A Performance Audit of Mineral Royalty Agreements: An Examination of Mineral Production On The Great Salt Lake

Report No.
2024-03
A Performance Audit of
Mineral Royalty
Agreements
An Examination of Mineral Production on the
Great Salt Lake
Office of the Legislative

Auditor General
Report to the UTAH LEGISLATURE
Audit Subcommittee
President J. Stuart Adams, Co-Chair Speaker Mike Schultz, Co-Chair
President of the Senate Speaker of the House
Senator Evan J. Vickers Representative Jefferson Moss

Senate Majority Leader House Majority Leader
Senator Luz Escamilla Representative Angela Romero

Senate Minority Leader House Minority Leader
Audit Staff
Kade R. Minchey, Auditor General, CIA, CFE
Jesse Martinson, Manager, CIA
Nicole Luscher, Audit Supervisor
Jake Davis, Audit Staff
Spencer Hadley, Audit Staff
Office of the Legislative Auditor General
olag.utah.gov
Office of the Legislative
Auditor General
Kade R. Minchey, Legislative Auditor General
W315 House Building State Capitol Complex | Salt Lake City, UT 84114 | Phone: 801.538.1033
Audit Subcommittee of the Legislative Management Committee

President J. Stuart Adams, Co-Chair | Speaker Mike Schultz, Co-Chair
Senator Evan J. Vickers | Representative Jefferson Moss
Senator Luz Escamilla | Representative Angela Romero
June 18, 2024
TO: THE UTAH STATE LEGISLATURE
Transmitted herewith is our report:
“A Performance Audit of Mineral Royalty Agreements: An Examination of Mineral

Production on the Great Salt Lake” [Report #2024-03].
An audit summary is found at the front of the report. The scope and objectives of the audit
are included in the audit summary. In addition, each chapter has a corresponding chapter
summary found at its beginning.
This audit was requested by Representative Casey Snider.
Utah Code 13-12-15.3(2) requires the Office of the Legislative Auditor General to designate
an audited entity’s chief executive officer (CEO). Therefore, the designated CEO for the
Department of Natural Resources is Joel Ferry. Joel Ferry has been notified that he must
comply with the audit response and reporting requirements as outlined in this section of
Utah Code.
We will be happy to meet with appropriate legislative committees, individual legislators,

and other state officials to discuss any item contained in the report in order to facilitate the
implementation of the recommendations.
Sincerely,
Kade R. Minchey, CIA, CFE
Auditor General
[email protected]
AUDIT SUMMARY
REPORT 2024-03 | JUNE 2024
Office of the Legislative Auditor General | Kade R. Minchey, Auditor General
PERFORMANCE
AUDIT MINERAL ROYALTY AGREEMENTS
AUDIT REQUEST KEY FINDINGS
The Legislative Audit 1.1 Mineral extraction operators are paying different rates for the
Subcommi ee requested this same commodity.
audit to review the state’s
oversight of mineral extraction 1.6 The Division did not track and verify royalty reports or royalty
activities on the Great Salt payments resulting in incorrect payments and missing
Lake. This included a review documentation.
of all existing mineral royalty 1.7 Enforcement tools such as provisions in individual royalty
agreements, an assessment of agreements and Administrative Rule exist; however, there is
the state’s revenue from minimal evidence indicating that Division management exercised
mineral royalties, how these their authority to ensure compliance.
monies are being used, and an
evaluation of the state’s 2.1 The Division should make changes to further improve
oversight of extraction management of Great Salt Lake mineral leases.
activities on the lake. 2.2 The Division should track the percentage of appropriations
allocated to the Great Salt Lake.
BACKGROUND RECOMMENDATIONS
The Utah State Legislature has
designated the Division of 1.1 The Division should verify royalty calculations to ensure that
Forestry, Fire and State Lands they are receiving the full value of royalties on mineral
(Division or FFSL) as the commodities as specified in Administrative Rule.
executive authority for RECOMMENDATION:
1.7 The Division should develop robust policies
DTS should and
ensure procedures
it strives to reachfor
the
managing sovereign lands. performance metrics for critical incidents
the validation of Great Salt Lake mineral extraction operators’ self-
More specifically, FFSL is that heavily impact agencies’ business.
reported production totals, calculations (ensuring correct royalty
tasked with overseeing
rates are used), deductions, and associated royalty payments.
mineral extraction operations
on the Great Salt Lake. 1.8 The Division should review the use of its regulatory authority
Currently, seven mineral and document its strategy for ensuring compliance with statute,
extraction operators make Administrative Rule, and mineral royalty agreements.
royalty payments on five
2.1 The Division should conduct a thorough review of statute,
minerals, including sodium
Administrative Rule, and mineral lease agreements for the purpose
chloride, magnesium (pure
of creating wri en internal controls. The Division should regularly
and alloy), magnesium
monitor these controls to demonstrate improved oversight.
chloride, potassium sulfate,
Summary continues on back >>
and lithium carbonate.
Summary continues on back >>
AUDIT SUMMARY
CONTINUED
REPORT
SUMMARY
Management of Great Salt Lake The Division Can Improve Its
Mineral Royalty Agreements Needs Oversight and Contract Management
to Improve We identified areas of improvement with the
To determine parity and equal treatment of Division’s oversight and contract management
mineral extraction operators by the Division, we of its mineral extraction leases. The Division’s
conducted an analysis of all mineral royalty execution of its responsibilities will benefit from
agreements. We identified five factors that the implementation of policies and procedures
collectively demonstrate areas of improvement dictating oversight activities and compliance
that, when corrected, can strengthen the monitoring of mineral operator activity on
sovereign lands program. Areas of leased sovereign lands.
improvement include: The implementation of internal controls will
 Verifying royalty rate calculations reasonably assure the achievement of
management objectives, as well as Division and
 Defining allowable deductions operator compliance with statute, Administrative
 Specifying the point of valuation Rule, and the terms of mineral lease
agreements. Resources are available to improve
 Ensuring compliance the oversight and contract management of
 Tracking documentation mineral leases on the Great Salt Lake.
The Division Should Track the $30
Percentage of Appropriations $25

Allocated to the Great Salt Lake
$20
The Division should annually demonstrate
whether Great Salt Lake mineral extraction $15
revenues are appropriated and spent
Millions
according to statutory preference. In fiscal $10

year 2023, roughly one-third of Division
expenditures (33.5 percent) were spent on $5
items related to the Great Salt Lake. By

$-
tracking the apportionment of
appropriations dedicated to the Great Salt
Lake, the Division will be able to inform the Ending Fund Balance Total Revenues
Legislature regarding future appropriations.
Table of Contents
Introduction ...........................................................................................................i
Chapter 1 Management of Great Salt Lake
Mineral Royalty Agreements Needs to Impove.......................................................3
1.1 Additional Guidance Could Address Inequity
Among Mineral Extraction Operators.........................................................................................3
1.2 Division Management Should Review Its Use of Regulatory Authority to Ensure
Compliance with Administrative Rule and Mineral Royalty Agreements .. ..............................13
Chapter 2 The Division of Forestry, Fire and State Lands Can
Improve Its Oversight and Contract Management................................................19
2.1 The Division Can Make Changes to Further Improve
Management of Great Salt Lake Mineral Leases .......................................................................19
2.2 The Division Should Track the Percentage of
Appropriations Allocated to the Great Salt Lake .......................................................................24
Complete List of Audit Recommendations ...........................................................29
Agency Response Plan ......................................................................................... 33
Introduction
The Great Salt Lake is an important asset of the state of Utah and its citizens. The Great
Salt Lake is the largest of the state’s eight sovereign land areas.1 The Division of
Forestry, Fire and State Lands (Division or FFSL) has a statutory charge to oversee the
sovereign lands of the state.
Audits are designed for continual improvement and this report focuses on areas that
can be further improved. It is important to acknowledge recent improvements that the
state has undertaken to bolster and strengthen the oversight of this resource.
Division leadership has shown a commitment to improve by supporting this audit and
prioritizing the management of sovereign lands. The following text boxes represent the
joint efforts of the Legislature and the Division to improve the oversight and
management of the Great Salt Lake.
Promotion of Public Awareness

In 2022, legislative leadership hosted multiple Great Salt Lake
Summits to promote public awareness of the challenges facing the
Great Salt Lake.
Funding Support
Revenues generated from Great Salt Lake mineral operations
should be used for the direct benefit of the Great Salt Lake, as
designated by the Legislature.
Creation of a Great Salt Lake Commissioner

