A performance audit of the Office of the Dairy Commissioner

              STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
A PERFORMANCE AUDIT
OF THE
OFFICE OF THE DAIRY COMMISSIONER
APRIL 1983
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 83- 8
DOUGLAS R. NORTON. CPA
AUDITOC GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
April 28, 1983
Members of the Arizona L e g i s l a t u r e
The Honorable Bruce Babbitt, Governor
M r . Roy C. C o l l i e r , Dairy Commissioner
Transmitted herewith is a report of the Auditor General, A Performance
Audit of the Office of the Dairy Commissioner. This r e p o r t is i n response
t o a January 18, 1982, r e s o l u t i o n of the J o i n t L e g i s l a t i v e Oversight
Committee. The performance a u d i t was conducted a s a p a r t of the Sunset
Review s e t f o r t h i n A. R. S. Ss41- 2351 through 41- 2379.
The blue pages present a summary of t h e r e p o r t ; a response from the Dairy
Commissioner is found on the yellow pages.
My s t a f f and I w i l l be pleased t o discuss o r c l a r i f y items i n t h e r e p o r t .
Respectfully submitted,
Douglas R. Norton
Auditor General
S t a f f : William Thomson
Steve H. Thacker
Mark S. Fleming
Sylvia E. Forte'
Gloria G. Glover
Enclosure
OFFICE OF THE AUDITOR GENERAL
A PERFORMANCE AUDIT OF THE
OFFICE OF THE DAIRY COMMISSIONER
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 83- 8
TABLE OF CONTENTS
INTRODUCTION AND BACKGROUND
SUNSET FACTORS
FINDINGS
The Office of the Dairy Commissioner does not adequately
manage its contract for laboratory analysis of dairy
samples.
CONCLUSION
FINDING I1
The Office of the Dairy Commissioner can save approximately
$ 51,000 annually by eliminating its soft serve ice cream
regulatory program.
CONCLUSION
RECOMMENDATIONS
FINDING I11
The Office of the Dairy Commissioner should strengthen
control over the disposition of adulterated milk.
CONCLUSION
FINDING IV
Dairy license fees, which have not been revised in 32
years, may need to be increased.
CONCLUSION
RECOMMENDATION
WRITTEN RESPONSE TO THE AUDITOR GENERAL'S REPORT
Page
i
1
5
LIST OF TABLES
Page
TABLE 1 - Actual or Budgeted Expenditures F i s c a l Years
1980- 81 through 1983- 84
TABLE 2 - Proportion of Laboratory Costs t o Total Budget f o r
F i s c a l Years 1980- 81 through 1983- 84 12
TABLE 3 - Comparison of the Number of Samples Processed
During F i s c a l Years 1980- 81 and 1981- 82 a s
Reported by Four Documents
TABLE 4 - ODC Soft Serve Program Costs F i s c a l Year 1981- 82
TABLE 5 - Dairy License Revenues as a Percentage of ODC
Expenditures F i s c a l Years 1952- 53 and 1981- 82
TABLE 6 - Comparison of Arizona Dairy License Fees with
Fees i n Ten Western S t a t e s
SUMMARY
The Office of the Auditor General has conducted a performance a u d i t of the
Office of the Dairy Commissioner i n response t o a January 18, 1982,
r e s o l u t i o n of the J o i n t L e g i s l a t i v e Oversight Committee. This performance
a u d i t was conducted a s a p a r t of the Sunset review s e t f o r t h i n Arizona
Revised S t a t u t e s ( A. R. S.) Ss41- 2351 through 41- 2379.
The Office of the Dairy Commissioner ( ODC) r e g u l a t e s the production and
s a l e of dairy products i n Arizona. ODC is responsible f o r p r o t e c t i n g the
public from milk- borne diseases and ensuring the q u a l i t y of d a i r y
products. Although the Office of the Dairy Commissioner was e s t a b l i s h e d
by law i n 1918, r e s p o n s i b i l i t y f o r r e g u l a t i n g t h e d a i r y i n d u s t r y was
shared by s e v e r a l S t a t e and l o c a l agencies u n t i l 1974. Since 1974, ODC
has been responsible f o r enforcing Arizona's d a i r y laws and regulations.
Management of Laboratorv
Services Needs Strengthening
( see page 11)
The Office of the Dairy Commissioner may have paid higher p r i c e s than
necessary f o r laboratory s e r v i c e s by not u s i n g competitive bidding t o the
e x t e n t possible. In a d d i t i o n , ODC does not adequately manage its
laboratory s e r v i c e s c o n t r a c t with the Department of Health Services
( DHS). ODC lacks accurate and r e l i a b l e work load d a t a f o r t h i s e s s e n t i a l
and c o s t l y function; consequently, ODC bases budgetary decisions on
inaccurate information and does not v e r i f y t h e accuracy of DHS charges f o r
l a b o r a t o r y s e r v i c e s .
ODC should encourage competition among p r i v a t e l a b o r a t o r i e s t o bid f o r
sampling s e r v i c e s by c l a r i f y i n g s p e c i f i c a t i o n s and d i v i d i n g t h e c o n t r a c t
i n t o two or more proposals. ODC should a l s o r e q u i r e DHS t o provide
a d d i t i o n a l documentation of s e r v i c e s rendered and maintain its own records
i n a way which allows i t t o v e r i f y t h e accuracy of DHS charges.
Eliminating Soft Serve Regulation
W i l l Save ODC $ 51,000 ( see page 21)
Transferring r e s p o n s i b i l i t y f o r s a n i t a r y r e g u l a t i o n of r e t a i l s o f t serve
i c e cream t o county h e a l t h departments would save the ODC up t o $ 51,000
annually without reducing p r o t e c t i o n of public h e a l t h . C u r r e n t l y , a
r e t a i l food establishment with a s o f t serve machine receives both a
g e n e r a l i n s p e c t i o n by the county h e a l t h department and an inspection of
the s o f t serve machine by ODC. However, these two i n s p e c t i o n s a r e
s u f f i c i e n t l y similar t o make c o n s o l i d a t i o n f e a s i b l e . Since county h e a l t h
departments now inspect the food establishments i n which the s o f t serve
machines a r e l o c a t e d , i n s p e c t i n g s o f t serve machines should n o t i n c r e a s e
t h e i r personnel c o s t s . The L e g i s l a t u r e should amend A. R. S. $ 3- 607 t o
eliminate ODC r e s p o n s i b i l i t y f o r l i c e n s i n g and inspecting s o f t serve
machines. Authority t o l i c e n s e s o f t serve machines should be t r a n s f e r r e d
t o the counties.
Stronger C o n t r o l o f Adulterated
Milk Is Needed ( see Dasze 27)
ODC should strengthen c o n t r o l over the d i s p o s i t i o n of a d u l t e r a t e d milk.
The e x i s t i n g program is adequate f o r i d e n t i f y i n g milk containing p e s t i c i d e
r e s i d u e or a f l a t o x i n but does not provide an independent v e r i f i c a t i o n of
proper d i s p o s a l . Physical v e r i f i c a t i o n by ODC personnel would ensure
p r o t e c t i o n of public h e a l t h and would be c o n s i s t e n t with t h e considerable
e f f o r t made t o i d e n t i f y a d u l t e r a t e d milk. ODC should e s t a b l i s h
1) r e g u l a t i o n s governing the t r a n s p o r t a t i o n and d i s p o s a l of a d u l t e r a t e d
milk and 2) procedures which provide f o r physical v e r i f i c a t i o n of the
d i s p o s a l of a d u l t e r a t e d milk i n at l e a s t some cases.
License Fees May Be Too Low
( s e e page 31)
ODC r e g u l a t o r y a c t i v i t i e s b e n e f i t both the g e n e r a l p u b l i c and t h e dairy
i n d u s t r y . Thus, both the public and t h e i n d u s t r y should pay a p o r t i o n of
the program's c o s t s . The public pays through General Fund a p p r o p r i a t i o n s ;
the industry pays through l i c e n s e f e e s . However, d a i r y l i c e n s e f e e s have
remained unchanged f o r over 30 y e a r s w h i l e ODC r e s p o n s i b i l i t i e s and c o s t s
have increased s u b s t a n t i a l l y . As a r e s u l t , the p o r t i o n of t h e ODC program
supported by l i c e n s e f e e s declined from 3 1 p e r c e n t i n 1952- 53 t o only 5
percent i n 1981- 82. This i n d i c a t e s t h a t t h e i n d u s t r y rnay not be bearing
an adequate portion of r e g u l a t o r y c o s t s . The L e g i s l a t u r e should determine
the proportion of program c o s t s which should be recovered through l i c e n s e
f e e s and r e v i s e t h e f e e schedule accordingly.
iii
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance a u d i t of the
Office of the Dairy Commissioner i n response t o a January 18, 1982,
r e s o l u t i o n of the J o i n t L e g i s l a t i v e Oversight Committee. This performance
a u d i t was conducted as a p a r t of the Sunset review s e t f o r t h i n Arizona
Revised S t a t u t e s ( A. R. S.) $ 541- 2351 through 41- 2379.
The Office of the Dairy Commissioner ( ODC) r e g u l a t e s the production and
s a l e of dairy products i n Arizona. ODC is responsible f o r p r o t e c t i n g the
public from t h e h e a l t h e f f e c t s of milk- borne diseases and ensuring the
q u a l i t y of dairy products produced and sold i n Arizona.
History of Dairy
Regulation i n Arizona
Although the Office of the Dairy Commissioner was e s t a b l i s h e d by law i n
1918, r e s p o n s i b i l i t y f o r r e g u l a t i n g t h e d a i r y i n d u s t r y was shared by
s e v e r a l S t a t e and l o c a l agencies u n t i l 1974. Since 1974, ODC has been
responsible f o r enforcing Arizona's d a i r y laws and r e g u l a t i o n s .
P r i o r t o 1957, t h e d a i r y industry was c h a r a c t e r i z e d by a lack of uniform
s a n i t a t i o n standards. I n 1931, the L e g i s l a t u r e recognized the v a l i d i t y of
the Federal milk grading s t a n d a r d s b u t l e f t the choice of adopting the
standards t o each municipality. Some c i t i e s adopted the F e d e r a l s t a n d a r d s
but o t h e r s did not. F i n a l l y , i n 1957, Arizona formally adopted the U. S.
Public Health Service Standard Milk Ordinance, l a t e r renamed the Grade A
Pasteurized Milk Ordinance ( PMO). A l l milk producers, manufacturers and
d i s t r i b u t o r s i n the S t a t e were t o abide by these s a n i t a t i o n standards.
Despite t h e adoption of F e d e r a l s t a n d a r d s , enforcement was not uniform
because regulatory a u t h o r i t y was shared by a number of S t a t e and l o c a l
agencies. The Dairy Commissioner had a u t h o r i t y t o i s s u e l i c e n s e s and
permits and t o i n s p e c t milk producers ( d a i r i e s ) , manufacturers and
d i s t r i b u t o r s .
