Performance audit, Department of Revenue: Taxpayer Services Division

              DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
September 25, 1985
Members of the Arizona Legi sl ature
The Honorable Bruce Babbitt, Governor
J. Elliott Hibbs, Director
Department of Revenue
Transmitted herewith i s a report of the Auditor General, A Performance
Audit of the Department of Revenue, Taxpayer Services Division. This
report is in response to an April 27, 1983, resolution of the Joint
Legislative Oversight Committee, The performance audit was conducted as a
part of the Sunset Review set forth in A. R. S. § § 41- 2351 through 41- 2379.
The report discusses how DOR could improve i t s level of service i n
assi s t i ng taxpayers with inquiries or tax problems. We recommend DOR rely
1 ess extensively on temporary employees, improve the qua1 i ty of management
information and develop comprehensive staff training. In addition, the
report also addresses the need for improved bingo regulation and
enforcement.
My staff and I will be pleased to discuss or clarify items in the report.
Respectfully submitted,
~ oug'hds R. Norton
Auditor General
Staff: William Thomson
Peter N. Francis
Nancy Love11
Anthony J. Guarino
Dennis B. Murphy
Patricia M. Krueger
Lucinda A. Trimbl e
Encl osure
2700 NORTH CENTRAL AVE. SUITE 700 PHOENIX, ARIZONA 85004 ( 602) 255- 4385
SUMMARY
The Office o f the Auditor General has conducted a performance audit o f
the Arizona Department o f Revenue ( DOR), Taxpayer Services Division i n
response to an A p r i l 27, 1983, resolution o f the J o i n t Legislative
Oversight Committee. This report, the fourth i n a series on the
Department o f Revenue, was conducted as p a r t o f the Sunset Review set
f o r t h i n Arizona Revised Statutes § § 41- 2351 through 41- 2379.
The Department of Revenue created the Taxpayer Services Division i n
August 1983. The Division has three sections: Taxpayer Assistance which
responds t o taxpayer i n q u i r i e s and resolves taxpayer problems; Bingo
which licenses and regulates bingo operations; and Licensing and
Registration which issues 1 icenses and maintains 1 icense f i l e s f o r sales,
use and other types o f taxes. P r i o r to the D i v i s i o n ' s creation these
duties were performed by Taxation Division s t a f f .
Taxpayer Assistance I s Not Adequately Meeting
Public Demand For Service ( see pages 7- 20)
The Taxpayer Services Section provides only minimal levels o f assistance
t o the public. DOR's Taxpayer Assistance Section i s responsible for
resolving taxpayer problems and responding to taxpayer inquiries. To
perform t h i s function the Section maintains a phone u n i t , a
correspondence u n i t and a walk- in office, with clerical/ support staff.
I n i t s phone u n i t Taxpayer Assistance met less than 27 percent o f the
public demand ( based on a 1- week study done by Mountain Bell 1. This
compares with a 70 percent service level the IRS Regional Division has
determined as a minimum level t o meet public demand. I n addition,
although the Section's correspondence u n i t has a goal of responding to
publ i c correspondence w i t h i n 30 days, a sample o f cases shows the average
time to respond t o publ i c correspondence i s 51 days.
The Section's current level o f service i s a resul t o f inadequate staffing
and overdependence on temporary personnel. These factors have led to
i n s u f f i c i e n t training, inadequate operating procedures and 1 i m i ted
supervision. The Section has been staffed predominantly with temporary
personnel. As o f May 1985 approximately 77 percent o f the s t a f f were
temporary employees. The turnover rate f o r temporary workers i s
extremely high. A review of staff turnover during a 6- month period
showed t h a t 74 percent o f the temporary s t a f f stayed with the Section 6
months or less. Because the Section must continuously replace s t a f f , it
cannot r e a l i s t i c a l l y invest s u f f i c i e n t time i n s t a f f training.
Consequently, t r a i n i n g i s substandard and employee p r o d u c t i v i t y i s
reduced.
I n addition, substandard performance a1 so r e s u l t s from the Section's 1 ack
o f an inclusive set o f w r i t t e n procedures. Relying on informal, oral
procedures reduces consistency and uniformity i n the work. Further, some
current procedures need t o be revised t o improve e f f i c i e n c y .
F i n a l l y , 1 i m i ted and unqualified s t a f f supervision further impairs
service e f f i c i e n c y . Empl oyees have had t o assume responsibi 1 i t i e s for
which they are not adequately paid and may not be qualified. I n
addition, giving too many responsibil i t i e s t o a sing1 e supervisor has
reduced effectiveness.
( I
The Taxpayer Assistance Section i s taking corrective steps to address
these problems. However, more action i s necessary. To improve i t s
performance, DOR should: 1 ) upgrade i t s phone service by c a l c u l a t i n g
pub1 i c demand, and establ ishing adequate service and s t a f f i n g levels, 2)
develop a comprehensive t r a i n i n g program, 3) examine, update and w r i t e
operating procedures t h a t are accessible t o the s t a f f , and 4) continue to
improve the q u a l i t y o f i t s management information i n order t o evaluate
i t s s t a f f i n g needs and productivity. F i n a l l y , the Legislature shoul d
consider adopting Taxpayer Assistance's plans t o increase and recl assify
i t s f u l l - time employee positions, which include additional 1 eve1 s o f
supervisory personnel and 1 ess dependence on temporary workers.
DOR Needs To Further Strengthen And Improve
Bingo Regulation And Enforcement ( see pages 21- 32)
DOR can take additional steps to improve Bingo regulation and
enforcement. Since i t s l e g a l i z a t i o n i n 1972, the operation o f bingo has
grown s i g n i f i c a n t l y . The Bingo Section Supervisor estimates t o t a l gross
receipts from large game bingo i n Arizona t o be 40 m i l l i o n dollars
annually. The cash nature o f the bingo industry provides considerable
potential for criminal a c t i v i t y . For exampl e, a recent investigation
alleges one large game licensee o f skimming approximately $ 400 t o $ 1,200
per bingo event and fraudulently using bingo net proceeds.
Recently DOR has increased i t s e f f o r t s to ensure compliance.
Organizational and statutory changes i n 1984 and 1985 have enhanced the
Section's a b i l i ty to regulate bingo operations. However, e x i s t i n g
efforts by DOR are not adequate to detect and prevent criminal abuses by
1 icensees.
To assist i n detecting and v e r i f y i n g i l l e g a l a c t i v i t i e s , the Section
shoul d conduct audits and compl iance v i s i ts, require 1 icensees t o
maintain reports of each occasion bingo i s played, and enforce A. R. S.
$ 5- 406. R which r e s t r i c t s vol ume discounts f o r paper bingo cards. Recent
i n v e s t i g a t i o n s i n d i c a t e t h a t such enforcement measures coul d i d e n t i f y
skimming o f receipts, unannounced bingo games and suspected improper use
of bingo proceeds. Failure t o use these methods impedes the Section's
a b i l i t y to v e r i f y gross receipts, establish misuse o f bingo proceeds, and
i d e n t i f y other i l l e g a l a c t i v i t i e s .
To further strengthen enforcement, the Section should conduct thorough
background investigations of individuals applying f o r 1 arge game
licenses. I t ' s best option i s to use the f i n g e r p r i n t application card
system through the Arizona Criminal Justice Information System. A l l
other computerized criminal history systems are inaccessible t o DOR
because of Federal and State agreements.
F i n a l l y , t o provide DOR with greater f l e x i b i l i t y i n i t s enforcement
e f f o r t s , the Legislature shoul d consider adopting a mu1 ti t i e r e d 1 icensing
system. The current 1 icensing structure places equal requirements on a1 1
large game 1 icensees regardless of their ranges of gross receipts. A
mu1 ti tiered system would categorize 1 icensees by gross receipts. More
stringent financial reporting and compl iance requirements woul d be 4
applied to those licensees that report higher gross receipts and
therefore, have a greater opportunity to gain from illegal or fraudulent
use of bingo proceeds.
TABLE OF CONTENTS
Page
INTRODUCTION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . 1
FINDING I: TAXPAYER ASSISTANCE IS NOT ADEQUATELY
MEETINGPUBLICDEMANDFORSERVICE. . . . . . . . . . . . . . . . 7
Taxpayer Assistance I s Not Providing
Adequate Phone Service To Taxpayers . . . . . . . . . . . . . . . 7
Response to Correspondence
I s Untimely And I n e f f i c i e n t . . . . . . . . . . . . . . . . . . . . 9
Substandard Performance I s The Result
O f Inadequate Staffing, Inadequate Operating
Procedures, And Limited Supervision . . . . . . . . . . . . . . . 13
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . 20
FINDING 11: DOR MEEDS TO FURTHER STRENGTHEN AND
IMPROVE BINGO REGULATION AND ENFORCEMENT. . . . . . . . . . . . . 21
Nature O f The Bingo Industry Has Changed. . . . . . . . . . . . . 22
Enforcement Could Be Further Strengthened . . . . . . . . . . . . 24
Imp1 emen t a t i on O f Mu1 ti t i e r e d Sys ten. . . . . . . . . . . . . . . 30
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . 32
OTHER PERTINENT INFORMATION . . . . . . . . . . . . . . . . . . . . . 33
AREAS FOR FURTHER AUDIT WORK. . . . . . . . . . . . . . . . . . . . . 37
AGENCYRESPONSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
APPENDICES
I FORMULA USED BY CALIFORNIA'S TAXPAYER SERVICES BUREAU
TO DETERMINE PUBLIC DEMAND FOR PHONE SERVICE
I1 TAXPAYER ASSISTANCE RESPONSE - TO PUBLIC DEMAND
M Y 1 4 THROUGH 1 8, 1 984
I I I CORRESPONDENCE AND TIME REPORT USED BY CALIFORNIA'S
TAXPAYER SERVICES BUREAU
LIST OF TABLES
- Page
TABLE 1 - Taxpayer Assistance Activities And Work Load
Fiscal Years 1982- 83 Through 1985- 86 . . . . . . . . . . . 2
TABLE 2 - Bingo Activities And Work Load
Fiscal Years 1982- 83 Through 1985- 86 . . . . . . . . . . . 3
TABLE 3 - Licensing And Registration Activities And Work Load
Fiscal Years 1982- 83 Through 1985- 86 . . . . . . . . . . . 4
TABLE 4 - Taxpayer Services Division Revenue And Expenditures
For Fiscal Years 1983- 84 Through 1985- 86 . . . . . . . . . 5
TABLE 5 - Sample Of Taxpayer Assistance
Response Time To Taxpayer Correspondence April 26 Through May 2, 1985 . . . . . . . . . . . . . . . 10
TABLE 6 - Tenure of Temporary Employees
December 16, 1984, through May 25, 1985. . . . . . . . . . 14
TABLE 7 - Bingo Revenue Collected - Large And Small Licensees For Fiscal Years 1982- 83 Through 1984- 85 . . . . . . . . . 22
TABLE 8 - Example Of Mu1 t i t i e r e d Licensing. . . . . . . . . . . . . 31
TABLE 9 - Comparison Of Phoenix And Tucson Work Loads
Between January 1985 And May 1985. . . . . . . . . . . . . 35
INTRODUCTION AND BACKGROUND
The Office o f the Auditor General has conducted a performance audit o f the
Arizona Department o f Revenue, Taxpayer Services Division, i n response t o
an A p r i l 27, 1983, resolution of the J o i n t Legislative Oversight
Committee. This report, the fourth i n a series on the Department of
Revenue, was conducted as part o f the Sunset Review s e t f o r t h i n Arizona
Revised Statutes § § 41- 2351 through 41 - 2379.
