had taken steps to increase management oversight of land
exchanges, which, if properly implemented, should improve how the exchange programs
were conducted.  GAO also noted, however, that while handbook revisions and enhanced
training  clarified land exchange policies and procedures, they did not ensure that revisions
were appropriate or followed.  On the basis of this and other fundamental issues, GAO
referred the matter for Congressional consideration with a suggestion that Congress consider
directing both agencies to discontinue their land exchange programs.

Appendix 3 Agency Response
 
Appendix 4 Status of Audit Recommendations