However, the Commissioner appointed county h e a l t h o f f i c e r s a s h i s deputies
and functioned l a r g e l y i n an advisory r o l e . The S t a t e Health Department
was a l s o involved i n t h e r e g u l a t i o n of the d a i r y industry because of i t s
r e s p o n s i b i l i t y t o c o n t r o l diseases which might be transmitted through milk
and milk products. The S t a t e Health Department delegated p a r t of its
r e s p o n s i b i l i t i e s t o county h e a l t h o f f i c e r s .
The d i v i s i o n of regulatory power among t h e s e s e v e r a l agencies was not
c l e a r and l i m i t e d t h e e f f e c t i v e n e s s of the o v e r a l l regulatory e f f o r t . As
evidence of t h i s , i n the two- year period 1972- 73, 70 percent of the
d a i r i e s and milk p l a n t s inspected by Federal o f f i c i a l s f a i l e d t o meet PMO
standards. As a r e s u l t , the Food and Drug Administration ( FDA) threatened
t o make Arizona milk shippers i n e l i g i b l e f o r i n t e r s t a t e shipments. The
apparent need f o r g r e a t e r c e n t r a l i z a t i o n of regulatory a u t h o r i t y led t o
s t a t u t o r y changes i n 1973 which made the ODC responsible f o r enforcing
Arizona's d a i r y laws and r e g u l a t i o n s . The Pasteurized Milk Ordinance
provides the standards f o r most of these s t a t u t e s and r e g u l a t i o n s .
Programs and A c t i v i t i e s
Currently, the Commissioner operates s i x programs which serve two
purposes. One purpose is t o p r o t e c t public h e a l t h from p o t e n t i a l l y
harmful milk and dairy products. The second purpose is t o ensure the
m a r k e t a b i l i t y of d a i r y products through q u a l i t y c o n t r o l . The s i x programs
a r e :
1. Licensing and permitting - The Commissioner i s s u e s l i c e n s e s and
permits t o milk producers, p r o c e s s o r s , p r o d u c e r - d i s t r i b u t o r s ,
wholesale d i s t r i b u t o r s , samplers and t e s t e r s . To ensure
continued compliance with requirements, s a n i t a r i a n s i n s p e c t d a i r y
farms and manufacturing p l a n t s on a r e g u l a r b a s i s . The
Commissioner's s t a f f a l s o l i c e n s e s and i n s p e c t s s o f t i c e cream
dispensing machines.
2. P e s t i c i d e / a f l a t o x i n s u r v e i l l a n c e - Dairy Commissioner s t a f f t e s t
samples from milk tankers t o ensure t h a t milk is f r e e of
carcinogenic agents such as a f l a t o x i n and p e s t i c i d e s .
3. Sampling of r a w milk and milk products (" Universal sampling") -
ODC s y s t e m a t i c a l l y t e s t s raw milk from each producer ( d a i r y ) f o r
a n t i b i o t i c and b a c t e r i a l e v e l s . The t e s t i n g has two purposes:
public h e a l t h and product q u a l i t y . Controlling a n t i b i o t i c s
p r o t e c t s public h e a l t h while t e s t i n g f o r b a c t e r i a both p r o t e c t s
public h e a l t h and c o n t r o l s t h e q u a l i t y of milk used f o r Grade A
products. Milk products, such a s Grade A homogenized milk, a r e
t e s t e d f o r coliform and a n t i b i o t i c s .
4. Labeling and complaint r e s o l u t i o n - The Commissioner i n s p e c t s
packaged milk and t r a d e products t o ensure t h a t required
information appears on l a b e l s . The Office a l s o i n v e s t i g a t e s
consumer complaints r e l a t e d t o milk and milk products.
5 . Grading - The U. S. Department of Agriculture ( USDA) c e r t i f i e s the
Commissioner and s t a f f t o grade b u t t e r , cheese and milk powder
f o r compliance with USDA standards. The USDA reimburses the
S t a t e f o r t h i s s e r v i c e , t h e purpose of which is t o c o n t r o l t h e
market q u a l i t y of these products.
6. Emergency preparedness - The Commissioner cooperates with the
Arizona Office of Emergency Services and the Arizona Radiation
Regulatory Agency t o prepare and implement an emergency response
plan f o r possible r a d i a t i o n i n milk.
Personnel and Budget
For f i s c a l year 1982- 83 the Commissioner has a s t a f f of ten FTEs. These
include f i v e s a n i t a r i a n s , one i n s p e c t o r , two c l e r i c a l s t a f f , a deputy
commissioner and the Commissioner. A l l a p p r o p r i a t i o n s f o r the Office a r e
made from the General Fund. Table 1 shows a c t u a l or budgeted expenditures
f o r f i s c a l years 1980- 81 through 1983- 84.
TABLE 1
ACTUAL OR BUDGETED EXPENDITURES
FISCAL YEARS 1980- 81 THROUGH 1983- 84
General Fund Actual Actual Approved Requested
FTE positions
Personal services
Employee- related expenses
Professional and outside
services
Travel:
In- State
Out- of- State
Other operating
expenses
Equipment
Total
Audit Scope and Purpose
The purpose of our audit work was to evaluate:
1. The need for dairy regulation;
2. The effectiveness of regulatory activities, including compliance
with Federal requirements for Grade A milk and State requirements
for pesticide/ aflatoxin surveillance; and
3. The efficiency of agency operations.
The Auditor General and staff express appreciation to the Dairy
Commissioner and his employees for their cooperation and assistance during
the course of the audit.
SUNSET FACTORS
In accordance with A. R. S. SS41- 2351 through 41- 2379, the L e g i s l a t u r e is t o
consider 11 f a c t o r s t o determine, i n p a r t , whether t o continue or
terminate the Office of the Dairy Commissioner ( ODC).
Objective and purpose i n e s t a b l i s h i n g the agency
Although Arizona dairy s t a t u t e s contain no e x p l i c i t statement of
l e g i s l a t i v e i n t e n t , A. K. S. s3- 605 e s t a b l i s h e d p u b l i c h e a l t h as the
purpose f o r d a i r y regulation. S p e c i f i c a l l y , subsection C s t a t e s t h a t
" Powers and d u t i e s i n t h e f e d e r a l milk ordinance
r e l a t i n g t o h e a l t h and s a n i t a t i o n a r e vested i n the
s t a t e d a i r y commissioner. I n a d d i t i o n , the
commissioner s h a l l provide reasonable r e g u l a t i o n s
necessary t o a s s u r e t h a t a l l milk and milk products
sold or d i s t r i b u t e d f o r human consumption a r e f r e e from
unwholesome, poisonous o r other f o r e i g n substances and
f i l t h , i n s e c t s or disease- causing organisms. The
r e g u l a t i o n s h a l l prescribe reasonably necessary
measurements governing the production, processing,
l a b e l i n g , s t o r i n g , handling and t r a n s p o r t a t i o n of milk
and milk products ...."
ODC p o l i c i e s and guidelines r e a f f i r m p u b l i c h e a l t h as the agency's
primary o b j e c t i v e . The agency a l s o assists the i n d u s t r y by
e s t a b l i s h i n g a product q u a l i t y s t a n d a r d i z a t i o n program which enables
Arizona dairy products t o q u a l i f y f o r i n t e r s t a t e shipment.
2. The e f f e c t i v e n e s s with which the agency has met its o b j e c t i v e and
purpose and the e f f i c i e n c y with which the agency has operated
ODC has e s t a b l i s h e d a regulatory lprogram based on F e d e r a l s t a n d a r d s
which is generally e f f e c t i v e i n p r o t e c t i n g p u b l i c h e a l t h and meeting
the needs of the dairy i n d u s t r y . However, the agency can improve its
e f f e c t i v e n e s s by strengthening its regulatory procedures f o r
a f l a t o x i n / p e s t i c i d e s u r v e i l l a n c e .
ODC can improve the a f l a t o x i n / p e s t i c i d e s u r v e i l l a n c e program by
r e q u i r i n g producers and processors t o n o t i f y the agency and obtain
permission p r i o r t o disposing of a d u l t e r a t e d milk. ODC should r e v i s e
its procedures f o r follow- up on a d u l t e r a t e d m i l k t o include physical
v e r i f i c a t i o n of the d i s p o s i t i o n i n a t l e a s t some i n s t a n c e s ( s e e page
27).
ODC can improve its e f f i c i e n c y by b e t t e r managing laboratory
s e r v i c e s . Encouraging competitive bidding by p r i v a t e l a b o r a t o r i e s f o r
the l a b o r a t o r y s e r v i c e s , wherever f e a s i b l e , can possibly lower c o s t s
f o r t h e s e s e r v i c e s . Also, the agency c u r r e n t l y l a c k s the information
needed t o c o n t r o l the l e v e l o r c o s t of laboratory analyses ( see page
11).
ODC can f u r t h e r improve e f f i c i e n c y by discontinuing the s o f t serve i c e
cream program. County h e a l t h departments can meet the need f o r
s a n i t a r y r e g u l a t i o n of s o f t serve i c e cream machines-- without adding
staff-- as p a r t of t h e i r ongoing food establishment s a n i t a t i o n program
( see page 21).
3. The e x t e n t t o which the agency has operated within the public i n t e r e s t
The Office of the Dairy Commissioner operates i n t h e public i n t e r e s t
by enforcing the Pasteurized Milk Ordinance and other S t a t e s t a t u t e s
and r e g u l a t i o n s which ensure a s a f e supply of milk and d a i r y products
throughout t h e S t a t e .
ODC's a c t i v i t i e s a l s o b e n e f i t t h e d a i r y i n d u s t r y by helping Arizona
milk shippers meet the Federal requirements f o r shipping milk
out- of- state. When more than 50 percent of t h e milk producers/
manufacturers i n a s t a t e f a i l Federal i n s p e c t i o n s during a two- year
period, the Food and Drug Administration ( FDA) puts the s t a t e on
n o t i c e t h a t its milk shippers w i l l be removed from the I n t e r s t a t e Milk
Shippers ( IMS) list unless s u f f i c i e n t c o r r e c t i v e a c t i o n s a r e taken.
Removal from the IMS list prevents milk produced i n t h a t s t a t e from
being sold i n other s t a t e s . I n 1972 and 1973, 70 percent of Arizona's
milk producers/ manufacturers f a i l e d F e d e r a l i n s p e c t i o n s ; consequently,
FDA threatened t o remove Arizona shippers from the IFIS list. In 1973,
t h e L e g i s l a t u r e made the ODC responsible f o r enforcing a l l
dairy- related s t a t u t e s . Since then, the s a n i t a r y conditions of the
Arizona dairy industry have improved s u b s t a n t i a l l y as measured by
Federal inspections, and Arizona shippers have remained on the IMS
list. The most recent Federal evaluation showed Arizona's d a i r y
industry t o be well within Federal standards.
4. The e x t e n t t o which r u l e s and r e g u l a t i o n s promulgated by the agency
a r e c o n s i s t e n t with the l e g i s l a t i v e mandate
During our a u d i t , we found no apparent i n c o n s i s t e n c i e s between ODC's
r e g u l a t i o n s and i t s s t a t u t e s or o b j e c t i v e s . However, Finding I11
recommends changes i n the r e g u l a t i o n s t o allow f o r more e f f e c t i v e
c o n t r o l over the d i s p o s a l of milk a d u l t e r a t e d with a f l a t o x i n or
p e s t i c i d e s ( see page 27).