The Department of Revenue ( DOR) established the Taxpayer Services Division
i n August 1983. Taxpayer Services consists o f three sections: Taxpayer
Assistance, Bingo, and Licensing and Registration. Prior to the 1983
reorganization the various functions were performed by the Taxation
Division. Auditing s t a f f within Taxation responded to taxpayer
inquiries. Licensing and r e g i s t r a t i o n , and bingo functions were a1 so
handled by various Taxation employees. In an e f f o r t to increase
accountabil i ty however, DOR consol idated these a c t i v i t i e s and formed
Taxpayer Services as a separate division.
I n addition t o the Taxpayer Assistance Section i n Phoenix, the Tucson
Division a1 so performs taxpayer assistance functions. The Tucson Section
i s under the j u r i s d i c t i o n of the Assistant Director of the Tucson Division
and i s not responsible t o the Assistant Director o f the Taxpayer Services
Division. ( For more information regarding the Tucson Section and i t s
performance, see page 33).
Organization And Personnel
The Taxpayer Services Division has approximately 148 s t a f f , of which
approximately one- ha1 f are temporary empl oyees. A majority of the
temporary s t a f f works i n the Taxpayer Assi stance Section.
Taxpayer Assistance - As o f September 1985 Taxpayer Assistance had 25
f u l l - time permanent employees and approximately 64 temporary workers. I t s
major r o l e i s to respond to taxpayer i n q u i r i e s and resolve taxpayer
probl ems.
Taxpayer questions may range from tax f i l i n g dates and status o f a refund,
to problems such as errors i n tax b i l l i n g s or improperly applied tax
payments. The Section contains a phone u n i t , correspondence u n i t and
c l e r i c a l / support u n i t . I n addition, the Section maintains a walk- in
office t o respond t o v i s i t s by taxpayers. Table 1 d e t a i l s the Section's
volume o f work f o r f i s c a l years 1982- 83 through 1985- 86.
TABLE 1
TAXPAYER ASSISTANCE ACTIVITIES AND WORK LOAD
FISCAL YEARS 1982- 83 THROUGH 1985- 86
A c t i v i t y
Actual Actual Actual Estimated
1982- 83 1 983- 84 1984- 85 1985- 86
Personal V i s i t s by Taxpayers 11,886 15,641 14,272 14,000
Tel ephone i n q u i r i e s 201,900 269,604 224,110 246,000
Correspondence I n q u i r i e s -
Received 25,200 49,607 84,336 72,694
Resolved 21,415 49,721 73,651 48,080
Source: DOR Budget Request f o r f i s c a l year 1985- 86
Bingo - The Bingo Section licenses large and small bingo operations i n
Arizona and enforces the bingo statutes. Although bingo games have been
regulated since 1972, it was not u n t i l 1984 t h a t DOR established Bingo as
a separate section. The Section employs 13 f u l l - time permanent employees
i n Phoenix and Tucson. I n f i s c a l year 1984- 85 the Section renewed 687
small and large game 1 icenses, and issued 89 new 1 icenses. I n addition to
issuing 1 icenses and renewal s, the Section performs investigations of
suspected v i o l a t i o n s of bingo statutes. The Section also conducts
compl iance v i s i t s . Table 2 summarizes the Bingo Section's a c t i v i t i e s and
work load f o r f i s c a l years 1982- 83 through 1985- 86.
TABLE 2
BINGO ACTIVITIES AND WORK LOAD
FISCAL YEARS 1 982- 83 THROUGH 1 985- 86
Activity
Actual Actual Actual Estimated
1982- 83 1 983- 84 1984- 85 1 985- 86
New Large Licenses 18 10
New Small Licenses 19 10
Renewed Large Licenses 177 165
Renewed Small L i f PPses 265 143
Tucson Licenses 249 251
Investigations ( 2 5 6 13 8
Compl iance V i sits ( 2) - 130 ( 3) 200 ( 4) 250
Source: DOR Budget Request Fiscal Year 1985- 86
( 1 ) Tucson records do not differentiate between large and small game
licenses, or renewals and new licenses for fiscal years 1982- 83 and
1983- 84. For fiscal years 1984- 85 and 1985- 86 Tucson licenses are not
identified separately.
( 2) These figures do not include Tucson a c t i v i t i e s .
( 3) 1/ 2 year, one investigator
( 4) 9 months, four investigators
Licensing And Registration - The Licensing and Registration Section issues
1 icenses and maintains 1 icense f i l e s f o r s a l e s , use, withholding, tobacco
and cannabis taxes. The Section a1 so identifies previously unidentified
sales and withholding payments and credits them to the proper account, and
distributes State income tax forms. The Section has 20 full- time s t a f f ,
and temporary s t a f f is hired only during seasonal peak periods. Table 3
details the a c t i v i t i e s and work load of the Licensing and Registration
Section from 1982- 83 through 1985- 86.
TABLE 3
LICENSING AND REGISTRATION ACTIVITIES AND WORK LOAD
FISCAL YEARS 1982- 83 THROUGH 1985- 86
Actual Actual Actual Estimated
A c t i v i t y 1982- 83 1 983- 84 1 984- 85 1 985- 86
Sales Tax Licensing
New Licenses 23,078
Reissues and
Additional Locations 7,792
Maintenance Changes/
Cancel 1 ations 71,313 ( 1)
Withholding Tax Licensing
New Licenses 17,173
Reissues 977
Maintenance Changes/
Cancel 1 ations 35,910
Tobacco Licensing 89
Cannabis Licensing
Unidentified Payments/
Accounts Worked
Source: DOR Budget Request f o r f i s c a l year 1985- 86
( 1 ) Includes work on backlog.
( 2) Volume i s a t t r i b u t a b l e t o implementation o f a new computer system.
Revenue And Expenditures
The Division of Taxpayer Services i s funded p r i m a r i l y through the general
fund. The Bingo Section receives revenue from the c o l l e c t i o n o f i n - l i e u
taxes and 1 icensing fees which ' t o t a l e d $ 41 2,285 f o r f i s c a l year 1984- 85.
Bingo license fees are deposited i n the general fund and a percentage o f
the in- 1 ieu tax comprises the Bingo Section's operating budget. Table 4
summarizes the Division ' s appropriations and expenditures from f i s c a l year
1983- 84 through fi scal year 1 985- 86.
TABLE 4
TAXPAYER SERVICES DIVISION
REVENUE AND EXPENDITURES FOR FISCAL YEARS 1983- 84 THROUGH 1985- 86
( Unaudited)
Actual Actual Estimated
1 983- 84 1 984- 85 1 985 - 86
Revenues
Appropriations $ 788,800 $ 1,292,900 $ 1,132,900
Bingo Administration Fund 0 412,285 795,630 ( 2)
Total
Ex;:;: A;;- e;
e r v i ces $ 320,600 $ 656,305 $ 1,032,389
Employee Re1 ated Expense 80,000 155,272 232,907
Professional and
Outsi de Services 367,000 698,173 134,500
Travel -
In- State 1,400 2,904 20,000
Out- of- State 500 0 0
Other Operating 5,000 61,166 28, $ 00
Equipment 14,300 50,414 31,000
Total Expenditures $ 788,800 $ 1,624,234 $ 1,479,596
Increase i n Fund Balance ( 3) 1 0 $ 80,951 $ 448,934
Total
Source: DOR Budget Requests f o r f i s c a l year 1985- 86
( 1) The Bingo Administration Fund t o t a l includes $ 381,345 i n - l i e u tax and
$ 30,940 i n l i c e n s i n g fees.
( 2) The i n - l i e u tax has increased from 1 percent to 2 percent; however,
only 1 percent i s available to the Bingo Administration Fund. The
r e s t i s deposited i n the general fund.
( 3) Bingo Administration Fund revenues not expended during the f i s c a l
year remain i n the fund and are available f o r future expenditures.
Audit Scope And Purpose
Our audit of the Taxpayer Services Division focused principally on the
Taxpayer Assistance and Bingo Sections of the Phoenix office. Detailed
work, incl uding on- si te visits to Cal i fornia' s Taxpayer Services Bureau,
the Internal Revenue Service's Taxpayer Services Division and the Regional
Service Center, was conducted on the following issues:
o Whether the Taxpayer Assistance Section responds to taxpayer
problems and concerns i n a timely and efficient manner, and
o Whether bingo statutes and procedures are adequate to control
potential abuses i n the bingo industry.
In addition, we developed information about the lack of an enforcement
program i n Licensing and Registration, and the need for increases in
business 1 icensing fees. This information i s presented i n the section
Areas For Further Audit Work ( see page 37).
The Auditor General and staff express appreciation to the Director of DOR
and staff of the Taxpayer Services Division for their cooperation and
assistance during our audit.
FINDING I
TAXPAYER ASS1 STANCE IS NOT ADEQUATELY MEETING PUBLIC DEIWND FOR SERVICE
The Department of Revenue's ( DOR) Taxpayer Assistance Section is not
providing adequate service to the publ ic. The Section's phone u n i t is not
meeting minimal publ ic demand. Moreover, Taxpayer Assistance's response
to taxpayer correspondence is untimely and inefficient. The Section's
excessive reliance on temporary personnel and its failure to provide its
s t a f f w i t h sufficient direction and supervision reduce efficiency i n both
the phone and correspondence units. A1 though Taxpayer Assistance is
taking steps to address these problems, further action is necessary.
The mission of Taxpayer Assistance is to respond to taxpayer inquiries and
resol ve taxpayer problems compl etely , accurately and i n a timely manner.
The Section is responsible for answering questions and resolving problems
for all tax types, and maintains three units for this purpose: a phone
u n i t , a correspondence u n i t and a walk- in office to respond to visits by
taxpayers. The Section a1 so contains a cl erical / support u n i t .
Taxpayer Assistance Is Not Providing
Adeauate Phone Servlce To Tax~ avers
Taxpayer Assistance is not meeting taxpayers' demand for phone service.
The Section's phone service is far below the service provided taxpayers by
Cal i fornia ' s Taxpayer Services Bureau and the Internal Revenue Service
( IRS). The Section shoul d establish adequate service 1 eve1 s and plan its
staffing to meet public demand.
Phone Service Is Inadequate - Taxpayer ~ s s i s t a n c e ' s phone service is
inadequate. The Section has 17 available open lines. In contrast,
regional IRS phone service adjusts for seasonal demands, and operates
between 18 and 42 open 1 ines for the Arizona taxpayer community. May 14
through 18, 1984, Mountain Bell did a study for DOR and found that
Taxpayer Assistance was able to answer 7,180 of 177,383 attempted calls.
Applying a formula used by California,* Auditor General staff found that
Taxpayer Assistance met less than 27 percent of the public demand during
that period. Of the approximately 26,400 taxpayers who made the 177,383
c a l l s during that period, 19,300 of them were unable to get through by
phone.
In contrast, the Internal Revenue Service and California both maintain
service levels that they have determined will satisfy, a t l e a s t minimally,
the public demand. The IRS' regional Taxpayer Services Division i s
currently answering 70 percent of the total incoming c a l l s from the
public, while California is maintaining a service level of 58 percent.
Inadequate phone service increases the time and cost of operating Taxpayer
Assistance. Phone service i s the quickest and least expensive way to
respond to taxpayer inquiries. The United States' General Accounting
Office and Cal ifornia have both conducted studies which determined that
taxpayers who are unable to have questions answered by phone may react by
either sending correspondence or by using the available walk- in services.
