Performance audit, Department of Revenue: agency-wide issues

              SUMMARY
The Office of the Auditor General has conducted a performance audit o f the
Department o f Revenue ( DOR), 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 f i f t h and
f i n a l i n a series on the Department o f Revenue, was completed as p a r t of
the Sunset Review s e t f o r t h i n Arizona Revised Statutes 5541- 2351 through
41 - 2379.
DOR was establ ished i n 1973 by Senate B i l l 101 9, which combined the duties
of the former Department o f Property Valuation and the Estate Tax
Commissioner with part of the State Tax Commission's responsibil i t i e s .
DOR i s responsible f o r administering Arizona's tax laws i n the primary
areas o f income, sales, use, 1 uxury, w i tlihol ding, property, estate,
fiduciary, bingo and severance.
DOR Could Improve I t s Overall Performance If
Certain Ranagement Functions Were Strengthened
Effectiveness, efficiency and accountabil i ty coul d be increased i f DOR
took steps to improve some o f i t s central management functions. The
Department i s d e f i c i e n t i n the areas o f t r a i n i n g , internal audit and
coordination among divisions. The Department also needs t o strengthen
control over the Tucson Division to ensure t h a t the o f f i c e follows
agencywide pol i c i e s and procedures.
We found i n s u f f i c i e n t t r a i n i n g i n each major area we reviewed. DOR
auditors i n the Taxation Division, f o r example, may not have s u f f i c i e n t
t r a i n i n g t o handle audits o f complex accounts. DOR's Collections and
Taxpayer Services Divisions and processing function also suffer from
inadequate training. A greater investment i n t r a i n i n g would be cost
e f f e c t i v e since functions such as auditing and collections, which are
impaired by poor training, involve m i l l i o n s o f dollars o f revenue.
In addition, DOR lacks an i n t e r n a l audit function needed to minimize and
detect revenue- hand1 i n g abuses as well as t o ensure uniformity o f policies
and procedures. We found several exampl es o f inadequate procedures i n the
Department's receipt- handling which may leave open the opportunity for
revenue mishandling or t h e f t .
DOR's divisions and sections have shown d i f f i c u l ty coordinating and
communicating e f f e c t i v e l y . This lack o f coordination and communication
results i n such problems as incomplete taxpayer monitoring and unnecessary
processing delays. For example, a bingo licensee convicted o f a felony
charge involving i l l e g a l r e c e i p t o f large sums o f money was never reported
t o the Taxation D i v i s i o n ' s compl iance unit.
F i n a l l y , the Department needs t o ensure t h a t the Tucson o f f i c e follows i t s
established p o l i c i e s and procedures. The Tucson o f f i c e i s organized as a
separate division, a1 though it performs many o f the duties performed by
the other divisions. A1 though t h i s arrangement has provided Tucson with
greater access to the D i r e c t o r ' s o f f i c e , it has also created some
inequities i n work load, i n e f f i c i e n c i e s , and differences i n procedures
between the Phoenix and Tucson offices. Regardless of whether t h i s
organizational structure i s maintained, DOR shoul d strengthen control over
the Tucson o f f i c e ' s a c t i v i t i e s t o el iminate possible differences i n
p o l i c i e s and procedures between Tucson and the other divisions.
TABLE OF CONTENTS
Page
INTRODUCTION AND BACKGROUND. . . . . . . . . . . . . . . . . . . . . . 1
SUNSET FACTORS . . .