5. The e x t e n t t o which the agency has encouraged input from the public
before promulgating its r u l e s and r e g u l a t i o n s and the e x t e n t t o which
i t has informed the public a s t o its a c t i o n s and t h e i r expected impact
on the public
The most recent r e v i s i o n t o the r u l e s and r e g u l a t i o n s was made i n
1979. ODC complied with requirements f o r publicly posting the
proposed r e v i s i o n , holding public hearings and sending s p e c i a l
n o t i f i c a t i o n s t o i n d u s t r y r e p r e s e n t a t i v e s and other i n t e r e s t e d
p a r t i e s . During the course of our a u d i t , ODC submitted proposed
s t a t u t o r y r e v i s i o n s t o r e p r e s e n t a t i v e s of t h e d a i r y industry f o r t h e i r
input.
In a d d i t i o n , ODC informs the public as t o i t s a c t i o n s by i s s u i n g a
press r e l e a s e regarding any adverse sample r e s u l t s and any a c t i o n
taken a g a i n s t s p e c i f i c products.
6. The e x t e n t t o which t h e agency has been a b l e t o i n v e s t i g a t e and
resolve complaints t h a t a r e within its j u r i s d i c t i o n
ODC policy is t o i n v e s t i g a t e a l l complaints as r a p i d l y as possible.
Our review of ODC complaint f i l e s shows t h a t i n most i n s t a n c e s t h e
agency i n i t i a t e s a c t i o n promptly upon receiving complaints. ODC
received 31 complaints during the l a s t q u a r t e r of 1982 and began
i n v e s t i g a t i n g 23 within one day o r l e s s . I n 25 of the 31 cases ODC
obtained s a t i s f a c t o r y r e s o l u t i o n within two weeks of the i n i t i a l
complaint.
7. The e x t e n t t o which the Attorney General or any o t h e r a p p l i c a b l e
agency of S t a t e government has t h e a u t h o r i t y t o prosecute a c t i o n s
under enabling l e g i s l a t i o n
Violations of ODC's enabling s t a t u t e s can be prosecuted a s criminal
offenses by the Attorney General or the County Attorney. In a d d i t i o n ,
ODC can seek a court i n j u n c t i o n a g a i n s t v i o l a t i o n s of A. R. S. § $ 3- 661
through 3- 670 when more immediate enforcement a c t i o n i s needed.
However, ODC does not have the same a u t h o r i t y t o seek i n j u n c t i o n s
a g a i n s t v i o l a t i o n s of A. R. S. § § 3- 601 through 3- 634. To ensure uniform
enforcement of d a i r y l a w s , the L e g i s l a t u r e may wish t o amend A. R. S.
s3- 634 t o allow the ODC t o seek an i n j u n c t i o n f o r a l l v i o l a t i o n s .
8. The e x t e n t t o which the agency has addressed d e f i c i e n c i e s i n the
enabling s t a t u t e s which prevent it from f u l f i l l i n g i t s s t a t u t o r y
mandate
ODC has sought only one s t a t u t o r y r e v i s i o n i n recent years. The 1982
amendments t o the s t a t u t e s s t r u c k the year " 1978" i n references made
t o the Grade A Pasteurized Milk Ordinance ( PMO). T h i s a l l o w s ODC t o
enforce the Federal standards r e g a r d l e s s of the date of r e v i s i o n s made
t o the PMO.
More r e c e n t l y , ODC prepared s t a t u t o r y r e v i s i o n s with t h e o r i g i n a l
i n t e n t of proposing these changes during the 1983 s e s s i o n . The
Attorney General, L e g i s l a t i v e Council and r e p r e s e n t a t i v e s of the
industry reviewed the proposed r e v i s i o n s , which included adoption of
F e d e r a l s t a n d a r d s f o r manufactured milk products." Upon
reconsideration, however, the ODC plans t o make the changes by
r e g u l a t i o n r a t h e r than l e g i s l a t i o n .
9. The e x t e n t t o which changes a r e necessary i n the laws of the agency t o
adequately comply with t h e f a c t o r s l i s t e d i n the subsection
Based on our a u d i t work, we recommend the L e g i s l a t u r e consider making
t h r e e changes i n the enabling s t a t u t e s f o r the Office of the Dairy
Commissioner :
a. Delete requirements i n S t a t e law f o r l i c e n s i n g and
inspecting s o f t serve i c e cream machines ( see page 21),
b. Increase l i c e n s e f e e s t o recover a g r e a t e r portion of
regulatory c o s t s ( see page 31), and
c. Authorize the ODC t o seek a court i n j u n c t i o n a g a i n s t
v i o l a t i o n s of A. R. S. SS3- 601 through 3- 634.
10. The e x t e n t t o which the termination of the agency would s i g n i f i c a n t l y
harm the p u b l i c h e a l t h . s a f e t y or welfare
Terminating the Office of the Dairy Commissioner and t h e s a n i t a t i o n
programs which i t c a r r i e s out would expose t h e p u b l i c t o the r i s k of
milk- borne disease now l a r g e l y under c o n t r o l . Moreover, termination
of ODC and its programs would mean t h a t Arizona no longer meets the
requirements of the PMO. Consequently, Arizona d a i r y producers would
no longer be a b l e t o ship milk o u t - o f - s t a t e a s p a r t of the I n t e r s t a t e
Hilk Shippers Agreement.
* Manufactured milk products a r e products made from milk or cream not
conforming t o the requirements of the PMO.
9
11. The e x t e n t t o which t h e l e v e l of r e g u l a t i o n exercised by t h e agency is
a p p r o p r i a t e and whether l e s s or more s t r i n g e n t l e v e l s of r e g u l a t i o n
would b e a p p r o p r i a t e
ODC r e g u l a t i o n meets the requirements o f t h e Federal PMO and thus
provides reasonable assurance t h a t d a i r y products a r e s a f e and
wholesome. Two r e g u l a t o r y areas, however, need improvement.
F i r s t , ODC needs t o e s t a b l i s h more e f f e c t i v e c o n t r o l over the d i s p o s a l
of milk contaminated with a f l a t o x i n or p e s t i c i d e . The agency should
promulgate r u l e s and r e g u l a t i o n s r e q u i r i n g t h e i n d u s t r y t o n o t i f y ODC
and o b t a i n permission p r i o r t o disposing of a d u l t e r a t e d milk. ODC
should v e r i f y proper d i s p o s a l by p h y s i c a l l y observing t h e d i s p o s a l i n
a t l e a s t some i n s t a n c e s ( s e e page 27).
Second, the s o f t serve i c e cream r e g u l a t o r y program should be
t r a n s f e r r e d t o t h e counties. County h e a l t h departments could
adequately r e g u l a t e s o f t serve i c e cream as p a r t of t h e i r r o u t i n e food
establishment s a n i t a t i o n programs ( see page 21).
FINDING I
TIIE OFFICE OF THE DAIRY COMMISSIONER DOES NOT ADEQUATELY MANAGE ITS
CONTMCT FOR LABORATORY ANALYSIS OF DAIRY SAMPLES.
The Office of the Dairy Commissioner ( ODC) does not adequately manage its
c o n t r a c t with the Department of Health Services ( DHS) f o r l a b o r a t o r y
a n a l y s i s of dairy samples. Laboratory a n a l y s i s is e s s e n t i a l f o r ODC t o
r e g u l a t e the d a i r y i n d u s t r y and r e p r e s e n t s a major p o r t i o n of the O f f i c e ' s
budget. Iiowever, ODC may have p a i d h i g h e r u n i t p r i c e s than necessary f o r
sample a n a l y s i s and l a c k s t h e information needed t o c o n t r o l the l e v e l and
cost of i t s l a b o r a t o r y s e r v i c e s program.
Laboratory Analysis Is E s s e n t i a l
To the Regulatory Program
ODC r e l i e s e x t e n s i v e l y on l a b o r a t o r y a n a l y s i s i n i t s oversight of the
d a i r y i n d u s t r y . ODC annually processes between 9,000 and 10,000 samples
t e s t i n g dairy products f o r milk- borne d i s e a s e s , a f l a t o x i n ; p e s t i c i d e s ,
b a c t e r i a count and a n t i b i o t i c s . Approximately 5,000 o f t h e s e samples a r e
required by the Federal Grade A Pasteurized Milk Ordinance ( PMO) t o
q u a l i f y Arizona milk producers f o r i n t e r s t a t e shipments. Another 1,500 to
2,000 samples a r e p a r t of ODC's a f l a t o x i n / p e s t i c i d e s u r v e i l l a n c e program
t o ensure t h a t producers do not market a d u l t e r a t e d milk. About 2,500 t o
3,000 samples t e s t the q u a l i t y of s o f t serve i c e cream. Thus, l a b o r a t o r y
a n a l y s i s is e s s e n t i a l t o ODC's dual r e s p o n s i b i l i t y of p r o t e c t i n g the
public h e a l t h and ensuring t h e m a r k e t a b i l i t y and q u a l i t y of d a i r y products.
The l a b o r a t o r y a n a l y s i s program is a l s o a major p o r t i o n of ODC's budget.
As Table 2 shows, ODC expends a t l e a s t one- third of its budget t o t e s t
approximately 10,000 samples annually.
TABLE 2
PROPORTION OF LABORATORY COSTS TO TOTAL BUDGET
FOR FISCAL YEARS 1980- 81 THROUGH 1983- 84
F i s c a l Year
1980- 81 1981- 82 ,1982- 83 1983- 84
( Actual) ( Actual) ( Estimate) ( Estimate)
Number of
Samples 9,648 9,052 9,320 10,620
Cost of Lab
Services $ 194,400 $ 199,300 $ 153,000 $ 174,400
Total ODC Budget $ 436,900 $ 485,800 $ 483,000 $ 475,500
Percent of Lab
Costs t o Total
Budget 4 4% 41%
Because laboratory a n a l y s i s is important t o d a i r y r e g u l a t i o n and
r e p r e s e n t s a l a r g e p o r t i o n of the ODC budget, management c o n t r o l is
necessary t o ensure e f f i c i e n c y . Despite the importance of laboratory
a n a l y s i s , t h e Dairy Commissioner has not considered managerial oversight
and a c c o u n t a b i l i t y t o be h i s agency's r e s p o n s i b i l i t y s i n c e DHS provides
the s e r v i c e s .
ODC Mav Have Paid Higher
Unit P r i c e s than Necessary
f o r Laboratory Services
ODC may have paid higher u n i t p r i c e s than necessary f o r laboratory s e r v i c e s
i n recent years. P r i o r t o 1982- 83, a t l e a s t one p r i v a t e laboratory could
have provided some a n a l y t i c a l s e r v i c e s t o ODC at s u b s t a n t i a l l y lower c o s t s
than DHS charged. Although the bidding process appears to have led to
reduced u n i t p r i c e s f o r some s e r v i c e s , f u r t h e r savings may be possible
through g r e a t e r use of competitive bidding.