In a survey conducted during July 1984, California found that 43 percent
of those surveyed indicated that they had written because the telephone
lines were busy, while 31 percent used the walk- in service for the same
reason. Although it cannot be determined how many taxpayers have reacted
this way i n Arizona, i t i s reasonable to conclude that many taxpayers,
unable to reach Taxpayer Assistance by phone, are turning to
correspondence or the walk- in units. Both of these services are slower and
more costly than phone service, and more costly and inconvenient for the
publ ic.
Assessing Pub1 ic Demand - Taxpayer Assistance needs to determine publ ic
demand and establish adequate service levels. In the past, Taxpayer
* The actual number of taxpayers who call i s calculated by a formula
that adjusts the figures for repeat dialers and those who hang up
before talking to anyone. Our adaptation of the formula does not take
into account those callers who hung up, because that information was
not included in the Mountain Bell study. AS a result, 27 percent i s
an overstatement of the Section's actual level of service during that
period. See Appendix I for the formula and Appendix I1 for Taxpayer
Assistance response to publ ic demand between May 14 through 18, 1984.
Assistance was unable to gauge publ i c demand because i t s phone system was
not equipped to compile the necessary data. The Section's new phone
system allows it to obtain data on the number of attempted c a l l s as well
as the actual number o f c a l l s received from taxpayers. This information
i s necessary to calculate publ i c demand. Using a mathematical formula,
such as the one used by California, the Section could estimate how many
taxpayers are t r y i n g t o c a l l Taxpayer Assistance. Predicting public
demand would allow Taxpayer Assistance to determine what level o f service
w i l l satisfy the public. Setting a minimum service level i s a technique
used by both the IRS and Cal i f o r n i a t o ensure operational efficiency.
Moreover, t o maintain establ ished service level s, Taxpayer Assistance must
continuously assess i t s s t a f f i n g needs. Productivity data, such as the
average number o f c a l l s a phone worker can answer per hour, can be used t o
determine how many employee hours are necessary t o a t t a i n a given level o f
service. A review of available p r o d u c t i v i t y data shows that phone s t a f f
i s currently responding t o taxpayer c a l l s a t a r a t e o f approximately 11 an
hour. A1 though the Section c u r r e n t l y c o l l e c t s t h i s data, it cannot be
used f o r the purpose o f making s t a f f assessments unless public demand i s
determined and service level s are established.
Response t o Correspondence
I s Untimely And I n e f f i c i e n t
Taxpayer Assistance does not respond quickly o r e f f i c i e n t l y t o taxpayer
correspondence. The time taken to answer taxpayer correspondence i s
excessive. Moreover, correspondence casework can be duplicated or l o s t
due t o poor inventory control . Taxpayer Assistance ' s imp1 emen t a t i on o f a
new tracking system w i l l p a r t i a l l y address these problems.
Response Time To Taxpayer Correspondence - Taxpayer Assistance has a
30- day goal for responding t o taxpayer correspondence. The Taxpayer
Services D i v i s i o n ' s Assistant Director considers 30 days reasonable
response time. Moreover, according t o the Administrator o f Cal i f o r n i a ' s
Taxpayer Services Bureau, taxpayers w i l l generally wait approximately 30
days f o r a response t o t h e i r i n q u i r i e s . A f t e r t h a t time, he stated,
taxpayers tend to become impatient, and the l i k e l i h o o d t h a t they w i l l
w r i t e again increases.
Although Taxpayer Assistance recognizes that a 30- day turnaround time i s a
necessary objective, the Section has been unable t o meet t h a t standard i n
i t s actual performance. A random sample and review o f one week's answered
correspondence showed t h a t 74 percent o f the taxpayers ' correspondence was
not answered w i t h i n 30 days. Moreover, the response time ranged from 4 to
174 days. Tab1 e 5 ill ustrates the Section ' s untimel iness.
TABLE 5
SAMPLE OF TAXPAYER ASSISTANCE
RESPONSE TIME TO TAXPAYER CORRESPGNDENCE
APRIL 26 THROUGH MAY 2, 1985
Response
Time ( Days)
Total
Total Cases Percentage o f
Answered Cases Answered
Average Response Time = 51 days
Source: DOR answered correspondence, A p r i l 26 through May 2, 1985
During the l a s t f i s c a l year, much o f the Section's unanswered
correspondence has been more than 70 days old.
Work Duplication - Work duplication, a r e s u l t of poor inventory control,
i s one reason for the correspondence u n i t ' s untimely and i n e f f i c i e n t
service t o the public. Casework i s manually logged i n t o the Section's
inventory by the clerical/ support unit. Duplication can occur if the
c l e r i c a l / support u n i t f a i 1 s t o coordinate mu1 ti pl e contacts from one
taxpayer regarding the same problem or inquiry.* Numerous exampl es were
3 Taxpayer Assistance has reported t h a t work i s a1 so dupl icated because
taxpayer problems are being addressed by more than one division w i t h i n
DOR.
found i n which two or more of the Section's caseworkers were assigned the
same taxpayer's case.
Example 1
Between January and March 1985, a taxpayer wrote Taxpayer Assistance
twice requesting a refund for money owed from the 1983 tax season.
These 1 etters were assigned separately to two different caseworkers,
and both requested refunds for the taxpayer. According to a Section
caseworker, these refund requests were canceled by DORIS Error
Resolution U n i t because i t was discovered that the taxpayer had
already been issued a refund, a t the request of a third Taxpayer
Assistance caseworker. The Section's f i l e s did not contain a record
of this transaction.
Although the extent of work being duplicated cannot be determined, the
foll owing example indicates that i t may be a widespread occurrence.
Example 2
Taxpayer correspondence answered by one caseworker between February 27
and May 6, 1985, was reviewed, and of the 281 pieces of correspondence
assigned to him during that period almost 14 percent had already been
answered by other workers.
Commen t
This case illustrates that a worker would not know that assigned
casework had already been completed until sometime after the
taxpayer' s problem was addressed.
Lost Cases - In addition, cases have been lost as a result of the
Section's inventory control problems. Between January and May 1985, the
Section found 5,886 pieces of unanswered correspondence that were not
included i n the inventory. In January alone, the Section's inventory
almost doubled, from 5,768 to 10,729, as a result of casework recovered
through a physical inventory. Some of this casework was i n the Section's
possession for almost 300 days.
According to the Section' s Assistant Director, management reports cannot
be relied on to detect staff ineffectiveness, and therefore cannot control
missing inventory. ( See pages 18 and 19 for further information). As a
result, taxpayer inquiries can go unanswered for prolonged periods of time.
Example 3
In January, 1985, Taxpayer Assistance conducted a physical inventory
to determine if older cases were being resolved immediately.
Subsequent to this, caseworkers were instructed that if they would
return any correspondence i n their possession that they were hiding,
they would not be disciplined. A1 though the exact number of recovered
correspondence i s unknown, the Assistant Director stated that two
boxes were filled.
Mew Tracking System - The Section has plans to implement i t s Taxpayer
Request Assistance and Control System ( TRACS) to address i t s inventory
control problems. The Section currently re1 ies on its staff to monitor the
processing of taxpayer correspondence w i t h 1 i t t l e success. Casework is
manually logged into the Section's inventory by the clerical/ support u n i t ,
then assigned to various group leaders who are responsible for
coordinating i t through the work process. Staff ineffectiveness and the
decentral ized inventory control process has resul ted in the probl ems
described earl ier.
If ful ly implemented, TRACS will automate and central ize the inventory
control process. According to the TRACS Imp1 ementati on Project Report,
the new control system will provide for multidivisional usage, and
automate monitoring and dispatching of actions. TRACS, when imp1 emented,
should allow the Section to eliminate work duplication* and more easily
detect staff ineffectiveness.
Moreover, if fully implemented, TRACS will also address the Section's
time1 iness problem by providing greater terminal access. The Section's
correspondence units currently have access to 28 terminals. With TRACS,
the number of available terminals will increase to 44. Greater access to
taxpayer information w i 11 enable workers to respond to taxpayers' problems
more quickly.
* In the interim, Taxpayer Assistance should consider sending
acknowledgement l e t t e r s to taxpayers whose correspondence i s more than
20 or 30 days old. Acknowledgement l e t t e r s could curtail the
Section's work duplication problei by informing taxpayers that their
letters have been received. Cal ifornia, for example, sends
acknowledgement letters when unanswered correspondence is more than 21
days old.
TRACS a1 one, however, will not el iminate staff ineffectiveness or solve
the Section's time1 iness problem. Service to taxpayers will not
significantly improve unless attention is given to the Section's staffing,
training and procedural deficiencies.
Substandard Performance Is The Result
Of Inadequate Staffing, Inadequate Operating
Procedures And Limited Supervision
Taxpayer Assistance's excessive re1 iance on temporary personnel, and i t s
failure to sufficiently direct and supervise i t s staff are primary reasons
for the Section's poor level of service. The use of temporary personnel
limits the Section's ability to train i t s staff and reduces productivity.
Moreover, Taxpayer Assistance has failed to provide adequate work
procedures or sufficient supervision. A1 though Taxpayer Assistance is
taking corrective steps to address these problems, further action is
required.
Excessive Re1 iance On Temporary Personnel - Taxpayer Assistance ' s
excessive re1 iance on temporary personnel 1 imi ts its abil i ty to provide
adequate staff training, and reduces productivity. Because the turnover
rate of temporary workers is high, Taxpayer Assistance cannot invest much
time in staff screening and training.
Taxpayer Assistance has relied heavily on temporary personnel since
becoming a separate section in 1983. As of May 1985, the ratio of
permanent employees to temporary personnel was 21 permanent employees to
approximately 72 temporary workers. Funding for temporary personnel comes
from a lump sum appropriation for " Outside Professional Services" and, in
effect, disguises the actual number of full- time workers a t Taxpayer
Assistance.
Moreover, this excessive use of temporaries has created a serious turnover
problem. The turnover rate of temporary personnel i s high. A 6- month
review of temporary workers' turnover demonstrates that turnover i s a
significant problem for Taxpayer Assistance. Tab1 e 6 i l l ustrates the
Section ' s turnover problem.
TABLE 6
TENURE OF TEMPORARY EMPLOYEES
DECEMBER 16, 1984, THROUGH MAY 25, 1985
Length o f
Em~ olm ent
1 week or less
1 month or less
3 months or less
6 months or less
Percentage of
Employees Terminating
Source: DOR b i l l i ng statements from temporary personnel vendor, December
16 through May 25, 1985
Because the Section must continually replace s t a f f who have e i t h e r q u i t or
been f i r e d , t r a i n i n g must be minimized. Since Taxpayer Assistance cannot
r e a l i s t i c a l l y invest s u f f i c i e n t time i n s t a f f training, t r a i n i n g i s
substandard.
Training f o r newly hired correspondence workers consists of a 2- day I
t r a i n i n g course. According to the Assistant Director, the t r a i n i n g
package used has proven to be inadequate. Moreover, no t r a i n i n g
materials have been developed t h a t focus on sales tax, which the Assistant
Director described as the most complicated tax area to master. Finally,
t r a i n i n g f o r the phone u n i t i s basically the same as for the
correspondence unit, except t h a t it i s extended to 5 days with an
additional 5 days f o r on- the- job instruction. The Assistant Director
concluded t h a t t r a i n i n g f o r a l l personnel i s l i m i t e d and inadequate.