The Legislature appointed a Great Salt Lake Commissioner
during the 2023 General Session to plan for the long-term health
of the Great Salt Lake and to facilitate the coordination of policy
related to the lake.
1Utah Code 65A1-1(6): “Sovereign lands” means those lands lying below the ordinary high-water mark
of navigable bodies of water at the date of statehood and owned by the state by virtue of its sovereignty.
Office of the Legislative Auditor General i

Prioritization of Sovereign Lands Management
FFSL reports the elevation of the Sovereign Lands Program
Manager to a Deputy Director position that prioritizes issues related
to these lands.
Staff Support
The Division requested and the Legislature funded a Minerals
Landman position that will specialize in mineral development and
the economics of mineral leasing. Additionally, this position will
ensure that mineral extraction operators are compliant with the
terms of their royalty and lease agreements.
ii Mineral Royalty Agreements

CHAPTER 1 Summary
Management of Great Salt Lake Mineral
Royalty Agreements Needs to Improve
BACKGROUND
The Division of Forestry, Fire and State Lands is tasked with overseeing mineral extraction operations on
the Great Salt Lake, which includes collecting royalties on minerals that have been mined from the brines of
the lake. We found that some mineral extraction operators have not been making correct royalty payments
and that Division oversight can improve.
FINDING 1.1
Mineral extraction operators do not RECOMMENDATION 1.1
always follow Administrative Rule The Division of Forestry, Fire and State Lands
or royalty rate calculations as should verify royalty calculations to ensure that
outlined in mineral royalty the Division is receiving the full value of royalties
agreements, resulting in operators on mineral commodities as specified in
paying different rates for the same Administrative Rule.
commodity.
RECOMMENDATION 1.2
FINDING 1.2
The most recent DNR internal audit The Division of Forestry, Fire and State Lands
was completed seven years ago. As should review and implement recommendations
such, our audit team conducted a from previous internal audit reports.
financial analysis of all royalty
agreements. After thirteen years, our RECOMMENDATION 1.3
findings largely match what was The Legislature should consider inviting the
previously found in DNR’s internal Division of Forestry, Fire and State Lands to
audit reports. Additionally, internal report back to the Natural Resources, Agriculture,
audit reports addressed items that we and Environment Interim Committee on the
did not examine.
progress of the audit findings in May 2025.
FINDING 1.3
The Division has not adequately RECOMMENDATION 1.4
defined or regulated allowable The Division of Forestry, Fire and State Lands
deductions, creating inconsistencies should clearly define and validate allowable
in the timing, type, and number of deductions.
deductions applied.
1
FINDING 1.4
The Division has not specified the RECOMMENDATION 1.5
point of valuation for royalty
The Division of Forestry, Fire and State Lands
calculations. Consequently, mineral
should clearly define the point of valuation for
extraction operators are applying
royalty calculations.
royalty calculations at various points
throughout the mineral development
process.
FINDING 1.5 RECOMMENDATION 1.6

The Division should have followed The Division of Forestry, Fire and State Lands
Administrative Rule while should follow existing Administrative Rule or update
renegotiating a recent royalty Administrative Rule to better align with Division
agreement for sodium chloride. actions and practices.
RECOMMENDATION 1.7
FINDING 1.6
should develop robust policies and procedures for
The Division did not track and verify
the validation of Great Salt Lake mineral extraction
royalty reports or royalty payments,
operators’ self-reported production totals,
resulting in incorrect payments and
calculations (ensuring correct royalty rates are
missing documentation.
used), deductions, and associated royalty
payments.
FINDING 1.7 RECOMMENDATION 1.8

Enforcement tools such as provisions The Division of Forestry, Fire and State Lands
in individual royalty agreements and
should review the use of its regulatory authority
Administrative Rule exist; however,
and document its strategy for ensuring compliance
there is minimal evidence indicating
with statute, Administrative Rule, and mineral
that Division management exercised
their authority to ensure compliance. royalty agreements.
CONCLUSION
We found that mineral extraction operators have not complied with royalty calculations as outlined in
Administrative Rule and corresponding mineral royalty agreements. Furthermore, we found the need for
improved oversight and enforcement by the Division.
2
Chapter 1
Management of Great Salt Lake Mineral Royalty
Agreements Needs to Improve
The Utah State Legislature has designated the Division of Forestry, Fire and State
Lands (Division or FFSL) as the executive authority for managing sovereign
lands. More specifically, FFSL is tasked with overseeing mineral extraction
operations on the Great Salt Lake, which include collecting royalties on minerals
mined from the brines of the lake. Currently, seven mineral extraction operators
make royalty payments on five minerals, including sodium chloride, magnesium
(pure and alloy), magnesium chloride, potassium sulfate, and lithium carbonate.
We found that some mineral extraction operators have not been making correct
royalty payments and that Division oversight can improve.
1.1 Additional Guidance Could Address Inequity Among

Mineral Extraction Operators
To determine parity and equal treatment of mineral extraction operators by the
state, we conducted an analysis of all royalty agreements. In this section, we
focus on inequities among mineral extraction operators that resulted in improper
compensation for the use of the resource. The following text boxes summarize
our findings; each identifies a problem area directly tied to millions of dollars in
royalties that will be discussed in more detail later in this section.
Royalty Rate Calculations
Mineral extraction operators do not always follow Administrative

Rule or royalty rate calculations as outlined in mineral royalty
agreements, resulting in operators paying different rates for the
same commodity.
Allowable Deductions
The Division has not adequately defined or regulated allowable

deductions, creating inconsistencies in the timing, type, and number
of deductions applied.
Office of the Legislative Auditor General 3

Point of Valuation
The Division has not specified the point of valuation for royalty
calculations. Consequently, mineral extraction operators are
applying royalty calculations at various points throughout the
mineral development process.
Administrative Rule
The Division should have followed Administrative Rule when

renegotiating the terms of a recent royalty agreement.
Record Keeping
The Division did not track and verify royalty reports or royalty
payments, resulting in incorrect payments and missing
documentation.
When reviewed together, these factors collectively demonstrate areas of

improvement that, when corrected, can strengthen the sovereign lands program.
The remainder of this section discusses the detailed impacts of each of these
problem areas and gives recommendations to better assist the Division in
identifying and addressing specific weaknesses.
Internal DNR Audits Have Identified Weaknesses

Associated with Royalty Payments for Many Years
The Department of Natural Resources’ (DNR’s) internal audit function
conducted six internal audits of mineral extraction operators over a ten-year
period between 2007 and 2017. Collectively, these audit reports set forth sixty-
one recommendations, thirty-two of which specifically address problems with
royalty calculations and the ensuring of correct royalty payments. For more than
a decade, the Division has been made aware of specific concerns with mineral
royalty calculations and correct royalty payments regarding
minerals that have been mined from the brines of the Great In recent years,
the Legislature and
Salt Lake. In recent years, the Legislature and the Division the Division have
have sought to be more involved in the oversight of the Great sought to be more
Salt Lake. As an example, this audit was prioritized by the involved in the
oversight of the
Legislature and supported by the Division in a joint effort to Great Salt Lake.
improve the oversight and accountability of mineral extraction
operations on the lake.
4 Mineral Royalty Agreements

Mineral Extraction Operators Have a Shared Responsibility for Compliance.
Mineral extraction operators need to be held accountable to statute,
Administrative Rule, and the provisions of their royalty and/or lease agreements.
While the Division is tasked with oversight and management of the minerals
program, the responsibility of compliance also falls to individual operators. For
example, operators are expected to operate in good faith and to “…perform the
terms and provisions required to be performed… including payment of royalties
within the times [and amounts] required herein.”
Mineral extraction operators are responsible to follow statute, Administrative

Rule, and all provisions contained within their royalty agreements. Paying an
incorrect royalty should be considered a violation of the supporting statute, rule,
or agreement. Similarly, the Division has statutory
When applied
authority to examine records and inspect premises for
correctly, this the purpose of determining compliance with any rule,
shared performance, or payment obligation under a lease,
responsibility
model should
permit, or contract. When applied correctly, this
properly balance shared responsibility model should properly balance
economic activity economic activity with regulatory duty. We recognize
with regulatory
duty. the responsibility and due diligence of operators to
abide by certain standards in conjunction with the
Division’s responsibility of regulating compliance.
Current Division Leadership Is Open to Improvement. Opportunities for

Additional Programmatic Improvements Remain. For example, in
Administrative Rule,2 the sodium chloride (salt) royalty rate is based on the
producer price index for industrial commodities allowing the rate to adjust with
the market when calculated correctly. Figure 1.1 shows that operators are paying
different royalty rates for the same commodity, demonstrating the need for
further improvement.
2 Administrative Rule R652-20-1000(2)(e).

