Federal auditors question DMR land buys in South Mississippi

Report: Department appraised certain properties higher than county

klnelson@sunherald.comDecember 15, 2012 

BILOXI -- A preliminary report from a federal audit is questioning millions of dollars in land appraisals and purchases the state Department of Marine Resources made with offshore oil money.

It also slaps the DMR for allowing the director over the program to use the money to buy land from her parents.

The money is Coastal Impact Assistance Program funds that come in from oil companies to lessen the impact of offshore drilling to Coast communities.

It's issued to states through the federal government. And the DMR oversees the program for Mississippi with the aim of acquiring and conserving coastal property.

But when the agency that administers CIAP at the federal level changed more than a year ago, an audit was ordered so the U.S. Fish and Wildlife Service would know where the program stands as it goes forward.

It is the first round of this audit that questions DMR land buys and points out problems with appraisals, some of which set the value for property the DMR bought at more than 1,600 percent or 16 times higher than the county tax appraisals for the same property. There was one appraisal 25 times the county's value.

The report comes from the Office of Inspector General with the U.S. Department of the Interior and was obtained recently by the Sun Herald. It also says the DMR used CIAP money to buy property in Pascagoula that belonged to the parents of Tina Shumate, the director of the DMR's coastal management and planning office, which is over CIAP.

"This employee administers DMR's use of CIAP funds," the inspector general report states.

Calling this a potential conflict of interest, it also says the transaction was based on an appraisal that lacked adequate investigation and history of the property's value. And was not supported by verifiable data.

The property that belonged to Shumate's parents, Curt and Ann Hebert, is a large lot at the end of Fern Street on a bayou, near the Pascagoula River. The county valued it at $176,000 and the CIAP grant to purchase it was $245,000.

The auditor questioned most of the grant amount.

The report says "it is imperative" that appraisals and federally funded land acquisitions be based on market value and that sales between members of a family are not arm's-length transaction, because "they may involve other factors than market value considerations ..."

Bill Walker, head of the DMR, said Thursday the report is just part of a group of audit reports issued in early September. He called it a standard federal audit.

But since those federal findings, the State Auditor's Office began an investigation of its own. State auditors came to Walker's office at the Bolton Building in Biloxi last month, poring over and removing files, offering no details or reason for the action.

Gov. Phil Bryant instructed the DMR to cooperate.

Walker had no comment on the state audit.

But when asked about Shumate's purchase of her parent's property in the federal audit, he said, "I really don't want to talk about specific things like that. We're not supposed to be talking about it."

He said the DMR and Fish and Wildlife will formulate answers to the audit and that process isn't complete yet.

Shumate was unavailable for comment at her office Thursday and Friday and did not return calls.

High appraisals

In the audit findings, the federal government looked at 14 properties along the Coast that the DMR and four subgrantees were buying this year with CIAP money.

Auditors reviewed the appraisals and compared them with values Coast counties had for the properties on their tax rolls. Because of the large differences, the audit questions almost all of the expenditures -- $12.6 million of the $14 million granted.

The value of only one project went unquestioned, the Pascagoula Pointe.

On the other hand, a little more than an acre at the end of Hanover Drive in the Windsor Porte subdivision of St. Martin that was listed on the county tax rolls at a value of $183,400, according to the report, was appraised for $1.26 million.

The DMR appraisal was 587 percent higher than what the Jackson County Tax Assessor says it's worth.

The DMR used a $1.29 million CIAP grant to purchase the land.

The property had been a home site, but the structure was lost to Katrina. A developer bought it, bulkheaded it, back filled it several feet high, subdivided it and paved a portion. But the lots did not sell, neighbors said.

In Harrison County, seven acres DMR purchased in Pass Christian at the corner of U.S. 90 and Henderson Avenue (the site of a Winn-Dixie before Katrina), were on the county tax rolls for $595,000. The DMR appraisal came in 782 percent higher at $5.25 million.

In both counties, the Tax Assessor's Office said it stands by the value placed on the respective properties. They said they aim for at least 85 percent of the true value of a piece of property, as required by state law, and in both of those cases they met it.

Other properties on the list include:

n A piece called Old Fort Bayou that was appraised for $1.25 million, but was listed on the Jackson County tax rolls for $70,700. That appraisal was 1,669 percent higher, according to the report.

n Acreage in front of the Lynn Meadows Discovery Center that's on the tax rolls for $268,180 but was appraised for CIAP to buy at $1.22 million.

n A boat storage shed, 1.7 acres and a restaurant at Ocean Springs Harbor on the tax rolls at $1.32 million, but appraised for $4.05 million.

When looking at the parcels, the Office of Inspector General brought in an appraisal expert who explained that county tax assessor values can vary widely, but should have been included in the DMR appraisal information and addressed. None were.

In this case, the expert noted, "that the disparities we found are unusually large and therefore warrant an explanation..."

Specific criticism

There were so many errors, the report suggests that the firms that handled the 14 appraisals lacked experience with federal uniform appraisal standards or "did not read the appraisal standards carefully."

It identified 15 key requirements and best practices, from arms-length transactions to analyzing comparable sales.

"None of the CIAP appraisals fully met these criteria; each appraisal contained at least four deficiencies," it stated.

It pointed out that the DMR based its purchase of the Hanover Drive property in St. Martin and the Pass Christian beach front property on appraisals done for the sellers without procuring an appraisal of its own.

And, it said, there's no assurance the DMR hired the most competent individuals because it did not use competitive bidding. For example, the report states, it awarded the $75,000 contract to coordinate all aspects of the land buys to a Jackson area environmental and real estate consulting firm without getting another bid.

The report quotes a U.S. Supreme Court decision that says it's important that appraisals of this type are uniform and just because the public is paying for it.

It said, "Since the CIAP appraisals fall short of meeting required standards, the public has no assurance that it paid a fair price ... As a result, we question $12.6 million in unsupported costs."

Walker said Thursday that an Office of Inspector General auditor "suggested we might want to redo the appraisals.

"But this is preliminary and there will be a lot of going back and forth" before it's over, he said.

"We used the process the Minerals Management Service told us to use," Walker said. MMS and its sister agency, BOEMRE, handled CIAP funding before 2011.

Walker said the appraisals conducted under MMS were approved then. He said MMS and the Fish and Wildlife Service "use different kinds of audits."

Now that the Fish and Wildlife Service is handling CIAP, Walker said they'll do appraisals the way Fish and Wildlife wants them done.

Mississippi received $109 million in CIAP money from 2007 to 2010.

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