Taxpayer Assistance ' s 1 ack o f comprehensive t r a i n i n g means t h a t most o f
the s t a f f ' s learning i s done on the job. AS a result, a substantial
amount of caseworkers' potential l y productive time i s spent consul t i n g
w i t h peers and supervisors t o determine how t o respond to taxpayers. For
example, a l i m i t e d study showed t h a t among the d i f f e r e n t u n i t s , 18 percent
of the s t a f f ' s productive time was spent consulting with supervisory
personnel and other workers.
Because of turnover and inadequate training, Taxpayer Assistance
continuously has a core group of workers responding to taxpayer
correspondence a t a rate far below average. The productivity of newly
hired income tax correspondence workers was reviewed for approximately 6
months. During the f i r s t 3 weeks of employment, new personnel responded to
taxpayer correspondence a t a rate just slightly better than ha1 f that of
the Section' s overall average.
In contrast to Taxpayer Assistance, the IRS and California both have
developed comprehensive training programs to ensure that new employees can
produce a t an acceptable level. The IRS, for example, conducts 4 weeks of
formal classroom training. Moreover, trainees must pass a series of t e s t s
throughout the training, or they are dismissed. California has a 5- week
training program, and its trainees must also pass an exam before being
allowed onto the work area. Consequently, both organizations are able to
replace personnel as necessary without a serious impact on s t a f f
productivity.
Operating Procedures - Substandard performance a1 so resul ts from the
Section's inability to develop an inclusive s e t of written procedures to
promote operational efficiency. Taxpayer Assistance 1 acks adequate
control over the work process because i t has relied on informal oral
procedures. Further, current procedures need to be examined and updated to
improve operational efficiency.
Taxpayer Services' control over the manner i n which work is done has been
impaired because i t re1 ied on oral communication instead of written
procedures. Written procedures he1 p ensure that the s t a f f works u n i formly
and correctly. For example, during an on- site visit we learned that
Cal ifornia has developed a comprehensive operating guide for its s t a f f .
This written reference guide is an essential tool i n California's case
resolution process. To ensure ready access, each caseworker, phone and
correspondence employee shares a reference guide w i t h one other worker.
I t is the primary guide used by California's s t a f f i n responding to
taxpayer problems. Moreover, California's training program revolves around
teaching trainees how to use this guide. According to the Administrator of
Cal i fornia's Taxpayer Services Bureau, without this operating and
instruction manual he would be unable to maintain the quality and
uniformity of work done by his staff. 4
Taxpayer Assistance has been unable to examine and update its operating
procedures. According to the Assistant Director, qualified in- house
personnel have only recently had the time to write its currently used
procedures. The Section solicited the assistance of DOR Management
Services i n February 1 985. Management Services, however, had no avai 1 able
staff.
Moreover, there i s evidence that currently used procedures need to be
examined and updated to improve the Section's efficiency.
a Unnecessary Delays In Work Flow - In many cases, action on a
taxpayer's problem cannot be taken by a caseworker until the
taxpayer's f i l e i s obtained from DOR's f i l e room. After a f i l e
is ordered it can take several weeks before i t i s delivered.
Currently, the decision to order taxpayer f i l e s is made by the
caseworker when a taxpayer case i s assigned. As a result,
taxpayer problems, which can be back1 ogged for months before
being assigned to a caseworker, can remain unresolved for
additional weeks before a caseworker can take action. By having
a caseworker briefly review unassigned casework and order
documents i n advance, Taxpayer Assistance could, in many cases,
reduce i t s response time to taxpayers.
e Unnecessary Paperwork - Caseworkers are required to write two
summaries each time they respond to a taxpayer: one for the
Section's files and one that is sent to the f i l e room to
" connect" w i t h the taxpayer's f i l e . A1 though cases involving
monetary transactions should always be documented, documenting
every taxpayer comunication i n duplicate seems unnecessary.
Cal i fornia, for example, documents only those cases involving
monetary transactions.
Although the Section has recently written currently used procedures, our
analysis indicates that simply drafting existing procedures coul d resul t
i n formalizing inefficient work practices. Procedures i n effect should be
examined and updated, as well as written and made accessible t o s t a f f .
Staff Supervision - Finally, the quality of supervisory staff needs to be
improved. To maintain minimal supervision, full - time empl oyees have had
to assume many responsibilities for which they are not adequately paid and
may not be qual i fied. Aside from the Section's Administrator, Taxpayer
Assistance has three official supervisory positions to manage the
correspondence, phone and clerical units. To provide more direct control,
Taxpayer Assistance has used Accounting Clerk 11s and 111s as voluntary
supervisors w i t h i n the correspondence and phone units. Further, Accounting
Clerk 11s and temporary personnel have served as technical advisors and
reviewers.
Taxpayer Assistance has given many responsibil i ties to employees w i t h
1 imi ted qual i fications. For example, one Accounting Clerk 11, paid
$ 10,722, headed a group of 21 correspondence caseworkers for several
months. This Accounting Clerk had the following responsibilities: u n i t
supervisor, technical advisor, inventory control coordinator and trainer.
Further, giving too many responsibil i ties to a sing1 e supervisor reduces
effectiveness.
e Because of his many duties, the phone unit's supervisor is unable
to regularly monitor staff performance. The phone u n i t is staffed
entirely w i t h temporary personnel having 1 i m i ted experience and
training. Because adequate supervision i s not available, qual i ty
control i s neglected for a group where i t i s especially needed.
In contrast, Cal ifornia has a mu1 tilayered staff of qual ified supervisors
and technical advisors administering a correspondence unit comparable in
size t o Arizona's Taxpayer Assistance. Responsibil i ties are segregated
and more evenly distributed. For example, w i t h more supervisors
available, a group supervisor working for California i s responsible for no
more than 12 correspondence workers. In addition, a technical advisor i s
a1 so available to t h a t same group o f 12. These supervisory personnel are
paid commensurate t o t h e i r responsibil i ties, with salaries ranging from
$ 18,468 t o $ 21,900.
Corrective Action - While Taxpayer Assistance i s t a k i n g c o r r e c t i v e steps
t o address i t s staffing problems, f u r t h e r a c t i o n i s necessary. Taxpayer
Assistance has plans t o increase i t s f u l l - t i m e s t a f f and r e c l a s s i f y
positions. The Section needs t o improve i t s t r a i n i n g program as well.
F i n a l l y , the Section's information must be improved so it can monitor the
impact o f i t s new s t a f f i n g pol i c y and make future s t a f f assessments.
To address i t s s t a f f i n g problem, Taxpayer Assistance plans t o increase i t s
f u l l - time s t a f f and r e c l a s s i f y positions. The Section's approved f u l l - t i m e
employee positions w i l l increase by 18 a t the s t a r t o f f i s c a l year 1986.
Taxpayer Assistance ' s r e c l a s s i f i c a t i o n plan woul d upgrade these as we1 1 as
i t s currently e x i s t i n g positions. The plan c a l l s f o r better pay for i t s
f r o n t - l i n e caseworkers as well as provisions f o r increased supervisory
personnel. A1 though the Section's s t a f f i n g plans should provide a more
stable work environment, the Section w i l l s t i l l r e t a i n a substantial
number o f temporary personnel ( approximately 54 temporary workers to 39
permanent workers). This continued re1 iance on temporaries could mean
t h a t turnover w i l l remain a problem. Turnover must be controlled before
an e f f e c t i v e t r a i n i n g program, which should be developed, i s cost
beneficial.
It i s important t h a t Taxpayer Assistance improve the q u a l i t y o f i t s
training. The Section's s t a f f i n g plans w i l l only be e f f e c t i v e if t r a i n i n g
i s improved. Taxpayer Assistance could use as i t s model e i t h e r C a l i f o r n i a
or the IRS i n t h i s regard. Both have programs t h a t adequately prepare and
screen personnel before a1 1 owing them to i n t e r a c t with taxpayers.
To more adequately assess i t s permanent staffing needs, the Section needs
better management information. Management reports, the Section ' s primary
means of monitoring its operation, are often unreliable and lack the
precision needed to be useful. As a result, s t a t i s t i c s collected on
s t a f f ' s time, productivity, and activities are of 1 imited value.
e Although time data i s collected by Taxpayer Assistance, in the
past, 1 i t t l e effort was made to consistently separate different
work activities. As a result, Taxpayer Assistance does not know,
for example, how many man hours in fiscal year 1985 were spent
responding to taxpayer correspondence, training new personnel, or
reviewing case work.*
@ Although individual productivity data is collected, the various
kinds of correspondence answered are not differentiated. Name and
address changes, for instance, are not distinguished from refund
requests, which take substantially longer to complete. As a
result, Taxpayer Assistance cannot accurately evaluate individual
performance. For example, on two occasions workers were
mistakenly commended for exceptional productivity because
management was unaware of the nature of the work performed.
e A review of 1 week's answered correspondence of the Section's
withholding tax u n i t showed that 60 percent of the work reported
as completed correspondence was simply mail routed to other units
within DOR. Further, the withholding u n i t spent the entire month
of January processing annual withholding tax returns, which
should be processed by DOR's Accounts Receivable Section.
Thousands of these returns were processed by the u n i t and counted
as taxpayer correspondence by the Section.
During an on- site v i s i t we observed that California uses a form to collect
information that the Section could find useful ( see Appendix 111). The
form, turned i n weekly by Cal i fornia caseworkers, compi 1 es daily production
* Taxpayer Assistance i s currently improving the quality of time data
col 1 ec ted.
and time data i n a simple and usable format, from which staff
productivity can be evaluated and staff assessments can be made.
CONCLUSION
DOR's Taxpayer Assistance Section is not providing adequate service to the
publ ic. The Section's response to taxpayers' problems and inquiries is
slow and inefficient. Operational deficiencies are primarily the resul t of
Taxpayer Assistance's excessive re1 iance on temporary personnel and i t s
failure to provide i t s staff w i t h sufficient supervision and direction.
Finally, although the Section is taking corrective steps to address i t s
probl ems, further action i s required.
RECOMMENDATIONS
1. Taxpayer Assistance shoul d upgrade its phone service by calculating
publ ic demand, establ ishing adequate service 1 evel s and assessing i t s
staffing needs on a continuous basis.
2. The Legi sl ature shoul d consider funding Taxpayer Assistance's plans to
implement i t s Taxpayer Request Assistance and Control System.
3. The Legi sl ature shoul d consider adopting Taxpayer Assistance' s plans
to increase and reclassify i t s full - time employee positions, which
includes additional 1 evel s of supervisory personnel and 1 ess
dependence on temporary workers.
4. DOR should develop a comprehensive program for training staff in i t s
Taxpayer Assistance Section.
5. DOR should examine, update and write operating procedures. These
procedures should be accessible to the staff to ensure that responses
to taxpayers' problems and inquiries are made uniformly and correctly.
6. Taxpayer Assistance should continue to improve the qua1 ity of i t s
management information so i t can adequately evaluate i t s operation's
staffing needs and performance.
FINDING I1
DOR NEEDS TO FURTHER STRENGTHEN AND IFPROVE BINGO REGULATION AND
ENFORCEMENT
The Arizona Department o f Revenue ( DOR) shoul d further strengthen and
improve bingo regulation and enforcement t o prevent abuses i n the bingo
industry. The nature o f the bingo industry i n Arizona has changed i n
recent years, and the potential f o r criminal abuse has increased.
A1 though DOR recently has made e f f o r t s to increase control over bingo
operators, additional statutory and procedural changes are necessary t o
prevent the misuse of proceeds and skimming of receipts by unscrupulous
individual s. I n addition, DOR shoul d adopt a mu1 ti t i e r e d bingo 1 icensi ng
system t o improve enforcement effectiveness.
