Audit finds deficiencies in Arizona Department of Real Estate’s operations

The Office of the Auditor General recently released an audit of the Arizona Department of Real Estate. (Photo by Emily Achondo/Cronkite News)

A state audit of the Arizona Department of Real Estate revealed it overcharged customers, and the report also highlighted deficiencies in the department’s cash collection and reporting processes.

The Office of the Auditor General reviewed the department’s internal controls between March 2014 and February 2015. It released its findings on its website this month.

“These are very routine reviews,” said Kathleen Wood, financial audit manager at the auditor general’s office. “We do them periodically with various state agencies.”

The Department of Real Estate oversees real estate educators, brokers and licensees’ activities, while regulating the sale of certain real estate, among other duties. It received $3.9 million in revenue between March 2014 and February 2015, according to its website.

The audit revealed the department didn’t charge fees according to state statutes, and that it didn’t always follow the state’s requirements specifying how state agencies receive, record and reconcile daily cash receipts.

For example, a state law requires that “the department charge $250 for applications to amend public disclosure reports for unsubdivided land,” according to the audit. However, between July 2010 and July 2014, the department charged $500 for those applications, receiving $2,750 more for the applications than it should have. Department officials adjusted the fees in July 2014.

In another instance, the department charged $10 less than the $60 minimum required by state law for certain real estate license renewals between November 2012 and December 2014. The audit noted that the department could have received $7,400 more had it charged the appropriate $60 per license renewal.

In a response memo, Department of Real Estate Commissioner Judy Lowe cited the economic downturn’s turbulent conditions as the reason behind lowering the fees.

“I think (the Department of Real Estate) actually do a pretty darn good job,” said Rep. Mark Finchem, R-Oro Valley, and an associate broker with Long Realty. “I’m not a fan of regulation, but I do recognize that there are certain industries that need to be watched.”

The audit also showed that the department didn’t log all of its mailed cash receipts, rendering it unable to reconcile all of them. Additionally, customers’ receipts were updated without independent reviews.

Other issues arose from the department’s IT system. It wasn’t designed to issue receipts to every customer and maintain those receipts, according to the audit.

Lowe acknowledged the recommendations and made changes to the department’s operations, according to the response memo.

“We don’t have any legal enforcement … but we do follow up on findings if we’re doing a performance audit report,” Wood said. “This is a procedure review, so we likely will not follow up until we do another procedure review.”

Officials revised its receipt logging and conducted a formalized review process for examining and updating fees to reflect state laws.

“The (department) strives to constantly improve all of its processes and operations to ensure all customers are served efficiently, accurately, and with professionalism,” she said in the memo.