Figure 1.1 Mineral Extraction Operators Are Paying Varying Royalty Rates on
Sodium Chloride, Resulting in Significant Deficits to the State. Increased Division
oversight combined with operator compliance would result in a more consistent application of
the sodium chloride calculation, as outlined in Administrative Rule. Over the past five years,
there has been nearly $832,000 in deficits to the state.
Source: Auditor generated using data from mineral extraction operators' royalty reports.
*Two royalty agreements define the sodium chloride calculation differently than what is set forth in
Administrative Rule; however, there are also errors within these calculations that leave the state at a
collective five-year deficit of about $625,000.
This figure shows that mineral extraction operators are paying varying rates for
the same commodity. Administrative Rule3 states that “The Division is obligated to
receive full value for the resources leased to persons of profit.” The varying
sodium chloride rates in Figure 1.1 represent an annual deficit of about $170,000
to the state.4 While these revenue losses may not have immediate short-term
impacts, they may have long-term cumulative impacts. For instance, the budget
for the Sovereign Lands Management Program in fiscal year 2023 was $1.3
3Administrative Rule R652-20-1000(1).

4Depending on how the calculation is structured, market inflation may result in higher sodium
chloride royalty rates causing the deficit to shrink over time. However, the primary issue of
compliance remains since we found operators that were not adjusting the royalty rate according
to market trends and operators that were not following required calculation parameters.

million. If royalties were accurately paid (from two commodities 5) additional
funding could have been available pending the approval of the Legislature.
RECOMMENDATION 1.1
The Division of Forestry, Fire and State Lands should verify royalty calculations to
ensure that the Division is receiving the full value of royalties on mineral
commodities as specified in Administrative Rule.
Previous Internal Audit Recommendations Have Not Been Fully

Implemented. Because the most recent internal audit of mineral extraction
operators was completed seven years ago in March 2017, our audit team
conducted a financial analysis of all royalty payments for the past five years. Our
findings largely match what was previously found in DNR’s
internal audit reports: problems with royalty rate calculations, Prior Division
management
royalty payments, data documentation/submission, and wrote formal
Division oversight. Not only was prior Division management responses directly
made aware of previous internal audit recommendations, but addressing how
previous internal
they wrote formal responses that directly addressed how audit
implementation would occur. Unfortunately, implementation recommendations
did not fully occur. Lastly, previous internal audit reports also would be
implemented.
addressed additional items that we did not examine. For this
reason, we recommend that Division management review and implement the
recommendations made in previous internal audit reports.
We are encouraged that current Division management support this audit and
welcome our findings and associated
Current Division recommendations. Division management has
management has
expressed their commitment to improve and bolster
expressed their
commitment to oversight. For example, current Division management
improve and have started implementing previous internal audit
bolster oversight.
recommendations. As a control to ensure that the
audit recommendations in this report are
implemented, we recommend that the Legislature consider inviting the Division
to report back to the Natural Resources, Agriculture, and Environment Interim
Committee on the progress of the audit findings in May of 2025.
5We found another example of a mineral extraction operator that has not been using the correct
spot price for magnesium in the royalty rate calculation for magnesium chloride.

RECOMMENDATION 1.2
The Division of Forestry, Fire and State Lands should review and implement
recommendations from previous internal audit reports.
RECOMMENDATION 1.3
The Legislature should consider inviting the Division of Forestry, Fire and State
Lands to report back to the Natural Resources, Agriculture, and Environment
Interim Committee on the progress of the audit findings in May 2025.
The Division Should Clarify Rules That Have Led

To Inequity Among Mineral Extraction Operators
Administrative Rule6 allows mineral extraction operators to Clear guidance and
deduct “amounts expended for bags, boxes, receptacles, or consistent
oversight could
other costs directly related to or necessary in the shipping of
contribute to
any product.” However, the Division has historically not increased equity
provided clear guidance or consistent oversight, thereby among mineral
extraction
contributing to inequity among mineral extraction operators
operators.
in the timing, type, and number of deductions applied.
An internal audit conducted in 2011 raised the question of whether storage

and/or duty expense deductions (import tax) qualified as allowable deductions.
Although the audit subjectively concluded that these two deductions could be
counted as allowable deductions, neither are defined in Administrative Rule. After
the audit, prior Division leadership did not provide adequate guidance or amend
Administrative Rule to define allowable deductions more clearly. Consequently,
we found that the mineral extraction operator in this example has continued to
deduct storage costs from royalties owed to the state even after discontinuing
production. Annual storage deductions averaged $560,000 for a cumulative five-
year total of $2.8 million. No other mineral extraction operators apply storage
deductions to their royalty rate calculations. Therefore, not defining and
providing clarity for qualifying deductions has further contributed to inequity
and inconsistencies among mineral extraction operators.
Combined freight deductions for the two largest mineral extraction operators on
the Great Salt Lake have averaged $19.9 million annually over the last five years.
6 Administrative Rule R652-20-3100(6).

Over the same five-year period, handling deductions have averaged $1.4 million,
and fuel deductions have averaged $475,000. Even though royalties represent a
fraction of these amounts, self-reported deductions over the past five years are
approaching a five-year total of $112 million 7 and remain absent of Division
guidance or validation.
RECOMMENDATION 1.4
The Division of Forestry, Fire and State Lands should clearly define and validate
allowable deductions.
The Division Should Clearly Define the Point of Valuation to

Mitigate Inconsistencies in the Application of Royalty Calculations
Existing royalty agreements define the point of valuation differently. This
presents a problem if the Division’s intent is equity because commodity and
product values consistently change and evolve
Commodity and throughout various phases of the mineral
product values development process. For example, the mineral
consistently
change and evolve development process includes many steps such as
throughout various exploration, extraction, separation and concentration,
phases of the purification, and refinement. Typically, minerals
mineral
development increase in value the further along they are in the
process. development process. Therefore, operators that pay
royalties at the point of sale on a final product will
likely pay different royalties than operators that pay royalties at the point of
extraction, the point of shipment, or on partially developed/refined products.
Separation
Extraction and Refinement Final Product
Concentration
If the Division’s goal is to treat all mineral extraction operators equally, the point
of valuation for mineral royalty calculations must be consistent. However, if the
7 The five-year $112 million deduction total represents $5.3 million in supplemental royalties.

Division desires the flexibility of negotiation with the intent to maximize
taxpayer revenue, then the point of valuation for mineral royalty calculations
should be clearly defined in corresponding royalty agreements. We found one
instance where the definition of “the point of shipment,” as mentioned in a
royalty agreement was the source of a dispute between the Division and a
mineral extraction operator. A subsequent legal settlement (negotiated thirty
years after the date of the original royalty agreement) clarified the definition to
the satisfaction of both parties.
Furthermore, we found an example of a small operator paying royalties on

partially developed magnesium chloride products (brines). Likewise, a second
small operator was found to be paying royalties on fully developed magnesium
chloride products at the point of sale. Although it appears that the second
operator in this example would be paying a higher percentage of royalties than
the first operator, it is impossible to determine the level of disparity without a
more in-depth analysis.8
Administrative Rule is silent on the matter and the Division has no policies or best
practices in place to define the point of valuation for royalty
calculations. When contemplating the point of valuation, the When
contemplating the
Division should consider the various stages of product point of valuation,
development with clearly defined goals and objectives; the Division should
specifically, whether they intend to promote equity and consider the
various stages of
fairness, or maximize revenue to the state. That said, both product
approaches require the Division to clearly define and establish development with
a point of valuation for royalty calculations. This definition clearly defined
goals and
should be thorough, complete, and demonstrate how FFSL objectives.
will achieve its related goals and objectives.
RECOMMENDATION 1.5
The Division of Forestry, Fire and State Lands should clearly define the point of
valuation for royalty calculations.
The Division Did Not Follow Administrative Rule When

Renegotiating the Terms of a Recent Mineral Royalty Agreement
A royalty agreement from September 1962 was renegotiated in March 2020.
During the renegotiation process, the Division did not follow Administrative Rule
8The operators in this example represent nearly one percent ($43,000) of the five-year magnesium
chloride royalty total.