Bingo, defined as a game o f chance, was legalized i n Arizona i n 1972. At
t h a t time, DOR's predecessor, the State Tax Commission, was designated as
the State 1 icensing authority t o 1 icense and regulate bingo operations.
Presently there are two categories of licensure: large and small game
licenses. As o f August 1985 there were 667 bingo licensees. S l i g h t l y more
than ha1 f are small game 1 icenses. Large game 1 icenses are 1 imited t o
qua1 i f i e d organizations as defined by Arizona Revised Statutes ( A. R. S. )
$ 5- 401. Small game licenses can be issued t o any organization or
individual t h a t has the approval o f the local governing body and i s deemed
o f good moral character.
Under State statute, large game bingo licensees are required to use the
proceeds o f bingo games f o r the charitable purposes o f the organization.
I n addition, licensees must report t h e i r financial a c t i v i t y for each
quarter t o DOR through the use o f quarterly financial reports ( QFRs). At
the time o f f i l i n g QFRs, each 1 arge game 1 icensee i s required to pay an
i n - l i e u tax o f 2 percent of the gross receipts collected during t h a t
quarter.* Small game licensees pay 2.5 percent o f the gross receipts
col 1 ected when fil i ng QFRs.
Nature O f The Bingo
Industry Has Changed
The operation o f bingo i n Arizona has grown dramatically, creating the
opportunity f o r serious criminal a c t i v i t y . However, DOR has o n l y r e c e n t l y
taken steps t o strengthen i t s bingo enforcement e f f o r t s .
The operation o f large game bingo has become an industry i n Arizona since
i t s l e g a l i z a t i o n i n 1972. DOR did not have f i g u r e s a v a i l a b l e t o determine
the increase i n 1 icensees or gross receipts f o r recent years. However,
the t o t a l bingo revenue collected - in- 1 ieu tax and 1 icense fees - has
doubled since 1982. The i n - l i e u tax collected, a percentage o f gross
receipts, and license fees have increased from $ 276,216 i n 1982 t o an
estimated $ 560,000 i n 1985 ( see Table 7). This increase indicates the
dramatic growth i n the bingo industry.
TABLE 7
BINGO REVENUE COLLECTED - LARGE AND SMALL LICENSEES
FOR FISCAL YEARS 1982- 83 THROUGH 1984- 85
Fiscal Year
1982
1 983
1984
1985 ( est)
Bingo Revenue Col 1 ected
$ 2/ 6.216
The amounts o f money received by licensees have also increased
dramatically. Several not- for- profi t organizations r e l y heavily i f not
s o l e l y on bingo net proceeds as a funding source f o r t h e i r charitable
* Legislation passed during the 1985 session o f the Legislature changed
the percentage of in- 1 ieu tax f o r large game 1 icensees from 1 percent
t o 2 percent of gross receipts. One percent i s designated for the
administration of the bingo statutes and 1 percent i s t o be deposited
i n t o the general fund.
a c t i v i t i e s . The Bingo Section Supervisor estimates the t o t a l gross
receipts per year generated from bingo t o be $ 40 m i l l i o n . As an example
of the extensive dollars involved, one large game 1 icensee reported more
than $ 300,000 i n gross receipts f o r the f i r s t quarter o f 1985. This
resulted i n weekly average gross receipts o f more than $ 23,000.
Approximately $ 120,000 of the $ 300,000 was turned over t o the c h a r i t y as
net proceeds, representing a 40 percent return f o r the charity.
The cash nature o f the bingo industry creates an enormous potential f o r
criminal a c t i v i t y . The majority o f the large game licensees do not use
any type o f r e c e i p t or control system f o r the monies received from players
for the purchase o f cards, nor are they required t o do so by statute.
This s i t u a t i o n promotes the opportunity f o r i n d i v i d u a l s involved i n
operating the bingo games t o skim cash receipts.
DOR Has Increased Enforcement - Despite the growth i n the bingo industry
and the opportunity f o r abuse, DOR has only recently taken steps t o
increase i t s e f f o r t s t o ensure compliance. Prior t o l a s t year, DOR's
licensing and i n v e s t i g a t i v e f i l e s indicate t h a t enforcement was extremely
weak and ineffective. I n addition, the f i n a n c i a l r e p o r t i n g requirements
for bingo licensees have been less than adequate, or i n s u f f i c i e n t l y
moni tored by DOR. DOR's efforts t o strengthen enforcement have i n c l uded
increasing the Bingo Section's s t a f f authorization from 4.5 i n f i s c a l year
1984 t o an estimated 13 i n f i s c a l year 1985. I n 1984, DOR created a Bingo
Administration Fund* t o maintain the i n - l i e u taxes used to fund DOR's
regulation o f bingo licensees.
Other e f f o r t s t o enhance enforcement have a1 so been undertaken. During
the 1985 Legislative session, amendments to the bingo statutes enhanced
DOR's a b i l i t y t o conduct investigations of suspected criminal a c t i v i t i e s
o f licensees. These amendments included: 1) a requirement t h a t bingo
licensees conduct and record bingo games i n a manner t h a t allows DOR t o
* DOR has had the s t a t u t o r y a u t h o r i t y t o use an in- 1 ieu tax t o fund the
regulation of bingo licensees since 1972. P r i o r t o 1984, the i n - l i e u
tax collected from bingo licensees was improperly deposited i n t o the
general fund, while DOR received general fund appropriations t o fund
i t s bingo regulatory a c t i v i t i e s .
v e r i f y gross receipts f o r each occasion, and 2) a provision granting DOR
bingo investigators 1 i m i ted peace o f f i c e r powers. I n addition, the Bingo
Section i s currently p a r t i c i p a t i n g w i t h the Department o f Pub1 i c Safety
and the Attorney General's Office i n a major criminal investigation of
i n d i v i d u a l s involved with a 1 icensed organization. According to the Bingo
Section Supervisior, t h i s i s the f i r s t time DOR bingo investigators have
participated i n an in- depth criminal investigation with a 1 aw enforcement
agency.
Enforcement Could Be
Further Strenathened
Existing enforcement efforts by DOR are not adequate t o detect and prevent
criminal abuses by licensees. Although e f f o r t s have been made recently t o
strengthen enforcement, additional steps shoul d i n c l ude audits o f
1 icensees, compl iance v i s i t s , additional f i n a n c i a l r e p o r t i n g requirements
and the enforcement of statutes 1 i m i t i n g volume discounts. In addition,
DOR should conduct criminal background checks t o deter the presence of
criminal elements i n the bingo industry.
Audits - DOR i s unable t o v e r i f y the information reported on QFRs, and i t s
a b i l i ty to i d e n t i f y v i o l ations by 1 icensees under investigation i s 1 i m i ted
because audits o f 1 icensees are n o t c u r r e n t l y conducted. Without
conducting audits DOR cannot v e r i f y the gross receipts and d i s t r i b u t i o n o f
net proceeds reported by 1 icensees on QFRs. I n addition, f a i l i n g t o
conduct audits of 1 icensees under investigation 1 i m i t s DORIS abil i t y t o
establ ish acts o f wrongdoing and i d e n t i f y do1 1 ar amounts involved. These
situations hamper efforts to detect skimming o f gross receipts and
fraudulent uses o f net proceeds. The following case examples ill ustrate
the need f o r audits o f licensees.
Case 1
As early as 1981 , a 1 icensee and eventual ly i t s 1 icensed auxil i a r y
provided questionable accounting for the d i s t r i b u t i o n o f net proceeds
on QFRs. One such practice was to e s t a b l i s h a 1 ine o f c r e d i t with a
bank and then repay the loan with bingo net proceeds. The licensees
reported the d i s t r i b u t i o n o f net proceeds on the QFRs as a lump sum
loan payment t o the bank. According t o DOR records, the licensees
used more than $ 235,000 i n bingo funds f o r t h i s purpose.
Comment
A. R. S. $ 5- 406.0. 1 i m i t s the 1 icensees use of bingo net proceeds to the
lawful purposes o f the organization. The licensee reported the lump
sum payment of a loan as the d i s t r i b u t i o n o f net proceeds but f a i l e d
t o d e t a i l how the monies from the l i n e o f c r e d i t account were spent.
Because DOR d i d not conduct an audit it could not determine i f the net
proceeds were spent f o r the lawful purposes o f the organization.
Case 2
According t o q u a r t e r l y f i n a n c i a l reports submitted by a licensee,
during the four quarters o f 1984, the licensee donated more than
$ 14,000 of bingo net proceeds t o i t s a u x i l i a r y , a v i o l a t i o n o f A. K. S.
$ 5- 406.5. In addition, the 1 icensee reported donations o f bingo net
proceeds to an organization t h a t may not be q u a l i f i e d t o receive such
funds.
Comment
I n t h i s case, information reported on the 1 icensee's QFR indicated
t h a t the licensee was i n v i o l a t i o n o f bingo statutes. Without an
audit, DOR's a b i l i t y t o determine and v e r i f y the extent of the
potential v i o l a t i o n s and the amount o f d o l l a r s involved w i l l be
severely 1 i m i ted.
The use of audits has been an e f f e c t i v e enforcement tool i n other states.
Washington state, f o r example, generates a schedule o f audits based upon
the amount of gross r e c e i p t s c o l l e c t e d by a licensee. This practice
a1 1 ows Washington t o concentrate i t s 1 i m i ted auditing resources on those
licensees with the greatest potential f o r more serious wrongdoing.
The Bingo Section does not have audit staff. A recent attempt by the
Bingo Section t o have an audit conducted by the Taxation Division as part
of a bingo investigation met with l i t t l e success. Because of l i m i t e d
audit resources, the Assistant Director of Taxation was unable to provide
an auditor f o r the investigation.
Compliance V i s i t s - DOR also needs t o conduct routine and undercover
compliance v i s i t s o f licensees t o better detect skimming o f bingo gross
receipts. The Bingo Section recently imp1 emented a program of conducting
compl iance visits of 1 icensees. However, i n some instances i t notifies
the licensee in advance of the inspection, and under existing
circumstances cannot verify receipts during the visit.
Routine and undercover compl iance visits will assist bingo investigators
to verify gross receipts reported by licensees for each bingo occasion.
The bingo statutes require licensees to conduct and report bingo games i n
a manner that will allow DOR to verify gross receipts by occasion. This
requirement should provide DOR with the information necessary to verify
gross receipts during a compliance visit. In addition, unannounced and
undercover compliance visits coul d reduce the incidences of suspected
gross receipts skimming and unauthorized games, since licensees can never
be sure when DOR bingo investigators will appear for a compliance visit.
The foll owing case example i l l ustrates the need for compl iance visits.
Case 3
In March of 1985 two responsible parties of a bingo license were
convicted on felony charges of conducting an illegal enterprise and
fraud, respectively, in connection w i t h their bingo activities. DOR
files indicate that these individual s on numerous occasions conducted
unauthorized bingo games and then retained the proceeds for themselves.
Comment
Although the case was eventually investigated by the Department of
Public Safety and the Attorney General's Office, according to the
Bingo Section Supervisior, the original violations that led to the
felony convictions were discovered through the individual initiative
of a bingo investigator conducting undercover compl iance visits. If
the Bingo Section had been using a schedule of routine unannounced
compliance visits, DOR may have discovered the unauthorized games much
sooner.