ODC has always used the DHS l a b o r a t o r y f o r a l l sample analyses. The DHS
l a b o r a t o r y is p r e s e n t l y the only l a b o r a t o r y i n Arizona c e r t i f i e d by the
Federal government t o perform the analyses required by the Pasteurized Milk
Ordinance ( PSIO). However, p r i v a t e l a b o r a t o r i e s can become c e r t i f i e d for PMO
analyses. F u r t h e r , State- mandated sampling programs, such a s
a f l a t o x i n / p e s t i c i d e and s o f t serve i c e cream, do not r e q u i r e l a b o r a t o r y
c e r t i f i c a t i o n . Therefore, use of the DHS l a b o r a t o r y can be j u s t i f i e d only
i f q u a l i t y and p r i c e a r e c o m p e t i t i v e w i t h p r i v a t e l a b o r a t o r i e s .
P r i v a t e Laboratory P r i c e s Lower - ODC could have purchased l a b o r a t o r y
s e r v i c e s f o r p e s t i c i d e analyses at a lower c o s t per sample than t h a t charged
by DHS. We compared DHS u n i t p r i c e s f o r p e s t i c i d e analyses w i t h t h o s e of a
p r i v a t e l a b o r a t o r y . Our r e s u l t s show t h a t p r i o r t o f i s c a l year 1982- 83 the
p r i v a t e l a b o r a t o r y cost per sample f o r p e s t i c i d e analyses was about $ 12
lower than the DHS p r i c e . DHS charged $ 52 per sample while t h e p r i v a t e
l a b o r a t o r y quoted a p r i c e between $ 35 and $ 40 per sample f o r a monthly
volume of 75 t o 100 samples. Thus, p r i v a t e l a b o r a t o r y charges would have
been 20 percent lower than DMS charges."
Impact of Competitive Bidding - The c o s t of DHS l a b o r a t o r y s e r v i c e s
decreased i n 1982 when 0DC sought competitive bids. An Attorney General
opinion issued i n 1982 i n d i c a t e d t h a t ODC should purchase l a b o r a t o r y
s e r v i c e s by open c o m p e t i t i v e b i d s . ODC s o l i c i t e d bids f o r its 1983- 84
l a b o r a t o r y s e r v i c e s i n J u l y 1982. DHS was the only bidder a t $ 174,400. The
bid r e f l e c t e d a reduction from $ 71 t o $ 46 per sample f o r a f l a t o x i n analyses
and a reduction from $ 52 t o $ 34 per. sample f o r p e s t i c i d e analyses. More
s i g n i f i c a n t l y , however, DHS a l s o reduced by the same amounts i t s c o s t s f o r
a f l a t o x i n and p e s t i c i d e analyses under the 1982- 83 c o n t r a c t .
* ODC compared DHS charges with the same p r i v a t e l a b o r a t o r y i n 1980.
However, r e s u l t s of the ODC comparison were misleading. According t o
ODC, the p r i v a t e l a b o r a t o r y quoted a p r i c e of $ 70 per sample. Our
comparison revealed t h a t t h e $ 70 per sample c o s t was f o r a s i n g l e
sample. ODC a c t u a l l y submits between 75 t o 100 samples each month f o r
p e s t i c i d e a n a l y s i s . As the number of samples i n c r e a s e s , t h e c o s t per
sample decreases. Thus, the p r i v a t e l a b o r a t o r y c o s t was a c t u a l l y
between $ 35 t o $ 40 per sample, r a t h e r than $ 70.
The s u b s t a n t i a l reduction i n laboratory c o s t s suggests t h a t previous years'
c o n t r a c t s were overpriced. Budget a n a l y s t s and i n d u s t r y sources had
questioned DHS p r i c e s f o r a f l a t o x i n and p e s t i c i d e analyses a s being too
high. Without competitive bidding, however, n e i t h e r ODC nor DHS had any
incentive t o keep c o s t s t o a minimum. ODC and DHS explain the cost
reduction by noting t h a t new equipment was purchased i n previous years and
the laboratory streamlined t e s t i n g procedures. However, the cost decreases
f o r f i s c a l years 1982- 83 and 1983- 84 occurred concurrently with the open
competitive bidding process.
Need t o Increase Competition - Although laboratory c o s t s decreased with
competitive bidding, ODC can increase competition f o r the laboratory
s e r v i c e s c o n t r a c t by c l a r i f y i n g its requirements and dividing the c o n t r a c t .
Misunderstandings about ODC requirements may have discouraged some p r i v a t e
l a b o r a t o r i e s from submitting bids i n 1982. Dividing the c o n t r a c t would
o f f e r the opportunity t o bid t o a l a r g e r number of l a b o r a t o r i e s . Clarifying
the bid s p e c i f i c a t i o n s would provide i n t e r e s t e d l a b o r a t o r i e s with b e t t e r
information on which t o base t h e i r proposals.
P r i v a t e l a b o r a t o r i e s were i n t e r e s t e d when ODC issued an i n v i t a t i o n t o bid on
the laboratory s e r v i c e s c o n t r a c t f o r f i s c a l year 1983- 84 but may have been
discouraged by misunderstandings about agency requirements. Of the four
l a b o r a t o r i e s which obtained bid s p e c i f i c a t i o n s , only DHS submitted a formal
proposal. Representatives of one laboratory t o l d us t h a t one reason it did
not bid was t h e i r understanding t h a t ODC would normally require analyses on
weekends, a _ requirement the laboratory could not meet a t a competitive
p r i c e . Although ODC s p e c i f i e d a need f o r " 24 hour l a b o r a t o r y f a c i l i t i e s i n
case of emergency," the need is n o t r o u t i n e . Thus, one p o t e n t i a l bidder did
not submit a bid at l e a s t i n p a r t because i t misunderstood ODC requirements.
A second p o t e n t i a l bidder did not submit a formal proposal because i t lacked
s u f f i c i e n t time. ODC o r i g i n a l l y gave b i d d e r s f o u r weeks t o submit proposals
and l a t e r extended the deadline by an a d d i t i o n a l two weeks. However, since
these s e r v i c e s had not been put out t o bid p r i o r t o 1982, t h i s second
p o t e n t i a l bidder did n o t c o n s i d e r s i x weeks adequate t o prepare a proposal.
This l a b o r a t o r y , however, plans t o submit a proposal f o r the next f i s c a l
year.
14
Thus, ODC's i n i t i a l experience with competitive bidding i n d i c a t e s t h a t
p r i v a t e l a b o r a t o r i e s a r e i- nterested i n bidding f o r t h e l a b o r a t o r y s e r v i c e s
c o n t r a c t . To improve f u t u r e competition, ODC should c l a r i f y i t s
s p e c i f i c a t i . o n s to preclude any misunderstandings about what w i l l be required
of t h e s u c c e s s f u l bidder.
Dividing the c o n t r a c t by the t h r e e types of analyses involved-- PMO,
a f l a t o x i n / p e s t i c i d e and s o f t serve analyses-- would f u r t h e r encourage
competition. Previously, ODC i s s u e d a s i n g l e s e t of s p e c i f i c a t i o n s covering
a l l required analyses. Because PllO analyses r e q u i r e a f e d e r a l l y c e r t i f i e d
l a b o r a t o r y , t h i s s i n g l e s e t of s p e c i f i c a t i o n s r e s t r i c t e d bidding by forcing
p o t e n t i a l bidders t o obtain the PMO c e r t i f i c a t i o n t o s u c c e s s f u l l y compete.*
ODC can promote competition by dividing its program i n t o two o r t h r e e
c o n t r a c t s , one f o r PMO analyses and one or two f o r a f l a t o x i n / p e s t i c i d e and
s o f t serve i c e cream analyses. P r i v a t e l a b o r a t o r i e s a r e q u a l i f i e d t o
perform the l a t t e r two analyses without PMO c e r t i f i c a t i o n . For f i s c a l year
1983- 84, t h e c o s t of l a b sevices f o r these samples is $ 81,000 and $ 20,000,
r e s p e c t i v e l y . The PMO portion is $ 73,000. Dividing the c o n t r a c t i n t h i s
manner would increase competition and may r e s u l t i n even lower u n i t p r i c e s .
ODC Lacks Management Control
Over Laboratory Services
ODC lacks adequate c o n t r o l over the l e v e l and c o s t of its laboratory
s e r v i c e s program. Inaccurate management data h i n d e r s t h e budgeting
process and prevents ODC from e f f e c t i v e l y nonitoring DHS charges for
l a b o r a t o r y s e r v i c e s .
* Although most p r i v a t e l a b o r a t o r i e s a r e e l i g i b l e f o r c e r t i f i c a t i o n ,
p r i o r t o 1982 ODC did not bid out d a i r y analyses, and t h e r e f o r e
p r i v a t e l a b o r a t o r i e s had no reason t o become c e r t i f i e d . IIowever,
p r i v a t e l a b o r a t o r i e s a r e l i k e l y t o apply f o r c e r t i f i c a t i o n now t h a t
the opportunity e x i s t s t o obtain a c o n t r a c t with ODC.
Management Data Inaccurate - OCC does not know the a c t u a l amount of
laboratory s e r v i c e s received. In f a c t , four s e p a r a t e accounts provide four
d i f f e r e n t f i g u r e s regarding the amount of s e r v i c e received.
A comparison of ODC budget submissions f o r f i s c a l years 1982- 83 and 1983- 84
revealed t h a t each r e p o r t s d i f f e r e n t f i g u r e s f o r the number of d a i r y samples
processed by the DHS laboratory ( Table 3). I n its 1982- 83 budget request,
ODC reported 4,740 milk samples analyzed i n each of t h e two preceding f i s c a l
years. One year l a t e r , the ODC budget request showed 1,800 and 1,900
samples analyzed during the same periods. The two budget submissions a l s o
showed a reduction from 3,938 t o 2,000 i n the number of s o f t serve samples
analyzed i n f i s c a l year 1981- 82.
Because of these s u b s t a n t i a l discrepancies i n ODC budget documents we
requested t h a t ODC v e r i f y the numbers of samples analyzed i n f i s c a l years
1980- 81 and 1981- 82. ODC t a l l i e d sample r e p o r t s submitted by DHS f o r those
years. The r e s u l t s d i f f e r e d not only from the budget requests but a l s o
d i f f e r e d from a s e p a r a t e count provided by DHS ( see Table 3 ) .
TABLE 3
COMPARISON OF THE NUMBER OF SAMPLES PROCESSED DURING
FISCAL YEARS 1980- 81 AND 1981- 82 AS REPORTED BY FOUR DOCUMENTS
A c t i v i t y
Milk samples Office of the Dairy Commissioner
Milk samples Department of Health Services
Milk samples ODC - Budget - 1982- 83
Milk samples ODC - Budget - 1983- 84
Differences between the highest and lowest counts
Soft i c e cream Office of the Dairy Commissioner
Soft i c e cream Department of Health Services
Soft i c e cream ODC - Budget - 1982- 83
Soft i c e cream ODC - Budget - 1983- 84
Differences between t h e h i g h e s t and lowest counts
Thus, four separate documents provide four d i f f e r e n t f i g u r e s on the
amounts of laboratory work f o r milk and s o f t i c e cream samples. These
samples represent a major p o r t i o n of ODC's laboratory program. Inaccurate
data f o r these a c t i v i t i e s misrepresents the scope of the ODC laboratory
s e r v i c e s program and, a s described below, can r e s u l t i n e r r o r s i n
estimating f u t u r e needs. Despite the importance of accurate management
information, ODC has not developed a system t o provide a c c u r a t e , r e l i a b l e
information about its laboratory s e r v i c e s program.
