An Audit Report on the General Land Office's Administration of Real Estate Transactions
Report Number 16-018
The General Land Office (Office) has established processes and controls over its administration of real estate transactions; however, it could not provide documentation to show that it consistently complied with the Texas Natural Resources Code and its own internal procedures when it administered real estate transactions from September 2009 to May 2015.
Auditors tested two categories of real estate transactions during this audit, including:
- Land and commercial property dispositions, trades, coinvestments, and acquisitions that the Office made for the internal portfolio of the Permanent School Fund.
- The Office's sales of state real property for state agencies.
The issues in this report are presented according to those two categories of transactions.
Real Estate Transactions for the Permanent School Fund
Conflicts of Interest. The Office's code of ethics for Permanent School Fund portfolio management complied with requirements in the Texas Natural Resources Code and the Texas Government Code. However, the Office did not develop a process to identify potential conflicts of interest using the conflict of interest, financial disclosure, and ethics compliance forms its code of ethics requires School Land Board (board) members and key employees to complete.
Auditors identified one instance in which the former chief clerk did not disclose a conflict of interest related to a fiscal year 2011 coinvestment; the Permanent School Fund invested $6 million in that coinvestment and approved an additional $27 million for that coinvestment. The Office also could not provide evidence that the former chief clerk complied with a requirement in the Texas Natural Resources Code to report conflicts of interest to the board in writing. While the Office's chief clerk can perform the duties of the Office's commissioner, the Office did not require the chief clerk to complete conflict of interest, financial disclosure, and ethics compliance forms.
Although not required to do so, the current chief clerk submitted a financial disclosure form to the Texas Ethics Commission when the commissioner appointed that individual to the position of chief clerk.
In addition, the Office did not consistently enforce certain requirements in its code of ethics for board members and key employees to complete conflict of interest, financial disclosure, and ethics compliance forms.
Written Procedures and Maintaining Documentation. The Office had procedures for administering real estate transactions for the Permanent School Fund, and it complied with statute and its own internal procedures when it made real estate acquisitions for the Permanent School Fund. However, it did not sufficiently document certain procedures related to other types of real estate transactions. In addition, the Office could not provide certain documentation related to Permanent School Fund real estate transactions; for example, it could not provide documentation showing that it complied with Texas Natural Resources Code requirements to communicate certain information regarding real estate transactions to the Legislature and the Legislative Budget Board.
The Office substantially complied with its procedures for performing due diligence for Permanent School Fund real estate transactions and obtaining board approval. However, it did not consistently maintain documentation of the required reviews of those transactions prior to making investment recommendations to the board. In addition, some of the appraisals the Office used to determine market value were not current at the time the board approved the real estate transactions, as required by the Office’s procedures, and the Office did not document why it used appraisals that were not current.
Sales of State Real Property for State Agencies
Compliance with Statutory and Procedural Requirements. In accordance with its procedures, the Office reviewed all state real property sales contracts tested prior to the commissioner executing them. However, the Office did not comply with the Texas Natural Resources Code when it sold three state real properties for a total of $19,000 less than appraised values. In addition, for three state real property sales tested, the Office did not comply with its procedures to use current appraisals to determine the market value of state real property.
In addition, for nine state real property sales tested, the Office could not provide evidence that it complied with statutory requirements to communicate to the state senators and state representatives in whose districts the properties were located that the properties were for sale. For seven of those properties, the Office also could not provide evidence that it complied with Texas Natural Resources Code requirements to advertise the sale of the properties.
Auditors communicated other, less significant issues related to the Office’s administration of real estate transactions to Office management separately in writing.
Download the Acrobat version of this report. (.pdf)