The Arizona Racing Commission and the Department of Liquor Licenses and
Control conduct routine inspections or compl iance visits of permi tees and
licensees. Both agencies perform these compliance visits unannounced and
often use undercover compliance visits to identify suspected violations by
1 i censees.
Report By Occasion - Requiring licensees to maintain reports by occasion
shoul d assist DOR i n identifying those individuals skimming bingo gross
receipts. Currently, bingo licensees are required by statute to f i l e
Quarterly Financial Reports out1 ining their financial activity for the
quarter. In addition, 1 egis1 ation enacted i n the 1985 session requires
bingo licensees to conduct and record the bingo game activity in a manner
that will allow DOR to verify the gross receipts from each occasion. DOR
i s promul gating rules and regulations that will prescribe the requirements
1 icensees must meet.
Because licensees are not required t o maintain reports for each occasion,
however, gross receipts reported on QFRs cannot be easily verified.
Occasion reports woul d require 1 icensees to maintain sufficient
documentation to identify their gross receipts for the occasion, thereby
providing gross receipts information to Bingo Section investigators
conducting compliance visits. I t would also provide a uniform system of
documenting the information provided on QFRs. The foll owing case exampl e
illustrates the need for occasion financial reports.
Case 4
In August of 1984 DOR received an anonymous l e t t e r that outlined
several illegal activities of a licensed organization and i t s
auxil iary. The l e t t e r incl uded names, dates and specific
occurrences. An official investigation of the licensee began i n early
1985. Since that. time, the investigation has identified a potential
skim of bingo gross receipts of approximately $ 400 to $ 1,200 per
occasion, and various fraudulent uses of the bingo net proceeds.
Comment
The 1 icensee i n this case has been able to skim gross receipts per
occasion because of the cash nature of the bingo industry. According
to the Bingo Section Supervisor, evidence indicates that individuals
within other licensed organizations skim cash from each bingo
occasion, b u t because of the lack of detail, it i s very difficult to
document viol ations. A requirement that 1 icensees maintain reports by
occasion would provide bingo investigators with additional evidence
documenting instances of gross receipts skimming.
Several other states require their bingo 1 icensees to complete financial
reports for each bingo occasion. These occasion reports include the gross
receipts, number of players present, quantity and price of cards sold,
prizes paid, bingo related expenses, and net proceeds. In some states the
occasion reports are maintained by the licensee and used to support
financial reports submitted to the 1 icensing authority.
DOR is currently promulgating rules and regulations that will prescribe
requirements for reports by occasion. The Assistant Director anticipates
that public hearings on the rules and regulations will be held i n October
1985.
Vol ume Discounts - Finally, the enforcement of statutes 1 imi ting volume
discounts would further enable DOR to verify gross receipts. For several
years many 1 icensees have offered price discounts on the sale of paper
bingo cards based upon the volume bought by an individual player. For
example, a licensee may offer a player the option of purchasing five cards
for $ 2 or ten cards for $ 3. This practice makes it d i f f i c u l t to verify
the 1 icensee's gross receipts for each occasion. Without a constant price
per card sold, i t is nearly impossible to calculate the gross receipts of
a 1 icensee by counting players during a compliance visit. DOR proposes i n
i t s current draft of rules and regulations to eliminate volume discounts
per game.
Beyond hampering DOR' s abil i ty to verify gross receipts , vol ume discounts
i n excess of $ 50 per occasion may also be illegal. According to a
representative of the Attorney General ' s Office, the practice of offering
volume discounts i s a violation of statutes when the total discounts reach
$ 50 i n an occasion. A. R. S. $ 5- 406. R. states, i n part; " No door prizes,
discounts or other inducements w i t h a value exceeding f i f t y do1 1 ars per
occasion may be offered or given away." To el iminate the selling of paper
cards a t a volume discount, DOR needs to enforce the provisions of A. R. S.
$ 5- 406. R.
Criminal Background Checks - DOR's f a i l ure to conduct comprehensive
criminal background investigations of individual s applying for qua1 i fied
organizations ( large game 1 icenses) has resulted in criminal elements
becoming involved i n the Arizona bingo industry. To effectively conduct
comprehensive investigations, DOR should employ the fingerprint
appl ication card as the source for the investigations.
Since l a t e 1984 DOR has conducted l i m i t e d criminal background checks o f
individuals representing organizations seeking bingo 1 icensure.
Currently, DOR r e l i e s upon the local governing body with j u r i s d i c t i o n over
the organization t o conduct some form of a criminal background check.
However, not a l l local governments conduct the checks, and the methods
used by others have been inadequate. DOR conducts criminal background
checks i n those instances i n which the local governing body does not.
However, DOR's methods do not i d e n t i f y v i o l a t i o n s committed outside of
Arizona. The f o l l owing case example ill ustrates the consequences of not
conducting adequate criminal background checks.
Case 5
I n 1977 an organization submitted an application f o r bingo licensure
t o DOR. DOR records indicate t h a t DOR issued the bingo license t o the
organization 3 days a f t e r receiving the application.
As the r e s u l t o f a prel iminary investigation o f the 1 icensee by DORY a
Department o f Publ i c Safety and Attorney General ' s investi gation was
authorized. During t h i s investigation it was found t h a t one of the
responsible parties had a felony arrest and misdemeanor conviction on
a gambling v i o l a t i o n i n another state before coming t o Arizona and
applying f o r a bingo 1 icense. I n March o f 1985 two responsible parties
o f the bingo license were convicted o f conducting an i l l e g a l
enterprise and fraud, respectively, i n connection with t h e i r ill egal
bingo a c t i v i t i e s .
Comment
Because DOR f a i l e d to conduct a thorough criminal background
investigation o f the responsible parties o f t h i s 1 icensed
organization, an individual with a history o f ganibl ing v i o l ations was
allowed to p a r t i c i p a t e i n the bingo operation, and use gross receipts
and net proceeds for personal gain. I n fact, DOR documents indicate
t h a t the organization was not q u a l i f i e d a t the time of licensure.
To conduct thorough criminal background investigations, DOR' s only option
i s t o use the f i n g e r p r i n t application card system through the Arizona
Criminal Justice Information System ( ACJI S) operated by the Department of
Publ i c Safety. Under t h i s system, the 1 icense applicants' f i n g e r p r i n t s
are submitted to ACJIS where they are reviewed for any criminal h i s t o r y i n
Arizona and forwarded to the Federal Bureau of Investigation f o r a review
against the FBI ' s extensive criminal history system. Fingerprints are the
most conclusive i d e n t i f i e r since appl icants with criminal h i s t o r i e s can
change t h e i r names but not t h e i r fingerprints. Several other State
29
1 icensing authorities, i n c l uding the Department o f Liquor License and
Control, the Racing Comnission, the State Lottery Commission and the
Registrar of Contractors use ACJ I S t o conduct criminal background
investigations o f 1 icense appl icants. I n addition, a1 1 other computerized
criminal history systems are inaccessible t o DOR because of Federal and
State agreements forbidding t h e i r use f o r 1 icensi ng and empl oyment
purposes.
Imp1 ementation O f A
mu1 ti t i e r e d System
DOR shoul d seek necessary 1 egislation t o adopt a mu1 t i p l e - t i e r e d bingo
licensing system. The current system o f large and small game licenses
does not allow DOR s u f f i c i e n t f l e x i b i l i t y t o enforce compliance with the
bingo statutes. Implementation o f a mu1 ti t i e r e d system would further
improve enforcement effectiveness by a1 lowing DOR t o concentrate 1 i m i ted
resources on licensees with the greatest potential for more serious
wrongdoing.
The e x i s t i n g large and small game licensing system does not give DOR the
f l e x i b i l i ty t o concentrate i t s resources on 1 icensees with the greatest
r i s k of more serious wrongdoing. Under the e x i s t i n g large game statutes,
those licensees t h a t play one occasion per week and report quarterly gross
receipts of less than $ 1,000 are required t o meet the same standards as
those licensees t h a t play three occasions per week and r e p o r t q u a r t e r l y
gross receipts o f more than $ 300,000. In addition, small game licensees
are currently l i m i t e d by statute t o $ 300 per week i n gross receipts. This
$ 300 c r i t e r i a was established i n 1973 when the small game bingo statutes
were enacted. Based on a gross national product price i n f l a t o r , $ 300 i n
1973 would be the equivalent o f more than $ 650 i n 1985.
Washington State, f o r example, recognizes the difference between those
organizations t h a t play bingo f o r entertainment and those that play to
fund large charitable organizations, and has created a m u l t i t i e r e d
1 icensing system to accommodate the d i f f e r e n t needs of bingo 1 icensees.
Washington u t i l i z e s a system o f 11 classes of bingo licenses, separated
i n t o three major categories f o r enforcement purposes. Under i t s
mu1 ti tiered system, 1 icensees that report high gross receipts are mandated
to meet more r e s t r i c t i v e reporting and compliance requirements.
A mu1 ti tiered 1 icensing system woul d impose more stringent compl iance and
reporting requirements on those licensees that report higher gross
receipts and therefore would have a greater opportunity to gain from
illegal or fraudulent uses of the bingo gross receipts and net proceeds.
For example, 1 icensees reporting higher gross receipts might be scheduled
for more frequent audits, receive additional cornpl iance v i s i t s and be
required to provide additional information on occasion reports. The
current investigative case load of the Bingo Section indicates that a vast
majority of the open cases involve those licensees that report gross
receipts of more than $ 50,000 per quarter.
As an example of a mu1 ti tiered 1 icensing system, DOR might consider the
system represented i n Table 8. This example is provided only to
i l l u s t r a t e the benefits of a multitiered system. A comprehensive analysis
of existing large and small game licensees would be necessary in order to
accurately calculate the number of 1 icense classes and dollar cutoffs that
would result i n the most effective use of this system.
TABLE 8
EXAMPLE OF MULTITIERED LICENSING
Average Per Quarter Gross Receipts
License for Previous 4 Quarters
Class A
Class B
Class C
Class D
$ 0 to $ 5,000
$ 5,000 to $ 25,000
$ 25,000 to $ 50,000
over $ 50,000
A mu1 t i t i e r e d system could be designed to accommodate small game
licensees. Reporting and compliance requirements could remain minimal for
small game 1 i censees under t h i s sys tern.
CONCLUSI ON
DOR can further strengthen bingo regulation and enforcement. Procedural
changes are needed to prevent the misuse of proceeds and the skimming of
receipts. Statutory changes creating a mu1 ti tiered 1 icensing system would
further improve enforcement effectiveness.
RECOMMENDATIONS
1. The Legislature shoul d consi der developing a mu1 ti tiered bingo
1 icensi ng system.
2. DOR should:
A. Conduct routine and investigative audits of 1 icensees.
B. Conduct routine and undercover compliance visits of licensees.
C. Require licensees to maintain per occasion reports.
D. Enforce the provisions of A. R. S. S5- 406. R and el iminate volume
discounts for bingo playing cards that exceed the $ 50 criteria.
E. Conduct comprehensive criminal background investigations of
individual s representing qua1 ified organizations applying for
1 icensure and use the fingerprint appl ication card system.
OTHER PERTINENT INFORMATI ON
During the audit we developed pertinent information i n the following two
areas: 1) placement of authority to regulate bingo activities, and 2)
Tucson Taxpayer Services Section.