Inaccurate Estimates of Service Needs - Because its management data is
i n a c c u r a t e , ODC cannot make accurate decisions on i t s laboratory s e r v i c e
needs. For example, i n 1982 ODC proposed a program reduction which was i n
f a c t a program i n c r e a s e . In preparing its 1983- 84 budget, ODC estimated
t h a t it would need laboratory a n a l y s i s of 3,000 s o f t serve i c e cream
samples, a reduction from the 3,938 samples reported f o r 1981- 82, the base
year. However, the a c t u a l number of samples analyzed i n 1981- 82 was
approximately 2,500. As a r e s u l t , the proposed l e v e l of 3,000 samples f o r
1983- 84 a c t u a l l y represented an increase of approximately 500 r a t h e r than
a reduction of over 900 samples.
Lack of Control Over Payments t o DHS - Inaccurate management data a l s o
prevents ODC from e f f e c t i v e l y monitoring DHS charges f o r laboratory
s e r v i c e s . ODC does not maintain adequate independent records t o v e r i f y
the accuracy of DHS charges. Moreover, ODC does n o t r e q u i r e DHS t o submit
a statement of services rendered a s p a r t of the payment process.
ODC has f a i l e d t o use its own records t o v e r i f y the number of samples
processed and the accuracy of DHS charges. ODC r e c e i v e s a l a b report f o r
each sample submitted t o DHS. However, ODC does not compare the number of
l a b r e p o r t s received f o r a given period with a r e c o r d o f samples submitted
t o DHS during t h a t period. Furthermore, ODC does not t o t a l the l a b
r e p o r t s q u a r t e r l y and compare the value of these s e r v i c e s with DHS
charges. Without these i n t e r n a l procedures, ODC cannot provide a r e l i a b l e
count o f samples processed nor v e r i f y the accuracy o f DHS charges. I n
f a c t , when we asked ODC s t a f f t o count its l a b o r a t o r y r e p o r t s f o r a
two- year period, i t s counts d i f f e r e d from the number of samples reported
by DHS f o r the same periods ( see Table 3 ) . I n t h o s e c a s e s where DHS
reported a higher number than ODC, ODC would not know whether i t was
charged f o r more s e r v i c e s than it a c t u a l l y received.
ODC a l s o does not r e q u i r e DHS t o provide adequate documentation as p a r t of
the payment process. 0I) C pays DHS a t the beginning of each q u a r t e r f o r
s e r v i c e s the l a b o r a t o r y w i l l provide during t h e q u a r t e r . Each payment
r e p r e s e n t s one- fourth of ODC's annual budget f o r l a b s e r v i c e s . A t the end
of each f i s c a l year, DHS t h e n r e f u n d s unused p o r t i o n s of t h e y e a r ' s
payments t o ODC. ODC does not request DHS t o provide a statement of the
number and types of samples processed during the q u a r t e r o r f o r the year
a s a whole.
ODC Has Not Assumed R e s ~ o n s i b i l i t v
f o r Laboratorv Services
ODC has not adequately managed its l a b o r a t o r y s e r v i c e s program because the
agency did not assume f u l l r e s p o n s i b i l i t y f o r the program. According to
tile Dairy Cornmissioner, he did not consider managerial oversight t o be h i s
r e s p o n s i b i l i t y since DHS provided t h e s e r v i c e s . However, s i n c e 1974 ODC
has been r e s p o n s i b l e f o r enforcing a l l d a i r y - r e l a t e d s t a t u t e s . Sample
a n a l y s i s is an important t o o l i n the ODC enforcement program, and
l a b o r a t o r y s e r v i c e measurements and funding a r e included i n the ODC
budget. Like any agency, then, ODC is r e s p o n s i b l e f o r monitoring its
l a b o r a t o r y s e r v i c e c o n t r a c t and presenting a c c u r a t e information i n
o f f i c i a l documents used f o r budgetary decisions.
The Dairy Commissioner s t a t e d t h a t ODC w i l l assume g r e a t e r c o n t r o l over
the l a b o r a t o r y s e r v i c e s program when the 1983- 84 c o n t r a c t with DHS goes
i n t o e f f e c t . The new c o n t r a c t s p e c i f i e s payment on t h e b a s i s of
i n d i v i d u a l samples analyzed. To receive payment, DHS w i l l have t o submit
irlvoices showing the number of analyses performed. According t o the Dairy
Commissioner t h i s procedure w i l l improve ODC c o n t r o l over the program.
CONCLUSIOh
The Office of t h e Dairy Commissioner does n o t a d e q u a t e l y manage i t s
l a b o r a t o r y s e r v i c e s c o n t r a c t with DHS. ODC has not used competitive
bidding t o the e x t e n t p o s s i b l e f o r obtaining l a b o r a t o r y s e r v i c e s a t the
lowest c o s t . I n a d d i t i o n , ODC lacks accurate and r e l i a b l e work load data
f o r t h i s e s s e n t i a l and c o s t l y function and does not adequately monitor DHS
charges f o r l a b o r a t o r y s e r v i c e s .
1. ODC should encourage competition among p r i v a t e l a b o r a t o r i e s t o bid f o r
sampling s e r v i c e s by
a. C l a r i f y i n g the s p e c i f i c a t i o n s f o r t h e l a b o r a t o r y c o n t r a c t and
b. Dividing t h e c o n t r a c t i n t o t ~ oor more proposals for s e p a r a t e
bidding.
2. ODC should increase its c o n t r o l over the l e v e l and c o s t of l a b o r a t o r y
s e r v i c e s by
a . Requiring DHS t o provide periodic s t a t i s t i c a l and expenditure
r e p o r t s f o r l a b o r a t o r y s e r v i c e s rendered. ODC i n s p e c t o r s should
record the types and number of samples submitted f o r l a b o r a t o r y
a n a l y s i s s o t h a t ODC can p e r i o d i c a l l y v e r i f y DHS r e p o r t s ; and
b. Paying DHS only f o r a c t u a l l a b o r a t o r y work performed and submitted
on a voucher w i t h a r e q u e s t f o r payment.
FINDING I1
THE OFFICE OF THE DAIRY COEPfISSIONER CAN SAVE APPROXIMATELY $ 51,000
ANhUA1, LY BY EL1: lINATING ITS SOFT SERVE ICE CREAM REGULATORY PROGRAM.
County healttl departments can provide adequate s a n i t a r y r e g u l a t i o n of s o f t
serve i c e cream products, e l i m i n a t i n g the need f o r t h e O f f i c e of the Dairy
Commissioner ( ODC) t o r e g u l a t e these products a t t h e r e t a i l l e v e l .
Although the h e a l t h t h r e a t a s s o c i a t e d w i t h s o f t serve i c e cream appears t o
be r e l a t i v e l y minor, some r e g u l a t i o n is a p p r o p r i a t e . Currently,
s a n i t a r i a n s from both the ODC and county h e a l t h departments i n s p e c t food
establishments which s e l l s o f t serve products. According t o our a n a l y s i s ,
county h e a l t h departments c o u l d a d e q u a t e l y r e g u l a t e s o f t serve a t the
r e t a i l l e v e l . T r a n s f e r r i n g ODC s o f t s e r v e i n s p e c t i o n r e s p o n s i b i l i t i e s t o
the counties would save the S t a t e up t o $ 51,000 annually.
Need f o r Regulation Is Limited
The t h r e a t of b a c t e r i o l o g i c a l contamination c r e a t e s a need f o r s a n i t a r y
r e g u l a t i o n of s o f t serve i c e cream. However, t h e a s s o c i a t e d h e a l t h
problems do not appear t o be major.
The processing needed t o dispense s o f t serve i c e cream a t r e t a i l
establishments c r e a t e s a need f o r some s a n i t a r y r e g u l a t i o n . S o f t serve
i c e cream is prepared f o r s a l e from a packaged s o f t serve mix. Like any
d a i r y product, s o f t serve mix is a good medium f o r b a c t e r i a l growth; and
the c o n t a c t s u r f a c e s within the processing machine, i f not properly
cleaned, provide o p p o r t u n i t i e s f o r introducing b a c t e r i a .
Health problems a s s o c i a t e d w i t h s o f t serve i c e cream appear t o be minimal,
however. I f b a c t e r i a l growth causes a problem, it w i l l generally r e s u l t
i n mild nausea and is not l i k e l y t o be reported t o h e a l t h a u t h o r i t i e s . As
a r e s u l t , h e a l t h o f f i c i a l s a r e not aware of any d i s e a s e outbreaks
r e s u l t i n g from s o f t serve i c e cream. ODC sampling d a t a f u r t h e r i n d i c a t e
t h a t the h e a l t h e f f e c t s of s o f t serve i c e cream a r e minor. For f i s c a l
years 1976- 77 through 1979- 80 more than a t h i r d of the samples analyzed
exceeded b a c t e r i a l standards. Curing the same period, however, there is
l i t t l e evidence of i l l n e s s r e s u l t i n g from s o f t serve i c e cream and
consumers made few complaints.
Sanitary r e g u l a t i o n of s o f t serve i c e cream is s i m i l a r t o microbiological
s u r v e i l l a n c e of any p o t e n t i a l l y hazardous retail foods. Food s a n i t a t i o n
is l a r g e l y the r e s p o n s i b i l i t y of county h e a l t h departments i n Arizona,
which conduct r o u t i n e i n s p e c t i o n s of food s e r v i c e establishments. Given
the nature of the h e a l t h problems associated with s o f t serve i c e cream,
county h e a l t h departments a r e capable of adequately p r o t e c t i n g public
h e a l t h . Although a l l ten western s t a t e s surveyed r e g u l a t e s o f t serve
machines, l o c a l h e a l t h departments i n s p e c t the machines i n ' s i x of these
s t a t e s .
ODC Could Save $ 51,000 Annually
i f County Health Departments
I n s ~ e c t e d Soft Serve Machines
Combining s o f t s e r v e i n s p e c t i o n s with county h e a l t h department inspections
of food establishments would reduce ODC expenditures by approximately
$ 51,000. ODC and h e a l t h department i n s p e c t i o n s a r e s u f f i c i e n t l y s i m i l a r
t o make c o n s o l i d a t i o n f e a s i b l e . Inspecting s o f t serve machines is not
l i k e l y t o increase county h e a l t h department personnel c o s t s since health
department s a n i t a r i a n s r o u t i n e l y i n s p e c t a l l food establishments,
including those with s o f t serve machines.
ODC r e g u l a t e s s o f t serve machines through l i c e n s i n g , i n s p e c t i o n s and
sampling. A. R. S. 53- 607 r e q u i r e s owners t o obtain a l i c e n s e f o r each
machine and s e t s the annual f e e a t $ 10. There were approximately 960
licensed machines i n Arizona during f i s c a l year 1981- 82. ODC s a n i t a r i a n s
v i s i t each establishment once or twice a year t o i n s p e c t the processing
machines and take s o f t serve i c e cream samples f o r laboratory a n a l y s i s .