when considering royalty rates for sodium chloride. The royalty rate calculation
for sodium chloride is clearly set out in Administrative Rule9 and was in place at
the time of this renegotiation. However, the Division negotiated a variation of
the calculation that did not use current market rates as set forth in rule. If the
Division believed a different royalty rate calculation should be used, they should
have gone through the process to update Administrative Rule. The effect of using
a different royalty rate calculation than what is defined in Administrative Rule
(for this renegotiated royalty agreement) results in a shortfall of $59,00010
annually.
Additionally, the Division should negotiate a provision for the state to recapture
funds in the event of royalty agreement termination. This is important because
the renegotiated royalty payments are based on calculations that use market data
from the prior year, not the current year. Therefore, if the renegotiated royalty
agreement is terminated for any reason, royalty rates
Best practice for sodium chloride would be lagging by one year.
suggests having a
process in place to Even if the methodology of this calculation was
reconcile royalty allowed in Administrative Rule, best practice would
payments to the suggest having a process in place to reconcile royalty
current year.
payments to the current year. However, no such
process currently exists.
The Division Should Ensure that All Royalty Agreements Are Signed and
Approved. Administrative Rule11 states, “Until a Division executed instrument of
conveyance, lease, permit or right is delivered or mailed to the successful
applicant, applications for the purchase, exchange, or use of sovereign lands or
resources shall not convey or vest the applicant with any rights.” In 2019, a
memorandum of understanding (MOU) was negotiated. This MOU was
designated to serve as an “interim royalty agreement” allowing the mining,
extraction, and production of a novel commodity from the Great Salt Lake. Even
though this MOU remains unsigned (unapproved) by the Division, the state
continues to collect over $100,000 annually in royalties.
9 Administrative Rule R652-20-1000(2)(e).

10 The four-year $236,000 deficit makes up 28.4 percent of the total sodium chloride deficit. Refer
to Figure 1.1 on page 6 for more information.
11 Administrative Rule R652-3-400.

RECOMMENDATION 1.6
The Division of Forestry, Fire and State Lands should follow existing Administrative
Rule or update Administrative Rule to better align with Division actions and
practices.
Better Records Management Will

Improve Accuracy and Compliance
Administrative Rule12 requires mineral extraction operators to submit a certified
royalty report on a form specified by the Division. However, we found multiple
examples of where records management can improve. Some of the examples we
identified include:
 FFSL stated that an operator had not turned in royalty reports for two
consecutive quarters in two different years (2019 and 2021). The missing
documentation is linked to an operator that failed to adjust the royalty
rate for sodium chloride for three consecutive years, contributing nearly
$308,00013 to the sodium chloride deficit. Increased oversight and
validation efforts could have provided the internal controls necessary to
detect and further prevent this problem from occurring.
 For three consecutive years (2015-2018), the Division had not reviewed
financial documentation for a mineral extraction operator.
 A mineral extraction operator had an outstanding balance of about $5,000

linked to a royalty payment that was due in 2020. The Division was
unaware of the outstanding balance until it was pointed it out as part of
this audit.
12Administrative Rule R652-5-300(1)(a).

13Over the past five years, there has been nearly $832,000 in total sodium chloride deficits to the
state. The $308,000 deficit mentioned here makes up 37 percent of that total deficit. Refer to
Figure 1.1 on page 6 for more information.

The Division reports that they have not had sufficient
databases for tracking payments, invoices, correct reporting,
In 2023, the
nor housing documentation, record keeping, and other Division began
notifiers. In 2023, the Division began implementing a better implementing a
better way to
way to house data and keep on top of data management. We
house data and
recommend the Division continue its efforts to track data and keep on top of
ensure mineral extraction operators are accurately reporting data management.
and paying royalties.
RECOMMENDATION 1.7
The Division of Forestry, Fire and State Lands should develop robust policies and
procedures for the validation of Great Salt Lake mineral extraction operators’ self-
reported production totals, calculations (ensuring correct royalty rates are used),
deductions, and associated royalty payments.
1.2 Division Management Should Review Its Use of

Regulatory Authority to Ensure Compliance with
Administrative Rule and Mineral Royalty Agreements
After learning about the minerals program oversight
issues outlined in the first section of this chapter, we
We found wanted to better understand the Division’s
enforcement tools
in royalty enforcement authority to ensure compliance. We
agreements, found enforcement tools in mineral royalty
statute, and agreements, statute, and Administrative Rule
Administrative
Rule. authorizing the Division to exercise their authority to
ensure proper performance and compliance.
Royalty agreements among the seven mineral extraction operators date as far
back as March 1961, and as recently as December 2021. The provisions of older
agreements remain in effect today because they are “production based.” In other
words, royalty agreements “… shall continue so long thereafter as salts in
commercial quantities are processed or produced.” While we recognize the
Division’s position and obligation to adhere to the antiquated provisions in these
royalty and/or lease agreements, there are still regulatory actions that FFSL could

have taken to ensure compliance. For example, a royalty agreement from
September 1962 states:
Mineral Royalty Agreement Provision:
“In the event that the lessees fail to pay the state all monies due and payable to
the state under the terms and provisions of this agreement…[a] written notice
shall [be] given by the state to lessees demanding payment of monies due or
payable… the state may terminate this agreement by giving written notice thereof
to lessees…”
Despite a lengthy history of royalty agreement violations with this operator, we

found evidence of only one written notice requiring payment of monies due or
payable.
Administrative Rule14 authorizes penalties and fines to be given as it relates to late

royalty payments; however, penalties and fines have been
applied inconsistently. Administrative Rule is further supported Administrative
by House Bill 453 that was passed during the 2024 General Rule authorizes
penalties and fines
Legislative Session. This bill allows the Division to statutorily to be given as it
issue violation orders and take enforcement action against relates to late
royalty payments.
operators that are incorrectly compensating the state for
extracted minerals. Other enforcement tools such as provisions in individual
royalty agreements and statute also exist, but there is minimal evidence
indicating that Division management has been exercising their authority to
ensure compliance. Regulatory agencies such as FFSL understandably seek to
balance enforcement with economic activity. Nevertheless, the Division should
review its regulatory efforts to ensure that taxpayers are receiving all anticipated
revenues for extracted minerals while promoting parity and equity among
mineral extraction operators.
Current management has sought to remedy many of the issues identified in this
chapter by requesting a position that will specialize in mineral development and
the economics of mineral leasing. Funding for this position was approved during
the 2024 General Legislative Session. It is expected that the newly created
Minerals Landman position will evaluate royalty reports, process new
mineral and royalty nominations, track and report revenue and mineral
depletions, review mineral leases for compliance, work with mineral extraction
operators, and evaluate compliance according to statute and Administrative Rule.
Until recently, the Division has never had a dedicated position for contract
14 Administrative Rule R652-5-300(2).

management. The level of support from this newly created position is expected
to provide the knowledge and capacity needed to properly run the minerals
program.
RECOMMENDATION 1.8
The Division of Forestry, Fire and State Lands should review the use of its
regulatory authority and document its strategy for ensuring compliance with
statute, Administrative Rule, and mineral royalty agreements.

