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Certification of Market Values STEB PROGRAM
Briefing Points2011
Pennsylvania Department of the Auditor GeneralThomas E. Marks, CPA
Deputy Auditor General for Audits
Overview Market Values determined and certified by STEB must
be accurate.
These calculated total market values become part of various legislative formulas used by the Department of Education and other Commonwealth agencies to determine the allocation of state subsidy payments to aid school districts and municipalities throughout Pennsylvania.
Auditors found 65% or 45 of 70 municipalities tested had inaccurate 2008 revised market values.
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Background Essentially, STEB is responsible for ensuring the
consistent measurement of real property values of local governments; it does this by annually determining the market values of real property at the county, school district, and municipal levels. While assessments of taxable real property vary among counties, with some counties having an assessment dated prior to 1986 or more than 25 years ago, STEB’s annual market value calculations are an attempt to reflect the current market value of real property in counties, school districts, and municipalities.
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Background (Cont) Because taxable real property is the main source of
revenue for most counties, school districts and municipalities, market values (the price at which real property is sold) serve as an indicator of which school districts in Pennsylvania have the greatest need for supplemental state aid. In addition to state agencies using STEB calculations, certain municipalities also use STEB’s converted market values to develop local real estate millage.
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Programs Using MV Calculations for Subsidies/Payments
Agency: Department of Education (PDE)
Program Name:
Basic Education Funding…………….. ………$ 5.7 billion Special Education Funding……………………$ 1.0 billion 9 additional PDE program funding……………$ 2.5 billion
Source: PDE
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Timeline of Market Value Report
STEB releases original 2008 market value report on June 30, 2009.
A number of complaints are made by School Districts of inaccurate market values. On July 8-9, 2010, legislators request audit by the Auditor General.
Audit entrance conference held August 6, 2010.
STEB releases the revised 2008 market value report on August 17, 2010.
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Timeline of Market Value Report (cont)
On October 15, 2010, Auditor General informs STEB that 2008 revised market values remain inaccurate and to make corrections before releasing the 2009 report.
STEB releases 2009 market value report on November 19, 2010 without making any corrections.
STEB audit report was released on February 10, 2011.
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Examples of Market Value Errors Determined by Auditors
1. Market value calculations for 15 municipalities of 70 tested used incorrect sales ratios
When real property is sold in a municipality, STEB then determines the average sales ratio for use in STEB’s market value calculations. The sales ratio is a percentage relationship of the actual selling prices of properties to the recorded asset value of the properties as noted at the county courthouse. Once the average sales ratio is determined, STEB then applies the average sales ratio to all the total property types in the municipality. We found that STEB applied the incorrect sales ratios 19 times for 15 municipalities.
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Examples of Market Value Errors Determined by Auditors (Cont)
2. 21 municipalities of 70 tested noted property sales when properties did not exist, which resulted in inaccurate market values
STEB was deficient in calculating sales ratios for
properties sold in municipalities because such properties never actually existed in the municipalities to begin with. We found that STEB listed sales for property that did not exist in 21 municipalities, thus the market values calculated were incorrect.
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Examples of Market Value Errors Determined by Auditors (Cont)
3. Sales ratio worksheets for 19 municipalities of 70 tested contained multiple errors that contributed to incorrect market values
STEB used incorrect data when determining market values
(i.e. sales information was omitted, various totals did not add up, incorrect five-year averaging was used, etc.)
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Examples of Market Value Errors Determined by Auditors (Cont)
4. Market values for 6 municipalities of 70 tested could not be verified due to lack of documentation
STEB could not provide an explanation or support for the
market values reported. We found 6 instances where market values disclosed in final report could not be substantiated by STEB management.
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Computer Database is Unreliable Software Logic Errors
Incorrect ratios being usedSystem improperly using calculations and applying
the STEB rules
User Manipulation of Data Data fields were overridden Calculations were changed manually
Computer Security Concerns Lack of user-ID and passwords Inadequate transaction logs to track user computer
activity 12
Lack of Due Diligence & Lack of Controls
Computer System not adequately tested by STEB management No operation manual or documentation of the rules Inadequate training
Lack of quality assurance controls No verification of source data or whether formulas are correct No manual recalculation of market values on sample basis No detail review of the accuracy of various market value
worksheets No verification of the accuracy of real property sales information No review and approval of procedures performed by staff
entering data to computer system No supervisory oversight and monitoring
Lack of maintaining source documentationLack of written policies and standard operation procedures 13
Recommendations Immediately stop using the existing computer system and
either correct deficiencies or purchase new system.
Perform 100% review of 2008 revised market values and determine impact on 2009 report.
Implement a system of quality control for preparing and reviewing market value calculations.
Implement supervisory oversight and monitoring procedures.
Ensure computer users are properly trained.
Develop written policies and standard operation procedures.
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Questions & Answers
Department of the Auditor General
Thomas E. Marks, CPA
Deputy Auditor General for Audits
Office (717) 705-4126
Fax (717) 772-3691
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