During f i s c a l year 1981- 82, ODC personnel made 1,458 i n s p e c t i o n s and took
approximately 2,500 samples.
County h e a l t h department s a n i t a r i a n s a l s o v i s i t the same establishments a s
p a r t of each department's food s a n i t a t i o n program. Health departments
make about two r o u t i n e i n s p e c t i o n s per year with follow- up i n s p e c t i o n s a s
needed. County s a n i t a r i a n s do n o t c l o s e l y inspect s o f t serve machines.
They may examine a machine's e x t e r i o r , but h e a l t h o f f i c i a l s i n both
bfaricopa and Pima Counties noted t h a t t h e i r personnel do not check
i n t e r n a l c l e a n l i n e s s , s i n c e t h i s is t h e r e s p o n s i b i l i t y of ODC
s a n i t a r i a n s . However, one o f f i c i a l s a i d t h a t h i s department could f u l l y
examine s o f t serve machines a s p a r t of its r o u t i n e i n s p e c t i o n s without
adding personnel.
Combining s o f t s e r v e i n s p e c t i o n s with r o u t i n e food establishment
i n s p e c t i o n s would save ODC approximately $ 51,000 annually ( Table 4 ) . The
t r a n s f e r would eliminate the need f o r one s a n i t a r i a n and one c l e r i c a l
p o s i t i o n at the ODC. These p o s i t i o n s c o s t approximately $ 38,000 i n
s a l a r i e s and employee- related expenses during f i s c a l year 1981- 82.
Transferring s o f t s e r v e i n s p e c t i o n s t o the counties would a l s o save ODC
$ 22,600 i n laboratory c o s t s . County h e a l t h departments may have t o
increase t h e i r laboratory c o s t s somewhat, depending on the number of s o f t
i c e cream samples analyzed. However, county h e a l t h o f f i c i a l s disagree
about the amount of sampling needed i f they take over s o f t serve
inspections. One county h e a l t h department would sample only when it
received complaints; another s t a t e d t h a t regular sampling is the only way
t o ensure t h a t s o f t serve products a r e wholesome.
TABLE 4
ODC SOFT SERVE PROGRAM COSTS
FISCAL YEAR 1981- 82
Sampling c o s t s
Employee c o s t s
Total program c o s t s
Less l i c e n s e f e e s received
Net program c o s t s
* Based on 2,551 samples analyzed by DHS at a c o s t of $ 8.88 per sample.
** According t o ODC, t r a n s f e r r i n g the s o f t serve program t o t h e c o u n t i e s would
allow ODC t o e l i m i n a t e two p o s i t i o n s . This f i g u r e r e p r e s e n t s s a l a r i e s and
employee- related expenditures f o r these two p o s i t i o n s .
Should county h e a l t h departments decide t h a t laboratory a n a l y s i s is
needed, counties could recover p a r t or a l l of the c o s t s associated with
sampling through l i c e n s e fees. ODC c u r r e n t l y charges a $ 10 f e e a s
provided by A. R. S. s3- 607. I f counties begin inspecting s o f t serve
machines, a u t h o r i t y t o levy t h i s f e e should be t r a n s f e r r e d t o the counties
t o defray any a d d i t i o n a l program c o s t s .
Transfer of r e t a i l - l e v e l i n s p e c t i o n s t o the counties would not remove a l l
ODC r e s p o n s i b i l i t y f o r s o f t serve products. ODC would continue t o inspect
and sample s o f t serve mix a t processing p l a n t s a s p a r t of its s u r v e i l l a n c e
of milk products. However, t h i s proposal would consolidate r e s p o n s i b i l i t y
f o r r e g u l a t i n g r e t a i l s o f t serve products with other food s a n i t a t i o n
a c t i v i t i e s conducted by county h e a l t h departments.
CONCLUSION
Transferring r e s p o n s i b i l i t y f o r s a n i t a r y r e g u l a t i o n of r e t a i l s o f t serve
i c e cream t o county h e a l t h departments would save ODC up t o $ 51,000
annually without reducing p r o t e c t i o n of p u b l i c h e a l t h . Since county
h e a l t h departments now i n s p e c t food establishments, it is l i k e l y t h a t they
can i n s p e c t s o f t serve machines without increasing personnel c o s t s . Costs
f o r sample a n a l y s i s of s o f t serve products may r e q u i r e county h e a l t h
departments t o l i c e n s e s o f t serve nachines and charge fees t o cover
laboratory c o s t s .
RECOMMENDATIONS
1. The L e g i s l a t u r e should amend A. R. S. $ 3- 607 t o e l i m i n a t e ODC's
r e s p o n s i b i l i t y f o r l i c e n s i n g and inspecting s o f t serve machines.
Authority t o l i c e n s e s o f t serve machines should be t r a n s f e r r e d t o the
counties.
2. Upon iniplementation of Recommendation 1, county h e a l t h departments
should inspect s o f t serve machines a s p a r t of t h e i r routine food
establishment s a n i t a r y inspections. Health departments should review
the need f o r laboratory a n a l y s i s of s o f t serve products and e s t a b l i s h
l i c e n s e fees, i f needed, t o defray a n a l y s i s c o s t s .
FINDING I11
THE OFFICE OF THE DAIRY COMMISSIONER SHOULD STRENGTHEN CONTROL OVER THE
DISPOSITION OF ADULTERATED MILK.
The Office of the Dairy Commissioner ( ODC) should strengthen c o n t r o l over
t h e d i s p o s i t i o n of a d u l t e r a t e d milk. Although Arizona has an extensive
program f o r i d e n t i f y i n g milk containing p e s t i c i d e r e s i d u e or a f l a t o x i n ,
ODC does not independently v e r i f y t h a t such milk is properly disposed.
Physical v e r i f i c a t i o n by ODC personnel would a s s u r e p r o t e c t i o n of public
h e a l t h and would be c o n s i s t e n t with the considerable e f f o r t made t o
i d e n t i f y a d u l t e r a t e d milk.
ODC is concerned with two major a d u l t e r a n t s i n milk: a f l a t o x i n and
p e s t i c i d e s . Aflatoxin i s a n a t u r a l l y occurring carcinogen found i n
cottonseed meal which is fed t o d a i r y c a t t l e i n Arizona. Residues of
p e s t i c i d e s a r e a l s o suspected carcinogens which e n t e r milk through c a t t l e
feed. I n 1978 Arizona experienced a high incidence of a f l a t o x i n
a d u l t e r a t i o n . ODC now conducts an extensive s u r v e i l l a n c e program f o r
a f l a t o x i n and p e s t i c i d e s . ODC policy r e q u i r e s the a n a l y s i s of 20 tanker
samples f o r each contaminant during t h r e e of every four weeks, or
approximately 1,500 t o t a l samples per year. ODC sampling procedures a r e
designed t o ensure t h a t each producer is represented i n a tanker sample
every s i x weeks.
Sampling Level Is Adequate
The o v e r a l l l e v e l of sampling f o r p e s t i c i d e and a f l a t o x i n from December
1981 through mid- December 1982 appeared t o be adequate. ODC met its
requirement f o r p e s t i c i d e analyses f o r the period but was below its
required frequency f o r a f l a t o x i n analyses by approximately 2.8 t e s t s per
week on the average. Despite the s h o r t f a l l , however, the current l e v e l of
the a f l a t o x i n / p e s t i c i d e s u r v e i l l a n c e program seems appropriate. The low
incidence of a f l a t o x i n i n milk samples during 1982 suggests t h a t not f u l l y
sampling f o r a f l a t o x i n posed no serious h e a l t h r i s k s . * The higher
incidence of p e s t i c i d e samples exceeding standards i n d i c a t e s t h a t ODC has
a p p r o p r i a t e l y focused its resources on a more s i g n i f i c a n t t h r e a t t o public
h e a l t h .
ODC Does Not Verify Disposal
Although ODC makes an extensive e f f o r t t o i d e n t i f y a d u l t e r a t e d milk, the
agency f a i l s t o v e r i f y t h a t such milk i s not used f o r human consumption.
ODC has no ~ o l i c y of observing the disposal of milk contaminated with
a f l a t o x i n or p e s t i c i d e . Moreover, ODC did n o t c o n s i s t e n t l y obtain
documentation on t h e d i s p o s a l of a d u l t e r a t e d milk i n 1982 d e s p i t e a policy
requiring such documentation.
ODC has no policy f o r observing the d i s p o s a l of a d u l t e r a t e d milk. When a
producer is over tolerance f o r p e s t i c i d e or a f l a t o x i n , ODC p r o h i b i t s the
producer from s e l l i n g the milk f o r human consumption and n o t i f i e s the
United Dairymen of Arizona ( UDA) co- operative ( most producers belong t o
t h i s co- op). UDA picks up the a d u l t e r a t e d milk i n a s p e c i a l tanker a p a r t
from i t s regular pickups and s t o r e s the milk i n a s e p a r a t e s i l o f o r
processing i n t o animal feed. I f UDA l a c k s p l a n t time f o r feed processing,
i t dumps the milk. Independent producers l a c k i n g a c c e s s t o processing
f a c i l i t i e s must dump t h e i r milk. ODC personnel, however, do not observe
t h e d i s p o s a l t o v e r i f y t h a t the milk i s processed or dumped a s required.
* ODC uses two standards f o r evaluating a n a l y s i s r e s u l t s : tolerance
l e v e l and screening l e v e l . The tolerance l e v e l is the point a t which
p e s t i c i d e or a f l a t o x i n c o n c e n t r a t i o n r e n d e r s milk u n f i t f o r human
consumption. The screening l e v e l is l e s s than the tolerance l e v e l and
i n d i c a t e s t h a t one producer c o n t r i b u t i n g t o a tanker may have above
tolerance concentrations i n its milk. I f a tanker load of milk
exceeds the screening l e v e l , ODC w i l l sample each producer represented
by the tanker t o i d e n t i f y above- tolerance milk. During the period we
reviewed, l e s s than 1 percent of the samples exceeded the a f l a t o x i n
screening l e v e l ; none exceeded the tolerance l e v e l . Also, 9 percent
of the samples exceeded the p e s t i c i d e screening l e v e l and 2 percent
were over tolerance.
Proper d i s p o s a l of a d u l t e r a t e d milk is necessary t o ensure t h a t milk
products marketed f o r human consumption a r e f r e e from p o t e n t i a l l - y harmful
substances. Instead of p h y s i c a l l y v e r i f y i n g d i s p o s a l , ODC r e l i e s on
s h i p p i n g m a n i f e s t s provided by UDA to t r a c k the movement and d i s p o s i t i o n
of a d u l t e r a t e d milk. The Con~ missioner f e e l s t h a t t h i s approach, combined
with milk product sampling and processed feed i n s p e c t i o n adequately
p r o t e c t s t h e public. However, these procedures do not o f f e r the c e r t a i n t y
of proper disposal t h a t can be achieved through physical observation.
Moreover, p h y s i c a l o b s e r v a t i o n i s not c u r r e n t l y p o s s i b l e s i n c e UDA
n o t i f i e s ODC a f t e r disposing of the milk.