Organizational Placement Of Bingo Regulatory Authority
During the course of the audit some individuals involved in regulating
bingo in Arizona questioned the placement of regulatory authority w i t h i n
the Department of Revenue. DOR licenses and regulates bingo operations
through i t s Taxpayer Services Division. However, bingo i s gaming and the
activities associated w i t h i t are very dissimilar to the revenue
collecting duties of DOR i n general, and the business tax licensing and
taxpayer assistance duties of the Taxpayer Services Division
specifically.
The licensing and regulation of bingo operations in other states i s
conducted by a variety of state agencies. Similar to Arizona, some
states have placed the bingo 1 icensing authority w i t h i n their department
of revenue or i t s equivalent. Other states have placed the authority
within a variety of state agencies. For example, Connecticut and Rhode
Is1 and regulate bingo through their department of pub1 ic safety ( state
pol ice); and gaming control boards regulate bingo i n Delaware, Nevada and
New Jersey. Other state agencies regulating bingo include the 1 ottery
commission, sweepstakes commission, racing commission, liquor control
commission and attorney generals office. In addition, a few states have
l e f t the responsibil i ty of 1 icensing and regulating bingo operations to
the 1 ocal gsvernmen ts.
Tucson Taxpayer Services Section
In addition to the Taxpayer Assistance Section in Phoenix, the Tucson
Division of DOR also performs taxpayer services functions. The Tucson
Section i s under the Assistant Director of the Tucson Division. Although
the Tucson Section and Taxpayer Assistance try to coordinate activities
and programs, the Assistant Director of Taxpayer Services has no
jurisdiction over the Tucson Section's operations or performance 1 eve1 s.
Consequently, differences i n operating procedures do exist.
The Tucson office has recently expanded its activities and staff. Prior
to April 1985 the Tucson Section handled only income tax cases, telephone
inquiries and taxpayer walk- ins. All other cases were handled by
collectors or sent to Phoenix. The staff consisted of six employees,
five being temporary employees. In April 1985 the Tucson Division
reorganized its Taxpayer Services Section. Duties were expanded to
include all tax types, and personnel increased to 15 employees: four
full - time empl oyees and 11 temporaries. Changes in staffing effective
July 1985 provide the section with eight authorized full- time positions,
b u t no temporary positions are funded.
The Tucson Section has experienced some of the same problems identified
i n Finding I ( see page 7), particularly high turnover among temporaries
and 1 imited training. The Section Supervisor estimates t h a t i n 1984 the
Section experienced a 40 percent turnover rate each month. High turnover
of temporary staff limits the Section's ability to provide adequate
training. Tucson Section employees receive less than 1 week of formal
training prior to being assigned taxpayer cases. The Division ' s 1985- 86
budget request noted "[ tlhe quality of responses to the taxpayers has
been a problem w i t h the use of temporaries." However, w i t h the recent
change from temporary positions to full - time positions, the Tucson
Section shoul d develop more extensive training for employees.
According to the Section Supervisor, the April 1985 reorganization has
he1 ped produce a more timely response rate to taxpayer inquiries. Prior
to the reorganization the Section had approximately 2,000 cases. The
Supervisor estimated that as of June 6, 1985, the Section had 700 cases
w i t h an average turnaround time of 30 days. A review of inventory
indicated that 78 percent of the cases fell within the 30- day time
frame. The remaining 22 percent were assigned to caseworkers, and work
had been started on most of the cases.
Timely response may a1 so be a r e s u l t of a lower work load f o r the Tucson
o f f i c e . A comparison o f incoming correspondence cases received between
January 1985 and May 1985 shows t h a t a Tucson correspondence caseworker
receives approximately o n e - f i f t h the number o f cases t h a t a Phoenix
caseworker receives ( see Tab1 e 9).
TABLE 9
COMPARISON OF PHOENIX AND TUCSON WORK LOADS
BETWEEN JANUARY 1985 AND MAY 1985
Number O f Correspondence
Cases Received
Phoenix Tucson
Average Number O f Employees 52 7.5
Number O f Cases Per Employee 799 162
Source: DOR Taxpayer Services weekly reports and s t a f f i n g records
A1 though the Tucson Section has expanded i t s a c t i v i t i e s , the increase of
personnel and comparatively 1 ow correspondence volume has a1 1 owed it t o
meet the 30- day turnaround goal. I n addition, the Section's move from
temporary personnel t o f u l l - time s t a f f should a1 1 ow f o r improved t r a i n i n g
and improved q u a l i t y o f work.
AREAS FOR FURTHER AUDIT WORK
During the course of our audit we i d e n t i f i e d potential issues that we were
unable t o pursue due t o time constraints.
o Should the Department o f Revenue establish a compl iance program
t o i d e n t i f y businesses operating without the appropriate State
business licenses?
The Department o f Revenue currently has no enforcement program t o
detect businesses operating without proper State licenses. The
Assistant Director of Taxpayer Services be1 ieves t h a t a
compliance program i s not cost e f f e c t i v e and DOR no longer
authorizes a f u l l - time position t o perform compl iance
a c t i v i t i e s . She contends that Arizona has a high rate of
vol untary compl iance. I n addition, she estimates that the amount
o f revenue collected from those businesses not i n compliance
would be i n s i g n i f i c a n t compared with the costs o f maintaining an
enforcement program.
Some local governments i n Arizona maintain enforcement programs
t h a t seem to a s s i s t the State i n d i r e c t l y . Phoenix and Scottsdale
require a c i t y business l i c e n s e a p p l i c a n t to provide proof o f
holding the necessary State license before issuing a c i t y
1 icense. I n addition, both c i t i e s have enforcement programs t o
i d e n t i f y businesses operating without the required 1 icenses. I n
the course o f conducting t h e i r own investigations, c i t y
investigators may i d e n t i f y businesses without a State 1 icense.
The State may be losing revenue, however, because it does not
maintain i t s own enforcement program. Each year since 1983 DOR's
1 icensing section has conducted a 1 imited sample t o i d e n t i f y the
extent of noncompliance. In 1983, 3 percent of the businesses
examined did not have the required State license. According t o
the Assistant Director, i n 1984 and 1985 a match- off with sample
cities indicated a potential noncompliance rate of 16 and 12
percent. DOR did not develop loss of revenue estimates based on
these noncompliance rates. Further audit work is necessary to
determine the actual compl iance rate i n Arizona, the potential
loss of revenue due to noncompliance, and whether an enforcement
program a t the State level would be cost effective.
o Are licensing fees adequate?
The Department of Revenue charges each business applying for a
sales tax license a $ 5 fee. Preliminary audit work indicates
that the $ 5 fee may not cover all administrative costs of the
licensing program. In 1982 the fee was raised from $ 1 to $ 5, and
periodic renewal was el imi nated. Currently, unless a business
changes location or ownership, the $ 5 fee i s a one- time charge.
In contrast, the City of Phoenix charges $ 12 for a city business
license. Further audit work i s needed to fully document the
costs of administering the licensing program and to determine
whether the business licensing fee should be raised.
DEPARTMENT OF
REWEAIUE %
J. Ell~ otHt ~ bbs Bruce Babb~ tt
D~ rector Governor-
September 24, 1985
Mr. Douglas R. Norton
Auditor General
2700 North Central
Phoenix, Arizona 85003
Dear Mr. Norton:
Your staff's audit clearly points out many of the obstacles faced in
the creation and evolution of both the Taxpayer Assistance Section and • the Bingo Section. It is important, however, that people reading this
report understand that both these sections have just emerged and are
continuing to develop.
The Taxpayer Assistance Section was established two years ago with
only nine full- time employees. Today it has forty- three. In the
0 beginning, the staff worked along with co- workers borrowed from other
parts of the agency to overcome a backlog of 20,000 letters.. . while
keeping pace with newly arriving inquiries. Today, the staff is
generally able to keep up with the mountain of mail and to provide
increasingly higher- quality responses. In 1983- 84, it answered
one- third of a million taxpayer inquiries.
The past fiscal year saw Taxpayer Assistance embark on a new course
with substantial automation, more and better- trained employees, and
sizable improvements in systems and procedures.
Your audit has reinforced many of the conclusions we made about what
I, needed to be done, and it also has provided new insights that will
help us as we continue to upgrade service to the taxpayers.
A similar situation exists in the Bingo Section. This is not
coincidental. Both sections were identified as problem areas and
combined with a third section to form the Division of Taxpayer
8 Services in August 1983 so they would receive more attention.
The Bingo section also used to be considerably understaffed, with only
three, full- time employees statewide who barely had time to do the
basic paperwork. It now has thirteen who perform specialized
functions. The section has begun a major program to teach bingo
operators to follow laws and regulations, using seminars, a newsletter
and other efforts. We proposed many changes in bingo statutes to make
Ma~ l~ nadgd ress [ Cap~ toll:
1700 W. Wash~ ngton
Phoen~ xA. Z 85007
Other locat~ ons:
Phoen~ xU ptown
5555 N. 7th Avenue
Tucson
402 W. Congress
Page Two
Mr. Douglas R. Norton
September 24, 1985
them more enforceable and easier for lay people to understand. We
brought in a new degree of professionalism. Finally, we began working
closely with the Department of Public Safety on in- depth criminal
investigations.
Your staff has been cooperative and helpful in conducting the •
performance audit. Their findings and recommendations will help us to
improve the administration of the Taxpayer Services Division.
Please contact me if you have any questions concerning our written
reply.
Sincerely,
ARIZONA DEPARTMENT OF REVENUE
J. Elliott Hibbs
Director
DEPARTMENT OF REVENUE COMMENTS
PRELIMINARY REPORT OF THE AUDITOR GENERAL
PERFORMANCE AUDIT - DIVISION OF TAXPAYER SERVICES
The conclusions in the report reflect problem areas the Department has
encountered in the establishment of both the Taxpayer Assistance
Section and the Bingo Section. We agree with most of the findings and
have many efforts in progress which will address these areas.
Our comments on the findings are offered in the sequence of the
report.
Finding I: Taxpayer Assistance is not adequately meeting public
demand for service.
Recommendation 1: Taxpayer Assistance should upgrade its phone
service by calculating public demand, establishing adequate service
levels and assessing its staffing needs on a continuous basis.
DOR RESPONSE:
THE DIVISION WILL OBTAIN AN OVERFLOW METER, OR PEG COUNT, FOR THE
PHONE SYSTEM AS WELL AS UTILIZE AN ADAPTATION OF THE CALIFORNIA AND
IRS FORMULAS TO MONITOR PHONE DEMAND.
Recommendation 2: The Legislature should consider funding Taxpayer
Assistance's plans to implement its Taxpayer Assistance and Control
System.
DOR RESPONSE:
WE CONCUR WITH THIS RECOMMENDATION AS THE TAXPAYER REQUEST ASSISTANCE
AND CONTROL SYSTEM, A COMPUTER TRACKING SYSTEM KNOWN AS " TRACS", WILL
ENABLE THE DIVISION TO MONITOR TAXPAYER INQUIRIES, TO PRODUCE
MANAGEMENT INFORMATION REPORTS.
Recommendation 3: The Legislature should consider adopting Taxpayer
Assistance's plans to increase and reclassify its full- time employee
positions, which includes additional levels of supervisory personnel
and less dependence on temporary workers.
DOR RESPONSE:
WE CONCUR WITH THIS RECOMMENDATION. THIS IS A CRITICAL NEED BECAUSE
THE PAY LEVEL OF MOST OF OUR CURRENT FTE'S PUKES IT HARD TO KEEP GOOD
WORKERS TO DO THE HIGHLY TECHNICAL WORK.
Recommendation 4: DOR should develop a comprehensive program for
training staff in its Taxpayer Assistance Section.