CHAPTER 2 Summary
The Division of Forestry, Fire and State Lands Can
Improve Its Oversight and Contract Management
BACKGROUND
The Division of Forestry, Fire and State Lands (Division or FFSL) is the state agency given the statutory
responsibility to manage mineral extraction contracts on the Great Salt Lake. Seven mineral extraction
operators maintain contracts with the Division, which is responsible for ensuring compliance with contract
requirements and laws protecting Great Salt Lake sovereign lands.
FINDING 2.1
The Division Can Make Changes to Further Improve Management of Great Salt Lake
Mineral Leases.
RECOMMENDATION 2.1
The Division of Forestry, Fire and State Lands should conduct a thorough review of statute,
Administrative Rule, and mineral lease agreements for the purpose of creating written internal
controls. The Division should regularly monitor these controls to demonstrate improved
oversight and contract management.
RECOMMENDATION 2.2
The Division of Forestry, Fire and State Lands should prioritize updating the Great Salt Lake
Comprehensive Management Plan (CMP) including establishing a timetable for its completion
to effectively monitor and track progress.
RECOMMENDATION 2.3
The Division of Forestry, Fire and State Lands should review the efficacy of current coordination
plans and establish functional frameworks to coordinate with other state agencies whose
activities may overlap with FFSL.
17
RECOMMENDATION 2.4
FINDING 2.2 should annually demonstrate the percentage of
The Division Should Track the funds apportioned to the Great Salt Lake and
Percentage of Appropriations inform the Natural Resources, Agriculture, and
Allocated to the Great Salt Lake. Environmental Quality Appropriations
Subcommittee of these amounts to guide future
appropriations according to statutory preference.
CONCLUSION
In recent years, improvements to Great Salt Lake management have occurred. This chapter details additional
ways that oversight of the lake and management of its mineral contracts can improve. For example, FFSL can
create wri en internal controls that will assist the Division to reasonably assure compliance with mineral
lease contracts and achieve its management objectives. Resources are available to improve oversight and
contract management of mineral leases on the Great Salt Lake.
18
Chapter 2
Can Improve Its Oversight and Contract
Management
2.1 The Division Can Make Changes to Further Improve
Management of Great Salt Lake Mineral Leases
The Division of Forestry, Fire and State Lands (Division or FFSL) can improve its
oversight of mineral leases on the Great Salt Lake by developing sufficient
policies and procedures for contract management. These policies and procedures
should reasonably ensure mineral extraction operators’ compliance with
established requirements and the Division’s own achievement
of identified management objectives. While actions
taken by the
House Bill 453, passed in the 2024 General Session, requires Legislature and the
Division show a
FFSL to create procedures that enable the Division to enforce
commitment
applicable statutes and Administrative Rules. Additionally, the toward lake
bill explicitly provides the Division with the authority to issue management and
oversight, we
notices of violation and cessation orders. Even before these
found areas of
statutory changes, the Division exercised enforcement improvement
authority for disallowed recreational activities on the Great where FFSL can
further strengthen
Salt Lake. While actions taken by the Legislature and the its management of
Division show a commitment toward lake management and mineral leases on
oversight, we found areas of improvement where FFSL can the Great Salt
Lake.
further strengthen its management of mineral leases on the
Great Salt Lake.
FFSL Should Improve Internal Controls for Proper

Mineral Lease Management on the Great Salt Lake
FFSL should improve its internal controls to reasonably ensure that the Division
achieves its identified objectives. These objectives are identified in statute,
Administrative Rule, and management plans previously developed by the
Division. For example, one of the Division’s overarching management objectives
includes:

Overarching Management Objective of FFSL:
“…protect and sustain [sovereign land] resources and to provide for reasonable
beneficial uses of those resources, consistent with their long-term protection and
conservation.”
Internal controls are the plans, methods, policies, and

The establishment procedures whereby management reasonably assures
of written policies
dictating the that an entity can achieve its objectives. The
performance of establishment of written policies dictating the
specific procedures performance of specific procedures will reasonably
will reasonably
assure compliance assure compliance with established mineral lease
with established requirements.
lease
requirements. The Division regulates “all uses on, beneath or above
the beds of navigable lakes and streams.15” This
mandate demonstrates the Division’s responsibility to ensure compliance of
mineral extraction activities on the Great Salt Lake. Some of these compliance
requirements include the following:
 The Division shall review and make an environmental assessment for

activities which disturb the surface of land within a mineral lease
footprint.
 The Division should ensure that mineral extraction operators submit plans
for any activity which disturbs the surface of lands associated with a
mineral lease.
 The Division should not allow a lessee to commence operations on leased

land without an approved plan of operation.16
To bolster the requirements set forth in Administrative Rule, the Division should
improve its policies and procedures to provide a reasonable assurance of
compliance.
A Great Salt Lake Mineral Lease Development Project Would Have Benefited
from Clearer Policies and Procedures by FFSL. In 2021, a mineral extraction
operator commenced construction of a development project that was permitted
by another state agency. While other federal and state environmental agencies
conducted reviews and issued permits, the coordination between these agencies


and FFSL could have been stronger. Mineral extraction
operators are subject to Administrative Rule and should have As the designated
executive
proactively requested review by FFSL. Although FFSL was authority over
informed of the project and its permitting through a meeting sovereign land
and emails, it appears that the Division did not receive official mineral leases,
FFSL is ultimately
notice of permit issuance. The permitting sister agency may responsible for
have been able to do more to ensure communication was asserting its
received. That said, FFSL is the designated executive authority authority and
enforcing
over sovereign land mineral leases and ultimately responsible compliance with
for asserting its authority to enforce compliance with its its requirements.
requirements. Clear, established protocols can improve
internal controls and assist FFSL in meeting its objectives.
In addition, current FFSL administration believes that there is a need to be more

engaged in lease management to ensure compliance. This sentiment is supported
by internal audit recommendations that were given to FFSL in 2011. Internal
audit suggested the following to improve contract management:
 FFSL personnel need to be familiar with the terms of leases, basic

structures, and point people.
 FFSL personnel should make regular contact (annually or semi-annually)

with mineral extraction operators to maintain open lines of
communication and understand current issues.
While the Division has reportedly taken actions consistent with these
recommendations in recent years, policies for such oversight functions should be
written to support consistency in management activities over time. As such, we
recommend that the Division implement policies and procedures for active and
regular lease oversight. Furthermore, the Division should monitor these policies
to demonstrate improved oversight and effective contract management.
The Update of the Comprehensive Management Plan (CMP) Is a Good

Opportunity to Ensure Audit Recommendations Are Embedded in Division
Operations. The Great Salt Lake CMP’s primary purpose is to guide government
resource management and appropriate use of the lake.17 In fiscal year 2023, the
Legislature approved the Division’s funding request for $400,000 to update its
CMP. In April 2024, the Division signed a contract with an environmental
17 The Division’s implementation of comprehensive management plans is a legislative

requirement. (see Utah Code 65A-2-2 and 65A-2-4).

planning consultant to update its Great Salt Lake
The new CMP. Although the update is underway, the Division
management plan
should include should prioritize completion and track progress. The
actionable new plan should include actionable strategies that
strategies that will will be useful in guiding monitoring and compliance
be useful in
guiding monitoring activities that help the Division fulfill its management
and compliance objectives.
activities that help
the Division fulfill The Division’s current policies do not address
its management
management activities for the oversight and
objectives.
compliance monitoring of lessee activities on state
sovereign lands. To reasonably assure compliance with statute, Administrative
Rule, and mineral lease provisions, we recommend that the Division implement
internal controls and develop written policies and procedures to better monitor
and manage Great Salt Lake mineral leases. We believe that these steps will
provide better oversight and further demonstrate the responsible management of
lessee activity on leased sovereign lands.
RECOMMENDATION 2.1
The Division of Forestry, Fire and State Lands should conduct a thorough review of
statute, Administrative Rule, and mineral lease agreements for the purpose of
creating written internal controls. The Division should regularly monitor these
controls to demonstrate improved oversight and contract management.
RECOMMENDATION 2.2
The Division of Forestry, Fire and State Lands should prioritize updating the Great
Salt Lake Comprehensive Management Plan (CMP) including establishing a
timetable for its completion to effectively monitor and track progress.
The Division Can Improve Oversight by Developing

Robust Interagency Coordination Strategies
FFSL can strengthen coordination with other sister agencies that share the
responsibility of oversight of the Great Salt Lake. The Division’s 2013 Great Salt
Lake Mineral Leasing Plan (MLP) identified a key management objective
regarding coordination:

Coordination Management Objective:
“Coordinate Management, Permitting, and Research Activities between
Applicable Local, State, and Federal Agencies Surrounding Great Salt Lake.”
The Division’s Comprehensive Management Plan (CMP) cites a need for a

communication mechanism to coordinate when an agency’s management actions
impact another agency tasked with Great Salt Lake oversight. The CMP states
that “permitting agencies of GSL [the Great Salt Lake] are typically operating in
separate silos,” and that “communication between agency staff that is
responsible for permitting is minimal.” Furthermore, the CMP observes that the
lack of coordination has led to permitting conflicts between state agencies. These
CMP findings reflect our observations of insufficient coordination between
agencies for a recent development project on leased lands.
To the Division’s credit, it developed a policy for interaction with a state resource
(development database) where projects impacting physical resources are listed.
However, participation is voluntary for other agencies; therefore, coordination
on critical permitting using this method could not be
reasonably assured. The Division
should review the
The Division should review the efficacy of current efficacy of current
coordination plans
coordination plans and establish functional frameworks to and establish
coordinate with other state agencies whose activities may functional
overlap with FFSL’s responsibilities on the Great Salt Lake. frameworks to
coordinate with
Any proposed coordination framework should be updated other state
and tested to ensure functionality. agencies.
The Division of Water Quality Is a Good Example of An Agency with which