Despite its policy of tracking shipments of a d u l t e r a t e d milk through
s h i p p i n g m a n i f e s t s , ODC did not o b t a i n f u l l documentation on the d i s p o s a l
of a d u l t e r a t e d milk i n l a t e 1982. ODC lacked complete documentation f o r
e i g h t producers placed on hold f o r a d u l t e r a t e d milk during November o r
December 1982. Thus, ODC n o t o n l y lacks procedures t o p h y s i c a l l y v e r i f y
the d i s p o s a l of a d u l t e r a t e d milk, but t h e Office a l s o does not
c o n s i s t e n t l y follow e x i s t i n g procedures.
Physical V e r i f i c a t i o n Is
Used i n Other S t a t e s
ODC f a i l u r e t o p h y s i c a l l y v e r i f y d i s p o s a l of a d u l t e r a t e d milk d i f f e r s from
other western s t a t e s with comparable o r l a r g e r d a i r y i n d u s t r i e s . Four of
the s i x s t a t e s surveyed* do not permit haulers t o s e l l a d u l t e r a t e d milk
f o r any purpose; producers must dump the milk. The two other s t a t e s allow
processing f o r feed a t t h e d i s c r e t i o n of t h e i r r e g u l a t o r y agencies. A l l
but one of these s i x s t a t e s o c c a s i o n a l l y v e r i f y t h a t the milk is dumped.
Unlike Arizona, o f f i c i a l s i n four of the s t a t e s i n d i c a t e d t h a t they have
not encountered p e s t i c i d e problems i n r e c e n t years. However, those s t a t e s
maintain stronger c o n t r o l once a d u l t e r a t e d milk is i d e n t i f i e d .
* These s t a t e s a r e C a l i f o r n i a , Colorado, Idaho, Oregon, Utah and
Washington. Dairy production i n these s t a t e s is approximately equal
t o o r l a r g e r than Arizona's production.
Within, Arizona, the Department of Health Services ( DHS) e x e r c i s e s s i m i l a r
c o n t r o l over a d u l t e r a t e d foods under its j u r i s d i c t i o n . A. R. S. § 36- 910
empowers the DHS d i r e c t o r t o p r o h i b i t the s a l e or removal of a d u l t e r a t e d
foods without departmental permission. DHS v e r i f i e s t h e d i s p o s a l of such
foods by requiring an inspector t o sign e i t h e r a r e l e a s e or a
c e r t i f i c a t i o n of d e s t r u c t i o n . Thus, DHS has the l e g a l a u t h o r i t y and
procedures t o c o n t r o l disposal of a d u l t e r a t e d foods.
CONCLUSION
Arizona has an extensive program t o i d e n t i f y a d u l t e r a t e d milk. However,
ODC needs t o strengthen its c o n t r o l over t h e d i s p o s a l of a d u l t e r a t e d
milk. The agency does not obtain documentation f o r a l l shipments and does
n o t p h y s i c a l l y v e r i f y t h e a c t u a l d i s p o s a l of a d u l t e r a t e d milk.
RECOPPIENDATIONS
1. The Dairy Coniiissioner should e s t a b l i s h r e g u l a t i o n s governing the
t r a n s p o r t a t i o n and d i s p o s a l of a d u l t e r a t e d milk. The r e g u l a t i o n s
should r e q u i r e : 1 ) UDA t o provide ODC with documentation f o r a l l
movement of a d u l t e r a t e d milk, and 2) UDA and producers t o inform ODC
and obtain approval p r i o r t o disposing of a d u l t e r a t e d milk.
2. ODC should r e v i s e its procedures f o r follow- up on a d u l t e r a t e d milk t o
include physical v e r i f i c a t i o n of t h e disposal of a d u l t e r a t e d milk i n
a t l e a s t some cases.
FINDING I V
DAIRY LICENSE FEES, WICH IiAVE NOT BEEN REVISED I N 32 YEARS, FIAY NEE11 TO
BE INCREASED.
Most dairy l i c e n s e f e e s have not changed since 1951 d e s p i t e a s u b s t a n t i a l
increase i n r e s p o n s i b i l i t i e s and expenditures of t h e O f f i c e of the Dairy
Commissioner ( ODC). As a r e s u l t , the dairy industry may not be bearing an
adequate portion of regulatory c o s t s .
I n d u s t r y ' s Share of Program
Costs Has Declined
Most dairy license* f e e s have n o t i n c r e a s e d f o r 32 years. I n f i s c a l year
1952- 53 l i c e n s e f e e s recovered 31 percent of the O f f i c e ' s c o s t s ; today
they represent only 5 percent of t o t a l r e g u l a t o r y c o s t s .
When the l i c e n s e f e e schedule was e s t a b l i s h e d i n 1951, ODC had limited
r e s p o n s i b i l i t i e s f o r d a i r y regulation. County h e a l t h o f f i c i a l s c a r r i e d
out most of the inspection and sampling a c t i v i t i e s , while the Dairy
Commissioner functioned l a r g e l y i n an advisory r o l e . In 1973, the
L e g i s l a t u r e made ODC responsible f o r enforcing a l l dairy- related
statutes.**
The revenue from dairy l i c e n s e f e e s h a s n o t k e p t pace with t h i s growth i n
r e s p o n s i b i l i t y , however. I n f i s c a l year 1952- 53 r e c e i p t s equaled 31
percent of ODC's expenditures. By 1981- 82, l i c e n s e revenue had declined
t o 5 percent of ODC expenditures. Table 5 shows l i c e n s e revenues as a
percentage of expenditures f o r the two f i s c a l years.
* The term " l i c e n s e " i n c l u d e s a l l permits and l i c e n s e s issued by the
Office of the Dairy Commissioner.
** E f f e c t i v e i n 1974
TABLE 5
DAIRY LICENSE REVENUES AS A PERCENTAGE OF ODC EXPENDITURES
FISCAL YEARS 1952- 53 AND 1981- 82
License Revenues
Percentage of
- Year Expenditures Amount Expenditures
1952- 53 $ 17,240 $ 5,408 31%
One reason f o r the d e c l i n e from 31 t o 5 percent may be t h a t t h e ODC is not
dependent on l i c e n s e f e e s f o r program support. Each year the ODC budget
is funded by a n a p p r o p r i a t i o n from t h e General Fund. Unlike " 90- 10"
agencies, the ODC is not expected t o recover a l l program costs-- or even a
c e r t a i n percent-- through f e e s paid by t h e r e g u l a t e d i n d u s t r y . Therefore,
there is l i t t l e i n c e n t i v e f o r the Dairy Commissioner t o recommend
i n c r e a s e s i n l i c e n s e f e e s a s program c o s t s i n c r e a s e .
The Dairy Industry Should Pay
a Portion of Regulatory Costs
ODC r e g u l a t o r y a c t i v i t i e s b e n e f i t both the g e n e r a l p u b l i c and t h e dairy
i n d u s t r y . The public b e n e f i t s from a c t i v i t i e s which ensure t h a t milk is
not a h e a l t l ~ t h r e a t . The industry b e n e f i t s i n two ways. F i r s t , ODC
oversight enables Arizona d a i r y producers t o q u a l i f y f o r i n t e r s t a t e
shipment. Secondly, ODC has made dairy products more marketable by
e s t a b l i s h i n g a product q u a l i t y s t a n d a r d i z a t i o n program.* Thus, both the
public and t h e i n d u s t r y b e n e f i t from the program and should pay a portion
of the program's c o s t s i n proportion t o the b e n e f i t s received. The public
pays through General Fund a p p r o p r i a t i o n s ; t h e i n d u s t r y pays through fees.**
* For example, one purpose of ODC " universal sampling" ( s e e page 3 ) is
t o determine i f the milk can be sold a s Grade A based on b a c t e r i a
count, which can a f f e c t freshness and t a s t e .
** hlarket s t a n d a r d i z a t o n programs i n other agencies a r e funded e n t i r e l y
by f e e s . Examples i n c l u d e t h e Egg Inspection Board and the F r u i t and
Vegetable Standardization program of the Commission of Agriculture and
I I o r t i c u l t u r e .
E s t a b l i s h i n g the portion of c o s t s which each group should pay is d i f f i c u l t
because the d i s t i n c t i o n between public b e n e f i t s and i n d u s t r y b e n e f i t s is
unclear. For example, ODC sampling of raw milk and f i n i s h e d products
( " u n i v e r s a l sampling") helps p r o t e c t public h e a l t h but a l s o enables market
s t a r i d a r d i z a t i o n of these products by allowing them t o be c l a s s i f i e d a s Grade
A, ungraded f o r processing, e t c . Although we cannot determine what
percentage of r e g u l a t o r y c o s t s should be recovered through l i c e n s e f e e s , t h e
f a c t t h a t f e e s have not been increased i n 32 years and a t one time
r e p r e s e n t e d 3 1 percent of expenditures s t r o n g l y suggests t h a t the present
fees may no longer be adequate.
Other western s t a t e s charge a wide - range of d a i r y l i c e n s e f e e s . Table 6
compares Arizona f e e s t o those l e v i e d by other western s t a t e s . The d a t a
i n d i c a t e t h a t i n a l l c a t e g o r i e s but one Arizona's f e e s a r e lower than the
average f e e s f o r those s t a t e s which have s i m i l a r l i c e n s e c a t e g o r i e s .
TABLE 6
COPIPARISON OF ARIZONA DAIRY LICENSE FEES
WITH FEES I N TEN WESTERN STATES
Other Western States*
Number of
S t a t e s with
Fees f o r
Similar
License Arizona** Average Fee - High - Low Licenses
Plilk producer $- 0-
Milk d i s t r i b u t i n g
plant 50
blf g. milk processing
plant 5 0
Plfg. of frozen products
for r e t a i l s a l e 10
P r o d u c e r / d i s t r i b u t o r or
producer/ manufacturer 25
Wholesale milk
d i s t r i b u t o r 2 5
Milk sampler
( o r i g i n a l ) 5
H i 1 t e s t e r
( o r i g i n a l ) 5
* These s t a t e s include C a l i f o r n i a , Colorado, Idaho, Montana, Nevada,
New Plexico , Oregon, Utah, Washington and Wyoming.
** Source: A. R. S. $ 3- 607
3 3
CONCLUSION
The d a i r y industry a s well a s the general public b e n e f i t s from ODC
regulatory a c t i v i t i e s . Therefore, some portion of ODC expenditures should
be recovered from the i n d u s t r y through l i c e n s i n g f e e s . Dairy l i c e n s e f e e s
have remained unchanged f o r over 30 y e a r s w h i l e ODC r e s p o n s i b i l i t i e s and
c o s t s have increased s u b s t a n t i a l l y . As a r e s u l t , the portion of the ODC
program supported by l i c e n s e f e e s declined from 31 percent i n f i s c a l year
1952- 53 t o o n l y 5 percent i n f i s c a l year 1981- 82. This i n d i c a t e s t h a t the
i n d u s t r y may not be bearing an adequate portion of regulatory c o s t s .
The L e g i s l a t u r e should determine the proportion of program c o s t s which
should be recovered through l i c e n s e f e e s and should r e v i s e the f e e
schedule accordingly. The L e g i s l a t u r e may wish t o consider e s t a b l i s h i n g
t h i s proportion as a benchmark and authorizing ODC t o set f e e s by
r e g u l a t i o n c o n s i s t e n t with t h i s policy.