DOR RESPONSE:
WE RECENTLY HAVE INCREASED OUR TRAINING STAFF SUBSTANTIALLY
AGENCY- WIDE. WE WILL NEED TO ALLOCATE MORE TRAINING RESOURCES TO
TAXPAYER ASSISTANCE, WHILE REVIEWING THE INTERNAL TRAINING PROGRAM AS
WE CONTINUE UPGRADING THAT SECTION.
. -
Page Two
Recommendation 5: DOR should examine, update and write operating
procedures. These procedures should be accessible to the staff to
ensure that responses to taxpayers1 problems and inquiries are made
uniformly and correctly.
DOR RESPONSE:
WE AGREE AND HAVE BEEN REVIEWING AND REVISING OUR WRITTEN AND
UNWRITTEN PROCEDURES THROUGH TASK FORCE ANALYSIS AND BY ASSIGNING
PEOPLE TO OVERHAUL THEM WHERE NECESSARY.
Recommendation 6: Taxpayer Assistance should continue to improve the
quality of its management information so it can adequately evaluate
its operation's staffing needs and performance.
DOR RESPONSE:
THE FULL IMPLEMENTATION OF TRACS WILL PROVIDE ADDITIONAL MANAGEMENT
INFORMATION AS WILL THE REPORTS GENERATED BY THE PHONE SYSTEM.
ADDITIONALLY, REPORTS REVIEWED BY THE AUDITOR GENERAL'S STAFF HAVE
BEEN REVISED TO PROVIDE MORE DETAILED INFORMATION.
Finding 11: DOR needs to further strengthen and improve bingo
regulation and enforcement.
Recommendation 1: The Legislature should consider developing a
multitiered bingo licensing system.
DOR RESPONSE:
WHILE A DISTINCTION EXISTS BETWEEN SMALL AND LARGE BINGO OPERATIONS,
WE AGREE CONSIDERATION SHOULD BE GIVEN TO FURTHER DIFFERENTIATING THE
LICENSES TO ALLOW FOR VARYING LEVELS OF REGULATION DEPENDING ON THE
AMOUNT OF MONEY INVOLVED.
Recommendation 2: DOR should: A. Conduct routine and investigative
audits of licensees.
DOR RESPONSE:
WE AGREE AND ARE IN THE PROCESS OF HIRING AN AUDITOR FOR THE BINGO
SECTION.
Recommendation: B. Conduct routine and undercover compliance visits
of licensees.
DOR RESPONSE:
THE DEPARTMENT DOES CONDUCT UNDERCOVER INVESTIGATIONS AND UNANNOUNCED
COMPLIANCE CHECKS. HOWEVER, WE CANNOT CONDUCT UNDERCOVER COMPLIANCE
CHECKS BECAUSE, DUE TO OUR EMPHASIS ON PUBLIC OUTREACH AND EDUCATION,
THE BINGO INVESTIGATORS HAVE BECOME KNOWN TO THE BINGO INDUSTRY AND
COMMUNITY. UNDERCOVER INVESTIGATORS AT BINGO GAMES WOULD NOT LEARN
MUCH ABOUT FINANCIAL VIOLATIONS ANYWAY BECAUSE MISUSE OF FUNDS OR
SKIMMING WOULD NOT BE OBSERVABLE BY AN INVESTIGATOR POSING AS A
PLAYER. ( FOR IN- DEPTH CRIMINAL INVESTIGATIONS, THE DEPARTMENT IS
OPERATING IN CONJUNCTION WITH THE DEPARTMENT OF PUBLIC SAFETY.)
Page Three
Recommendation C: Require licensees to maintain per occasion reports.
DOR RESPONSE:
REGULATIONS TO REQUIRE REPORTING BY BINGO OCCASION WERE INCLUDED IN
PROPOSED DOR RULES AND REGULATIONS SUBMITTED TO THE GOVERNOR'S
REGULATORY REVIEW COUNCIL ON AUGUST 13, 1985 AND PASSED ON SEPTEMBER
3, 1985.
Recommendation D: Enforce the provisions of A. R. S. 5- 406. R and
eliminate volume discounts for bingo playing cards that exceed the $ 50
criteria.
DOR RESPONSE:
0 REGULATIONS TO ELIMINATE VOLUME DISCOUNTS ALSO WERE PASSED ON
SEPTEMBER 3, 1985.
Recommendation E: Conduct comprehensive criminal background
investigations of individuals representing qualified organizations
applying for licensure and use the fingerprint application card
0 system.
DOR RESPONSE:
THE USE OF FINGERPRINT CARDS FOR BINGO LICENSE APPLICANTS HAS
PREVIOUSLY BEEN DETERMINED TO PRESENT AN UNNECESSARY EXPENSE AND
BURDEN FOR THE MANY QUALIFIED ORGANIZATIONS THAT OPERATE SMALL GAMES.
THE INDIVIDUALS OPERATING THESE GAMES ARE VOLUNTEERS PROVIDING
RECREATION AND ATTEMPTING TO RAISE FUNDS FOR THEIR RESPECTIVE
ORGANIZATIONS. REQUIRING THEM TO BE FINGERPRINTED WOULD IMPOSE AN
UNNECESSARY BURDEN. THE CONCEPT OF A MULTITIERED LICENSING SYSTEM,
HOWEVER, WOULD FACILITATE THE USE OF DIFFERING REQUIREMENTS FOR SMALL,
0 MEDIUM AND LARGE LICENSEES. THE FINGERPRINTING OF APPLICANTS FOR
LARGE GAME LICENSES UNDER THIS TYPE OF SYSTEM WOULD BE HELPFUL IN
DETECTING PRIOR CRIMINAL INVOLVEMENT.
APPENDIX I
FORMULA USED BY CALIFORNIA'S TAXPAYER SERVICES BUREAU
TO DETERMINE PUBLIC DEMND FOR PHONE SERVICE
For Cal i fornia ' s Telephone Center the actual number o f individual s who
attempt t o c a l l i s calculated by a formula t h a t adjusts the figures for
repeat dialers and those who hang up before t a l k i n g to anyone. The
formula uses the following actual data provided by the telephone system.
L = Lost C a l l s ( t h e number o f c a l l e r s who hang up before t a l k i n g t o
anyone.
C = Completed C a l l s ( t h e t o t a l number o f c a l l s answered by the
system, less the l o s t c a l l s ) .
B = Busy Signals ( the number o f times a l l 1 ines were busy and the
c a l l er received a busy signal ).
Demand i s calculated by using the above data i n the following formula:
The resul t i n g demand estimate has been reviewed with telephone company
personnel and compared t o some sample information provided by them. There
i s general agreement t h a t the formula resulted i n a reasonable estimate of
the actual number o f individual s seeking telephone assistance.
APPENDIX I1
TAXPAYER ASSISTANCE RESPONSE TO PUBLIC DEMAND
MAY 14 THROUGH 18, 1984
( SEE ALSO APPENDIX I )
Call s Answered: 7 , I 80
Busy Si gnal s : 1 70,203*
Public Demand = 7,180 + i7,18oL + 7,180 ( 170,203)
Public Demand = 26,439
Calls Answered as a Percentage of Demand = 7,180 : 26,439 = 27%
* Data obtained through Mountain Bell study conducted May 14 through 18,
1 984.
APPENDIX I11
CORRESPONDENCE AND TIME REPORT
USED BY CALIFORNIA'S TAXPAYER SERVICES BUREAU
TAXPAYER SERVICES - CORRESPONDENCE
TIME AND PRODUCTION REPORT
0 PIT 17 CORP HI
PERIOD ENDED PERM OTEMI
BORROWED
WEEKLY
MONTHLY
NAME
GATE OR
WEEK ENDING
( )
No'
HRs.
UNITS
DATE OR
WEEK ENDING
IFRI)
1 1 i i I i
DATE 09
WEEK ENDING
IMONI
ACPTA1R VTIT AY I UL? S; I HRS' ( U i y i S HRS'
1
TOTAL
" VlTS H i
hETt ntv
l. Pq3SEC. SINCJ i I
DATE OR
WEEK ENDING
[ TUES)
NO.
UNITS
ho
UNITS I HAS. I UQIITZ /
S A X P A Y E t (
2. 4SS'STbNCE 1 1
RE71 RP, ES
3. LVARRA'JTS
e P 4. CLAIMS
GATE OR
WEEK ENDING
( WED) -
f [ I I
I
DATE OR
WEEK ENDING
T H U R )
I i
I
FuTC - 1 5. PATH VER
F l i l h G
! I 1
6. ENFORCEVENT T 7. CaLLECTIONS
8. SDI - EXCESS
9. SGI - REFUND
0 TAXPAYER C lo- ASSIETFPJCE
I I
I
1
I j
j
j
11. STATEVEYTS I i 0 12. EXEUDTS
I
1
I I
1 1 I
I
I I 1
I
I
i
R 13. DLC
14. C F E
P 15. COLLECTIONS
16. UISC CO' 1RES
1
I
I
I
I
I
i
I
I
j I
i l I
i
I I
i
I
I
I
I I
i
I
I
H 17. E C CORRES
18. TRANSCRIDTS
I
I
- I
I
I
I I
I
!
1 ,
I
23. ( tro?- Ilne 33, I ! I I I
I j I
I I ' I
OR 8 E i L I n u r o
2 . TOTAL - A + B 1
19.
KARRAhTq
I
i
i
I
P( 20. EXCEPTIONS
21. COLLECTIONS
! I
i ,
I
I
a 1 22. SUBTOTAL - A I I
SUBTOTAL - B
TAXPAYER SERVICES - CORRESPONDENCE
TIME AND PRODUCTION REPORT
C] PIT C] CORP
25. INVENTORY
CONTROL
26. OUALITY REVIEW I
WEEKLY
MONTHLY
TPS SUPPOH? I I I I I
2a. ficTl\ ii7; E5 1 I ! /
29. SPECIAL FiiOJECTS 1 I
i i I 1
( EXPLAIN BELOW1 j ! !
30, MlSC NON- PRO3 i
I I
( EXPLAIN BELOWI I i I I i a
DATE OR
WEEK ENDING
4FRI)
PART B
ACTIVITY
DATE OR
WEEK ENDING
( MON)
DATE OR
WEEK ENDING
[ TUES)
- - - -- --
32. TECHNICAL
suFDoRT j iI I i j j
35. SICK LEAVE I i ! i I
TOTAL
I
33. TRAINING IFGRMAL) I I I
TNG IINFOAFAAL: / i 4
3C ( EXPLAIN EELOW; I
36. VACATION . I I I I I a
I
HRS. e
DATE OR
WEEK ENDING
1 )
DATE OR DATE OR
WEEK ENDING I WEEK ENDING
1
I j i I
30. SUBTOTAL - PART B !
HRS.
( WED)
HRS.
, I I
TOTAL HRS A + 6 1 I I
39' ( from line? 24 1
I
--- I j ! I
PLUS LOANS - I I I
1
I
40. \ R~ lTHI7N2 - 1 1
PLUS LOANS - I I
41* GUTSIDE 724 1 1 I I I I
I I ! - 0
lTHUR!-
HRS.
42. PLUS VACANT I 1 1 ! I I
LESS ROPROW I I
I I I I I
43. WITH^^^ 724 i I I
LEZ; BO8ROh 1
44. ! , I I I
- OJ- T5IDE 771 I I 0
45. TOTAL AUTtiORlZED 1 I I
HOURS ( CALENDAR) I I i I I i I
EXPLANATIONS AS NECESSARY