Coordination Should Be a Top Priority. The Division of Water Quality (DWQ)
issues water quality permits to mineral extraction operators that hold leases
managed by FFSL. Statute recognizes this overlap by requiring the Division to
maintain a management plan that promotes water quality management.
Furthermore, the Division has established management objectives in
Administrative Rule explicitly stating:
“water quality will be given due consideration.”
Because of the emphasis on water quality in statute and Administrative Rule,

DWQ represents a prime example of an overlapping agency with which FFSL
should develop a functional coordinating relationship. FFSL is ultimately
responsible for ensuring that impacts to mineral leases on the Great Salt Lake are

in accordance with statutory mandates. Therefore, in addition to developing
coordination mechanisms, the Division should create internal policies for
maintaining independent awareness of other agency actions.
RECOMMENDATION 2.3
The Division of Forestry, Fire and State Lands should review the efficacy of current
coordination plans and establish functional frameworks to coordinate with other
state agencies whose activities may overlap with FFSL.
2.2 The Division Should Track the Percentage of

Appropriations Allocated to the Great Salt Lake
Funds from the Sovereign Lands Management Account (account) are statutorily
required to be used “…only for the direct benefit of sovereign lands,” including
the Great Salt Lake.18 The Division of Forestry, Fire and State Lands (FFSL or
Division) should track appropriations associated with the Great Salt Lake. When
the Division receives an appropriation, funds are generally spent according to
the Legislature’s intent; however, funding from appropriations may be allocated
to multiple sovereign lands, including the Great Salt Lake. For example, an
appropriation authorized to treat invasive species may be used on any or all
sovereign lands. By tracking the amount of funding apportioned to the Great Salt
Lake, the Division will be able to demonstrate the percentage of funds spent
directly on the lake.
House Bill 157, passed in the 2022 General Session, requires that money in the
account be used only for the direct benefit of sovereign lands. Legislative
changes also include a requirement for the Legislature to prefer appropriations
that benefit the sovereign land from which the revenue was generated (in the
absence of compelling circumstances). For example, this means that mineral
extraction revenues derived from Great Salt Lake mineral operations should
generally be appropriated to the Great Salt Lake. 19
Funds Are Available to Address Sovereign Lands Management Needs. The

account is a restricted account within the General Fund. Account revenues come
from sovereign land activities such as royalties, mineral leases, and fees. Figure
18Utah Code 65A-5-1(3)(b).

19Great Salt Lake mineral extraction revenues make up roughly 90 percent of the total revenue
credited to the account annually. The law requires the Legislature to prefer appropriations of the
same proportion of funds (90 percent) to be spent on the Great Salt Lake.

2.1 details the ending fund balances for the account year after year, which is
illustrated by the gray area.
Figure 2.1 Historical Ending Fund Balances (Gray Area) and Revenues (Blue Line)
for the Sovereign Lands Management Account. The average ending balance from 2009-
2023 is about $14.3 million, with the lowest balance of $5.8 million recorded at the end of
fiscal year 2019.
$30
$25
$20
$15
Millions
$10
$5
$-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Ending Fund Balance Total Revenues
Source: Auditor generated using date from the Division of Forestry, Fire and State Lands.
The Division can spend these monies only after the approval of a formal request
for legislative appropriation. Because of this restriction, revenues remain intact
and account balances grow until expenditures are approved. FFSL should
regularly review the funds in this account to determine whether there are
opportunities to use available resources to address deficiencies in sovereign land
management and mineral lease oversight.

The Legislature has Supported Previous Funding Requests. Current
management at FFSL report that the Division has
Because the historically not had the support to properly fund the
minerals program staffing needs of the minerals program. However,
is the primary documentation shows that the Legislature has funded
source of revenue
for managing all requests from the Division over the past five years.
Great Salt Lake During the 2024 General Legislative Session, the
resources, the Division requested funding for a position that will
Division should
continue to specialize in mineral development and the economics
determine where of mineral leasing. The Legislature funded this
funds can be used position. Because the minerals program is the primary
to improve
oversight of the source of revenue for managing Great Salt Lake
Great Salt Lake. resources, the Division should continue to determine
where funds can be used to improve management
and oversight on the Great Salt Lake.
The Division Should Annually Demonstrate Whether Great Salt Lake Mineral
Extraction Revenues Are Appropriated and Spent According to Statutory
Preference. In fiscal year 2023, roughly one-third of Division expenditures (33.5
percent) were spent on items related to the Great Salt Lake. By tracking the
percentage of appropriations dedicated to the Great Salt Lake, the Division will
be able to inform the Legislature regarding future appropriations. We believe
that this practice will serve as a tool for the Division to illustrate whether
legislative appropriations are generally aligned with statutory preference.
RECOMMENDATION 2.4
The Division of Forestry, Fire and State Lands should annually demonstrate the
percentage of funds apportioned to the Great Salt Lake and inform the Natural
Resources, Agriculture, and Environmental Quality Appropriations Subcommittee
of these amounts to guide future appropriations according to statutory preference.

Complete List of Audit
Recommendations

Complete List of Audit Recommendations
This report made the following twelve recommendations. The numbering convention assigned
to each recommendation consists of its chapter followed by a period and recommendation
number within that chapter.
Recommendation 1.1
We recommend that the Division of Forestry, Fire and State Lands verify royalty calculations to
ensure that the Division is receiving the full value of royalties on mineral commodities as
specified in Administrative Rule.
Recommendation 1.2
We recommend that the Division of Forestry, Fire and State Lands review and implement
recommendations from previous internal audit reports.
Recommendation 1.3
We recommend that the Legislature consider inviting the Division of Forestry, Fire and State
Lands to report back to the Natural Resources, Agriculture, and Environment Interim
Committee on the progress of the audit findings in May 2025.
Recommendation 1.4
We recommend that the Division of Forestry, Fire and State Lands clearly define and validate
allowable deductions.
Recommendation 1.5
We recommend that the Division of Forestry, Fire and State Lands clearly define the point of
valuation for royalty calculations.
Recommendation 1.6
We recommend that the Division of Forestry, Fire and State Lands follow existing
Administrative Rule or update Administrative Rule to better align with Division actions and
practices.
Recommendation 1.7
We recommend that the Division of Forestry, Fire and State Lands develop robust policies and
procedures for the validation of Great Salt Lake mineral extraction operators’ self-reported
production totals, calculations (ensuring correct royalty rates are used), deductions, and
associated royalty payments.
Recommendation 1.8
We recommend that the Division of Forestry, Fire and State Lands review the use of its
regulatory authority and document its strategy for ensuring compliance with statute,
Administrative Rule, and mineral royalty agreements.

Recommendation 2.1
We recommend that the Division of Forestry, Fire and State Lands conduct a thorough review of
statute, Administrative Rule, and mineral lease agreements for the purpose of creating written
internal controls. The Division should regularly monitor these controls to demonstrate
improved oversight and contract management.
Recommendation 2.2
We recommend that the Division of Forestry, Fire and State Lands prioritize updating the Great
Salt Lake Comprehensive Management Plan (CMP) including establishing a timetable for its
completion to effectively monitor and track progress.
Recommendation 2.3
We recommend that the Division of Forestry, Fire and State Lands review the efficacy of current
coordination plans and establish functional frameworks to coordinate with other state agencies
whose activities may overlap with FFSL.
Recommendation 2.4
We recommend that the Division of Forestry, Fire and State Lands annually demonstrate the
percentage of funds apportioned to the Great Salt Lake and inform the Natural Resources,
Agriculture, and Environmental Quality Appropriations Subcommittee of these amounts to
guide future appropriations according to statutory preference.