ROY C. COLLlER
LIAIHV COMMLSSONCR
OFFICE OF
BRUCE BABBITT
GOVERNOR
PHONE 255- 4189
1645 W. JEFFERSON, SUITE 243
@ fioenix, $ rirrtnn 85007
April 22, 1983
D o u ~ l a s Norton
Auditor General
111 ::. :,: onroe, S u i t e 600
Phoenix, Arizona 85003
Dear IIr. 1, Jorton:
F i r s t I would l i k e t o extend my thanks t o the Auditor General's
s t a f f f o r t h e i r i n p u t . T h e i r r e s p o n s i b i l i t y is g r e a t . For the Auditor
General's s t a f f t o acquire such e x p e r t i s e i n agency operation and functions
i n a few s n o r t weeks, which takes d i r e c t o r s of these agencies qany years
t o acquire, is ~ o r ~ e n d a b l e T. he s t a f f was courteous and made g r e a t e f f o r t s
not t o d i s r u p t routine o f f i c e operations. Most of the recorriiendations
received by t h i s o f f i c e were g r e a t l y appreciated and placed i n f o r c e .
Soze were enforced p r i o r t o the a u d i t ; however, I f e e l s e v e r a l a l l e g a t i o n s
of !: anagerial oversight a r e unfounded .
Regarding a c c o u n t a b i l i t y of Department of Health Services Laboratory c o s t :
P r i o r t o the a t t o r n e y g e n e r a l ' s opinion concerning outside and professional
s e r v i c e s , A. R. S. 36- 132A- 11 was the s t a t u t e t h a t d i r e c t e d t h e Office of the
Dairy Connissioner t o use the DHS laboratory. " The department ( DHS) s h a l l
i n addition to other powers and d u t i e s vested i n it by l a w e s t a b l i s h and
maintain adequate s e r o l o g i c a l , b a c t e r i o l o g i c a l , p a r a s i t o l o g i c a l , entomolog-i
c a l and chemlcal l a b o r a t o r i e s with q u a l i f i e d a s s i s t a n t s and f a c i l i t i e s
necessary f o r routine examinations and a n a l y s i s , and f o r i n v e s t i g a t i o n s
and research i n matters a f f e c t i n g p u b l i c h e a l t h . "
Althou~ h the monies were passed through our budget, the j u s t i f i c a t i o n was
done by DHS. This is f u r t h e r evidenced by the f a c t t h a t the JLBC and the
Executive i', ndi. et a n a l y s t had t o approve the estimates t h a t DHS made, and
t h r o u ~ ht h e w recommendations, t h i s amount was approved by the l e g i s l a t o r s .
I think t h a t because the monies were included i n our budget, it has con-fuses
the a u d i t o r s , and they have used t h e i r own i n t e r p r e t a t i o n , r a t h e r
than s t a t u t e s .
L e t t e r t o Doui~ las Norton
April 22, 1383
Page 2
FII! DI:; G I ( Continued)
Pci- artfin,.; need to increase competition: The i n v i t a t i o n t o bid was not
misleadin?. It d o e s n ' t make any d i f f e r e n c e how often we need weekend
ter; tir! i.;. The requirement is needed. This was placed on the i n v i t a t i o n .
lie reccivcd no c a l l s a s k i n g u s t o c l a r i f y . It is not our f a u l t the
bidder docs not ur~ derstand. A s f a r a s time is concerned, we extended
our deadline tilo weeks beyond what is mandated. Had t h e r e been a
ri. a.; onable request t o extend f u r t h e r , we would have done so.
Rprardinf- d i v i d i n g l a b o r a t o r y c o n t r a c t s : The Auditor General's r e p o r t
: ; t n t c s t h a t ~ r i v a t el a b o r a t o r i e s a r e e l i g i b l e f o r c e r t i f i c a t i o n t o perform
microbio1o~; ical a n a l y s i s of Grade " A" milk and milk products. What the
r e p o r t f a i l e d t o take i n t o c o n s i d e r a t i o n is the f a c t t h a t a p r i v a t e
l a b o r a t o r y cctn only be c e r t i f i e d by an approved s t a t e c e n t r a l milk
l a b o r a t o r y . Thc anly way f o r our o f f i c e t o u s e a p r i v a t e l a b o r a t o r y f o r
Grade " A" products would be t o pay the DHS t o maintain a s t a t e
l a b o r a t o r y and a t the same time pay the p r i v a t e l a b o r a t o r y f o r a c t u a l
work. Also, 11' the DHS had t o c e r t i f y the p r i v a t e l a b o r a t o r i e s , it seems
t h e r e would be n c o n f l i c t of i n t e r e s t f o r the DHS t o bid at the same time.
I vlould have no o b j e c t i o n s to s u b m i t t i n g b i d s f o r s o f t serve i c e cream
s e p a r a t e l y .
Rezardinr; rcanageinent d a t a i n a c c u r a t e : I take f u l l r e s p o n s i b i l i t y f o r
the tiiscr.: pericies i n the budget request a s per a u d i t o r ' s r e p o r t . In the
years covercti by t h i s r e p o r t it must be noted t h a t t h i s o f f i c e was i n
tur::~ oll. Lo.: s of two cormissioners i n t h i s s h o r t span placed a l a r g e
burden on :. ly shoulders. My only concern a t the time was t o keep the
o f f i c e a f l o a t . There was not time f o r course c o r r e c t i o n s . I think the
e f f e c t ~ v e n e s s of t h i s o f f i c e speaks f o r i t s e l f .
1. Since December 1979 t h e r e has been no evidence of a f l a t o x i n
exceeding l i m i t s i n f i n i s h e d products.
2. Since 1? 7Q there has been no evidence of over- tolerance p e s t i c i d e s
( DDT, DDE, T D 9 , toxaphene, h e p t a c h l o r , e t c . ) i n the f i n i s h e d products.
3. !: hr3n a [: roblein has a r i s e n such a s i n h i b i t o r s , salmonella, camphylo-b
a c t e r , t h i s o f f i c e has moved s w i f t l y and e f f i c i e n t l y t o n o t i f y
cor~ i; umcrr;, and remove from s a l e these products.
This i:: tlic primary function of t h i s o f f i c e . I would l i k e t o point out
t h a t durini; tiiese h e c t i c years, we were mandated t o c u t our budgets i n
nidycar on two occasions. No budget records r e f l e c t t h i s c u t . Our
c u t s were taken from l a b o r a t o r y s e r v i c e s both times. If the Auditor
General's o f f i c e had checked c l o s e r , the money revertments t o the g e n e r a l
fund would have v e r i f i e d what we told them.
I , e t t c r t o l> ou:- las ; lorton
April 22, 19' 33
Paye 3
rc' verv r- eco; r, n. endation t h a t has been l i s t e d i n the f i r s t f i n d i n g , except
the : : p l i t : in[: of l a b o r a t o r y c o n t r a c t s , was f u l l y implemented p r i o r t o
t! ic Auditor (;\: neralts a u d i t . It seems t o me t h a t it is the c u r r e n t
prob1e:: s t h l t need t o be c o r r e c t e d , not p a s t problems t h a t the agency
hciu already correctcd.
P r i o r t o 1974, the inilk program was shared by many s t a t e and l o c a l
a u t h o r i t i e s . It was d i f f i c u l t i n many. instances t o determine who had
j u r i s d i c t i o n . I f we delegate or allow counties t o i n s p e c t and sample
s o f t serve i c e cream machines, we a r e d e f e a t i n g t h e purpose of havicg
one r e , y l a t o r y acency r e s p o n s i b l e . Even though the county would take
care of the n! achir, e, it would s t i l l be the Dairy Commissioner's
r e s p o n s i b i l i t y t o take care of the mix at the processing p l a n t s . When
v: e analyze i c e crcairi mix, it must be i n the hands of the processor. I f
a problem a r i s e s , uho has j u r i s d i c t i o n over the mix i n t r a n s i t from the
processor t o thc i c e cream machines. These a r e the problems a r i s i n g
out of s p l i t j u r i s d i c t i o n .
By t r a n s f e r r i n g the program from s t a t e t o counties would only r e s u l t i n
t r a n s f c r r i n * . or c o s t from s t a t e t o county. The taxpayer is still going
t o pay. S~~:-(: estion was made t o i n c r e a s e f e e s t o o f f s e t the c o s t t o the
coutitie::. :,: y recornmendation would be t o i n c r e a s e o u r l i c e n s e f e e s t o
cover the program and maintain s i n g l e j u r i s d i c t i o n .
F i r s t i t must be noted t h a t most a l l food r e g u l a t o r y agencies a r e
s t r i c t l y a s u r v e i l l a n c e program. There is no way t o guarantee a l l milk
and milk products t o be 100% f r e e of d e l e t e r i o u s substances. The f a c t
t h a t ve a r e surveying the milk shed on a continuing b a s i s prevents the
milk from becorning contaminated.
Arizona has the most extensive a f l a t o x i n and p e s t i c i d e program i n a l l
of the state:;. We disposed of more than 2,000,000 pounds of p e s t i c i d e
milk in thr? past year. I f we were t o p h y s i c a l l y watch t h i s d i s p o s a l , I
would need per:; onnel around t h e c l o c k t o follow the movement of t a i n t e d
i :! c allow t a i n t e d milk t o be processed i n t o animal feed. It is
l e s s c o s t l y t o random check the warehouse at United Dairymen of Arizona
f'or v e r i f i c a t i o n t h a t t h i s milk was powdered f o r animal feed. We do
have copies of rnanlfests of t a i n t e d milk. It would do no good f o r UDA
t o u:; e t h i s milk, other than f o r animal f e e d , because they would not g e t
paid f o r i t . A l l of our records a s t o d i s p o s i t i o n of milk goes t o the
F~ tcicrcil [: arketinc; Administrator. A l l t h e i r r e c e i p t s must be accounted
f o r and t h e i r d i s p o s i t i o n .
In the p a s t when an independent producer had high p e s t i c i d e , we colored
hi:; milk, thus v e r i f y i n g it was used f o r only animal use.
Let t c r t o Doui: las !! orton
April 22, la83
Pq; e 4
There r x a t be a point i n time when experience and f a i t h i n industry
must be takrxn i n t o consideration. Anybody t h a t r e a l l y wants t o market
a coi~ tar? inatcd pro, iuct w i l l f i n d a way i r r e g a r d l e s s of a l l the documents
and l; is? t: ctions n d e . The bottom l i n e is t h i s - we analyze f i n i s h e d
products on a continuing b a s i s and we have not found one s i n g l e product
t h a t c- ontdains over- tolerance p e s t i c i d e or a f l a t o x i n s i n c e November 1979.
The Auditor General's r e p o r t does not a g r e e w i t h our system, but t h i s
record has got t o say something. I might add t h a t we have e s t a b l i s h e d
t h i s record with a decrease i n y e a r l y budgets.
T: ie scree srith t h i s f i n d i n g .
S i n c e r e l y ,
Roy C. C o l l i e r ,
Dairy Commissioner
ncc : . jc