Agency Response Plan

June 5, 2024
Kade R. Minchey, CIA, CFE, Auditor General

Office of the Legislative Auditor General
Utah State Capitol Complex
Rebecca Lockhart House Building, Suite W315
PO Box 145315
Salt Lake City, UT 84114-5315
RE: Forestry, Fire and State Lands Mineral Royalty Agreement Audit
Dear Mr. Minchey,
Thank you for the opportunity to respond to the audit recommendations. We appreciate the
professionalism and collaboration as we worked through this process. We concur with the
recommendations made in the audit and herewith provide a formal response to each recommendation.
We are committed to improved oversight and accountability of mineral extraction operations on Great
Salt Lake, along with efficient contract management processes. We value the information provided in
the audit and look forward to making improvements in the processes that will benefit the State of Utah.
Sincerely,
Jamie Barnes (Jun 7, 2024 10:18 MDT)

Joel Ferry Jamie Barnes
Executive Director Director
Department of Natural Resources Forestry, Fire and State Lands
1594 West North Temple, Suite 3520 ∙ PO Box 145703 ∙ Salt Lake City, UT 84114-5703 ∙ telephone (801) 538-5418 ∙ forestry.utah.gov

Page 2
June 5, 2024
Subject: GSL Minerals Royalty Audit
Chapter 1
Recommendation 1.1 The Division of Forestry, Fire and State Lands should verify royalty
calculations to ensure that the Division is receiving the full value of royalties on mineral
commodities as specified in Administrative Rule.
Division Response: The Division supports this recommendation and has begun to implement the
findings.
What: The Division will verify royalty calculations to ensure that the Division is receiving the full
value of royalties on mineral commodities, as specified in the contract.
How: The Division has begun developing internal control processes and policies, which will verify
and track the royalty calculations to ensure that the Division is receiving the full value of the royalties.
The current Division leadership has begun reviewing previous audits to determine which
recommendations still need to be implemented and are relevant. The Division is also reviewing
contracts for compliance with Administrative Rule. In addition, the Division will be hiring a
specialized position that focuses solely on minerals, royalties and contract management for the
minerals section. This position will have specialized knowledge in mineral valuation, royalty
calculation and be knowledgeable in royalty reporting requirements within the industry.
Documentation: Leases, contracts and Administrative Rule
Timetable: The Division has begun to review the leases subject to this recommendation. The review
of previous internal audits will be complete by October 2024.
When: The Division will determine which recommendations out of previous audits remain and the
relevancy of those today as it relates to further success. Implementations of these recommendations
will be carried out no later than December 2024.
Who: Jamie Barnes, Director and Ben Stireman, Deputy Director will be responsible for ensuring that
this recommendation is carried out.
1594 West North Temple, Suite 3520 ∙ PO Box 145703 ∙ Salt Lake City, UT 84114-5703 ∙ telephone (801) 538-5418 ∙ .forestry.utah.gov

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June 5, 2024
Recommendation 1.2 The Division of Forestry, Fire and State Lands should review and
implement recommendations from previous internal audit reports.
Division Response: The Division agrees with the recommendation and has begun reviewing previous
internal audits and determining relevancy of the previous unimplemented recommendations which may
prove successful for current day processes.
What: The Division will verify previous audits and determine if previous recommendations will prove
helpful in achieving success.
How: The Division will review the previous audit reports and become informed of the reason for the
audits, the findings in the audits and how the findings may be helpful to achieve success. To further
assist, the Division will be hiring a specialized position that focuses solely on minerals, royalties and
contract management for the minerals section. This position will have specialized knowledge in
mineral valuation, royalty calculation and be knowledgeable in royalty reporting requirements within
the industry.
Documentation: Administrative Rule, policy or development of standard operating procedures
Timetable: Agency has begun review. The review of previous internal audits will be complete by
October 2024.
When: The Division will determine which recommendations out of previous audits remain and the
validity of the recommendations today to achieve success. Implementations of those recommendations
will be carried out no later than December 2024.
Recommendation 1.3 The Legislature should consider inviting the Division of Forestry, Fire and
State Lands to report back to the Natural Resources, Agriculture, and Environment Interim
Committee on the progress of the audit findings in May 2025.
Division Response: The Division agrees with this recommendation and looks forward to reporting to
the Committee on the progress made.

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June 5, 2024
What: The Division will be prepared to report back to the Natural Resource, Agriculture and
Environment Interim Committee on the Progress of the audit findings in May 2025 or on the date
requested to appear before the committee.
Documentation: The Division will be prepared with any documentation to validate their progress and
success on implementing the recommendations.
Recommendation 1.4 The Division of Forestry, Fire and State Lands should clearly define and
validate allowable deductions.
Division Response: The Division agrees with this response and has begun working to implement the
recommendation.
What: The Division will clearly define and validate allowable deductions on current mineral contracts
as well as future contracts.
How: The Division has begun an internal review on all mineral lease contracts to determine the
allowable deductions within the terms and stipulations in the contract. In addition, the Division is
analyzing Administrative Rule with contracts to determine where Administrative Rule may need
amendments to conform with processes and recommendations from the audit, along with potential
shortfalls in revenue. To further assist, the Division will be hiring a specialized position that focuses
solely on minerals, royalties and contract management for the minerals section. This position will have
specialized knowledge in mineral valuation, royalty calculation and be knowledgeable in royalty
reporting requirements within the industry.
Documentation: Leases and contracts, Administrative Rule, and royalty reports.
Timetable: The Division has begun the internal review process. The Division anticipates the review
process being completed by December 2024. After the review process, the Division will then take the
steps necessary to amend Administrative Rule or amend any agreements, if possible. The anticipated
timeline for these amendments is March 2025. However, this is a complex process and the
implementation for existing contracts may be difficult.
When: This recommendation should be implemented by May 2025.

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June 5, 2024
Recommendation 1.5 The Division of Forestry, Fire and State Lands should clearly define the
point of valuation for royalty calculations.
Division Response: The Division agrees that point of valuation for royalty calculations should be
clearly defined for current and future leases.
What: The Division will act to clearly define the point of valuation for royalty calculations on current
and future leases.
How: The Division has begun an internal review of all mineral lease contracts to determine the point
of valuation, as defined within the terms and stipulations in the contract. In addition, the Division has
begun to review Administrative Rule with contracts and determine where Administrative Rule may
need to be amended to conform with processes and recommendations from the audit to clearly define
the point of valuation. Further, the Division will be recruiting a specialized position that focuses solely
on minerals, royalties and contract management to manage minerals contracts. This position will have
specialized knowledge in mineral valuation and royalty calculation and be knowledgeable in royalty
reporting requirements within the industry.
Documentation: Leases and contracts, royalty reports, and Administrative Rule.
Timetable: The Division has begun the review process. The Division anticipates the review process
being completed by December 2024. The Division will then take the steps necessary to amend
Administrative Rule or amend any existing agreements if possible. The anticipated timeline for these
amendments is March 2025. However, this is a complex process and the implementation for existing
contracts may be difficult.
When: This recommendation should be implemented by May 2025.

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June 5, 2024
Recommendation 1.6 The Division of Forestry, Fire and State Lands should follow existing
Administrative Rule or update Administrative Rule to better align with Division actions and
practices.
Division Response: The Division agrees that it needs to better align Administrative Rule with Division
actions and practices.
What: The Division will take the steps necessary to create alignment between actions, practices, rules,
statutes and policies.
How: The Division has begun the process of forming a rule and policy review committee wherein
current policy and rule are reviewed for compliance with Division actions and practices. The Division
formed an in-house committee that is actively suggesting amendments to align with current day
practices. These amendments will be reviewed and implemented accordingly to achieve alignment and
a higher standard of success in the Division. The Division has recently implemented a new
data/contract management database wherein all contracts and supporting documents are centrally
housed to better inform staff on existing lease requirements and actions and to create uniformity
throughout the areas. Lastly, the Division is engaging in a process of creating standard operating
procedures to standardize processes and create alignment within the program.
Documentation: Administrative Rule and Division policy.
Timetable: The Division has formed the in-house committee and is well into the rule and policy
review process. The Division anticipates the review process being completed by December 2024. The
Division will then take the steps necessary to amend Administrative Rule and/or develop policy. The
anticipated timeline for these amendments is March 2025.
When: Full policy and rule review will be complete by June 2025.
Recommendation 1.7 The Division of Forestry, Fire and State Lands should develop robust
policies and procedures for the validation of Great Salt Lake mineral extraction operators’

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June 5, 2024
self-reported production totals, calculations (ensuring correct royalty rates are used), deductions,
and associated royalty payments.
Division Response: The Division agrees that it should develop robust policies and procedures for the
validation of Great Salt Lake mineral extraction operators.
What: The Division will take the steps necessary to develop robust policies and procedures for the
validation of Great Salt Lake mineral extraction operators' self-reported production totals, calculations
(ensuring correct royalty rates are used), deductions, and associated royalty payments on current and
future leases.
How: The Division is currently in the process of reviewing the allowable deductions, required
calculations and reporting requirements of all Great Salt Lake mineral extraction operators. The
Division participated in recent legislation to begin to address issues as they relate to existing
agreements and production rate discrepancies. A succinct review of the contract's terms and
stipulations weighted against current policy and industry practices will bring great improvement and
alignment. Again, the above-mentioned mineral position will have specialized knowledge in mineral
valuation, royalty calculation and be knowledgeable in royalty reporting requirements within the
industry, which will provide better contract management and support to the program moving forward.
This position will be able to spot issues on a proactive rather than reactive basis, preventing issues such
as the ones identified in this audit. In addition, the Division has implemented a new data/contract
management database wherein all contracts and supporting documents are centrally housed to better
inform staff on existing lease requirements, actions and documentation. Standardization of royalty
reporting forms is one area the Division plans to work with operators on immediately.
Documentation: Administrative Rule, policy, contracts and leases.
Timetable: The steps necessary for implementing these recommendations fit within the Division
review of policy and Administrative Rule which is currently underway. The Division anticipates the
review process being completed by December 2024. The Division will then take the steps necessary to
amend Administrative Rule and/or develop policy. The anticipated timeline for these amendments is
March 2025.

Page 8
June 5, 2024
When: The recommendation should be fully implemented by June 2025.

Recommendation 1.8 The Division of Forestry, Fire and State Lands should review the use of its
regulatory authority and document its strategy for ensuring compliance with statute,
Administrative Rule, and mineral royalty agreements.
Division Response: The Division agrees with the recommendation to review its use of its regulatory
authority and document standardization related to compliance with statute, rule, and contract.
What: The Division will develop standard operating procedures to address non-compliance and
royalty discrepancies.
How: The Division is hiring a specialized position that focuses solely on minerals, royalties and
contract management for the minerals section. This position will have specialized knowledge regarding
rules, policy and standard operating procedures related to compliance and contract management. This
individual will work with Division leadership to identify areas where a standard operating procedure or
policy would provide clarity in use of regulatory authority or standardization of processes related to
compliance with statutory requirements. Said position will be trained to identify issues of
non-compliance and act within the scope of the contract, rules and policies and develop standardized
guidance to inform the process. This position will also maintain documentation related to the lease files
keeping solid documentation of when and how the Division has used its regulatory authority. The
newly established database will also help in achieving success on this recommendation, as it will serve
as a central location for housing all documentation creating more robust access to lease information.
Documentation: Leases and contracts, Administrative Rule and policy
Timetable: The Division receives funding for this position in July 2024 and plans to recruit
immediately. The policy end of this recommendation falls into the internal review that the Division is
already engaged in and should be complete by no later than May 2025.
When: This recommendation should be fully implemented by June 2025.

Page 9
June 5, 2024
Chapter 2
Recommendation 2.1 The Division of Forestry, Fire and State Lands should conduct a thorough
review of statute, Administrative Rule, and mineral lease agreements for the purpose of creating
written internal controls. The Division should regularly monitor these controls to demonstrate
improved oversight and contract management.
Division Response: The Division agrees with this recommendation of creating internal controls and
regularly monitoring these controls.
What: The Division will create standardized operating procedures that enable staff to effectively and
efficiently manage the contracts and actions of the Division pursuant to the terms and stipulations of
said contracts and the regulatory authority of the Division.
How: Upon a thorough review of statute and rules, the Division will determine where implementing
standard operating procedures and/or policies could improve management, oversight and coordination.
Documentation: Administrative Rule and policy
Timetable: The Division will begin the review of current rule, law and policy immediately. However,
the development of the MOUs will coincide with the completion of Comprehensive Management Plan
(CMP) and Mineral Leasing Plan (MLP).
When: December 2026
Recommendation 2.2 The Division of Forestry, Fire and State Lands should prioritize updating
the Great Salt Lake Comprehensive Management Plan (CMP) including establishing a timetable
for its completion to effectively monitor and track progress.
Division Response: The Division agrees with this recommendation.

Page 10
June 5, 2024
What: The Division is currently contracted with a contractor to update the Comprehensive
Management Plan and is prioritizing this plan.
How: Division personnel and the contractor are in the process of updating the Comprehensive
Management Plan through a collaborative process with stakeholders.
Documentation: CMP, MLP
Timetable: This is typically an 18-24 month process that takes a phased approach for pre-engagement,
plan development, draft plan release and concludes with a final plan. Throughout the phases the
Division will be reviewing existing information, developing the CMP and MLP, engaging
stakeholders, hosting information sessions and accepting public comment. The timeframe of these
phases varies, but each quarter a variety of tasks are accomplished which contribute to the final plan
development.
When: 2026
Recommendation 2.3 The Division of Forestry, Fire and State Lands should review the efficacy of
current coordination plans, establish functional frameworks to coordinate with other state
agencies whose activities may overlap with FFSL.
What: The Division will work to develop MOUs with other agencies regarding notification
procedures.
How: Through the comprehensive management plan planning process, the Division will identify other
regulatory agencies where an MOU may prove beneficial.
Documentation: MOU, CMP
Timetable: This is typically an 18-24 month process that takes a phased approach for pre-engagement,
plan development, draft plan release and concludes with a final plan. Throughout the phases the
Division will be reviewing existing information, developing the CMP and MLP, engaging

Page 11
June 5, 2024
stakeholders, hosting information sessions and accepting public comment. The timeframe of these
phases varies, but each quarter a variety of tasks are accomplished which contribute to the final plan
development.
When: 2026
Recommendation 2.4 The Division of Forestry, Fire, and State Lands should annually demonstrate
the percentage of funds apportioned to the Great Salt Lake and inform the Natural Resources,
Agriculture, and Environmental Quality Appropriations Subcommittee of these amounts to guide
future appropriations according to statutory preference.
What: The Division agrees that HB 157 established preference for appropriations that benefit the
resource from which it was derived.
How: The Division will distinguish revenue generated from each resource to provide the legislature
with the information to prefer appropriations that benefit the resource from which it was derived.
Documentation: Financial documentation
Timetable: The implementation of this recommendation will begin in FY 2025 and continue as a
regular practice.
When: By end of FY 2025 the Division will have an entire year of financial data that will distinguish
revenue and expenditures from the resource which it was derived from. This will continue as a regular
practice.


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Report No.

Office of the Legislative

Senator Evan J. Vickers Representative Jefferson Moss

Senator Luz Escamilla Representative Angela Romero

Jesse Martinson, Manager, CIA

Nicole Luscher, Audit Supervisor

Jake Davis, Audit Staff

Spencer Hadley, Audit Staff

Office of the Legislative Auditor General

Audit Subcommittee of the Legislative Management Committee

June 18, 2024

TO: THE UTAH STATE LEGISLATURE

Transmitted herewith is our report:

“A Performance Audit of Mineral Royalty Agreements: An Examination of Mineral

This audit was requested by Representative Casey Snider.

We will be happy to meet with appropriate legislative committees, individual legislators,

Kade R. Minchey, CIA, CFE

Office of the Legislative Auditor General | Kade R. Minchey, Auditor General

The Division Should Track the $30

Percentage of Appropriations $25

according to statutory preference. In ﬁscal $10

items related to the Great Salt Lake. By

Promotion of Public Awareness

Creation of a Great Salt Lake Commissioner

Office of the Legislative Auditor General i

ii Mineral Royalty Agreements

FINDING 1.5 RECOMMENDATION 1.6

FINDING 1.7 RECOMMENDATION 1.8

1.1 Additional Guidance Could Address Inequity Among

Royalty Rate Calculations

Mineral extraction operators do not always follow Administrative

The Division has not adequately defined or regulated allowable

Office of the Legislative Auditor General 3

The Division should have followed Administrative Rule when

When reviewed together, these factors collectively demonstrate areas of

Internal DNR Audits Have Identified Weaknesses

4 Mineral Royalty Agreements

Mineral extraction operators are responsible to follow statute, Administrative

Current Division Leadership Is Open to Improvement. Opportunities for

2 Administrative Rule R652-20-1000(2)(e).

Office of the Legislative Auditor General 5

3Administrative Rule R652-20-1000(1).

6 Mineral Royalty Agreements

Previous Internal Audit Recommendations Have Not Been Fully

Office of the Legislative Auditor General 7

The Division Should Clarify Rules That Have Led

An internal audit conducted in 2011 raised the question of whether storage

6 Administrative Rule R652-20-3100(6).

8 Mineral Royalty Agreements

The Division Should Clearly Define the Point of Valuation to

Office of the Legislative Auditor General 9

Furthermore, we found an example of a small operator paying royalties on

The Division Did Not Follow Administrative Rule When

10 Mineral Royalty Agreements

9 Administrative Rule R652-20-1000(2)(e).

Office of the Legislative Auditor General 11

Better Records Management Will

 A mineral extraction operator had an outstanding balance of about $5,000

12Administrative Rule R652-5-300(1)(a).