FINDING: THE DEPARTMENT OF REVENUE CAN IMPROVE
DEPARTMENTAL MANAGEMENT AND CONTROL. . . . . . . . . . . . . . . . 13
Central Management Functions Should Be Improved. . . . . . . . . . 13
DOR Needs To Ensure Uniform Policies and Procedures
in Tucson. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . 24
OTHER PERTINENT INFORMATION. . . . . . . . . . . . . . . . . . . . . . 27
AGENCY RESPONSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
LIST OF TABLES
Page
TABLE 1 - DOR Estimated And Actual Expenditures
By Division And Expenditure Type
Fiscal Years 1983- 84 Through 1985- 86 . . . . . . . . . . . . 3
TABLE 2 - AEnmdp loIny- eSe eOrvpiicneio Tn raOifn iInngi. t i a. l . . . . . . . . . . . . . . . . . 1 5
TABLE 3 - Employee Opinion O f DOR's Organizational
Structure And Coordination . . . . . . . . . . . . . . . . . 20
LIST OF FIGURES
FIGURES 1 THROUGH 6: Scales o f DOR Employees' Survey
Responses by Subject Category
FIGURE 1: GOALS AND OBJECTIVES. . . . . . . . . . . . . . . . . . . . 31
FIGURE 2: SUPERVISION . . . . . . . . . . . . . . . . . . . . . . . . 31
FIGURE 3: JOB SATISFACTION AND ENVIRONMENT. . . . . . . . . . . . . . 3 2
FIGURE 4: EQUIPMENT AND TRAINING. . . . . . . . . . . . . . . . . . . 32
FIGURE 5: ORGANIZATIONAL STRUCTURE AND COORDINATION . . . . . . . . . 33
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance a u d i t o f
the Department of Revenue ( DOR), i n response t o an A p r i l 27, 1983,
resol ution of the J o i n t Legislative Oversight Committee. This report,
the f i f t h and f i n a l i n a series on the Department o f Revenue, was
completed as part of the Sunset Review set f o r t h i n Arizona Revised
Statutes § § 41- 2351 through 41 - 2379.
DOR was created i n 1973 by Senate B i l l 1019, which combined the duties of
the former Department o f Property Valuation and the Estate Tax
Commissioner with part of the State Tax Commission's responsibi 1 i t i e s .
DOR i s responsible f o r administering Arizona's tax 1 aws including areas
of income, sales, use, 1 uxury, w i thhol ding, property, estate, fiduciary,
bingo and severance.
The Department i s divided i n t o seven divisions under the D i r e c t o r ' s
o f f i c e .
Taxation Division - Audits income, sales, use, severance, luxury and
estate taxpayers' records f o r compl iance, and conducts criminal
investigations o f p o t e n t i a l t a x evasion schemes.
Collections Division - Enforces c o l l e c t i o n o f income, sales, use,
1 uxury, w i thhol ding, property and estate taxes through investigation,
contact with p o t e n t i a l v i o l a t o r s , and use o f enforcement tools such
as 1 iens, and seizure and sale o f property.
Taxpayer Services Division - Issues licenses for sales, use
w i thhol ding, bingo, tobacco and cannabis taxpayers; responds to
taxpayer i n q u i r i e s and he1 ps resolve taxpayer problems; and enforces
bingo statutes.
Property and Special Taxes Division - Sets appraisal guidelines and
develops property appraisal information system for use by the
Division and counties; determines location and market cr statutory
value of util i ties, transportation, communications and mines (" for ad
val orem tax purposes" 1; and conducts audits for compl iance,
uniformity and accuracy of appraisal and assessment practices of
1 ocal ly assessed properties.
Tucson Division - Administers the tax laws for individual income,
corporate, wi thhol ding, sales, use and bingo taxes; and administers
the taxpayer services, cashiering and 1 icensing functions, 1 argely
for the southern part of the State including Pima, Santa Cruz,
Cochise, Graham, Greenlee, Pinal , Gila and Yuma Counties.
Admini s t r a t i on Division - Performs servi ce- re1 ated functions for DOR
i ncl udi ng records retention and retrieval , mai 1 distribution, revenue
processing and data processing; and provides taxpayer service through
income tax processing, and refunds and accounts receivable processing.
Management Services Division - Provides training, forms analysis,
management analysi s, and data processing and econometric services t o
all DOR divisions.
Director's Office - Among other activities, conducts internal
investigations on employee grievances, hol ds administrative hearings
to resolve disputes between taxpayers and DOR, and responds to
taxpayer inquiries.
Staffing And Budget
Table 1 itemizes the Department's expenditures by division and type of
expenditure.
TABLE 1
DOR ESTIMATED AND ACTUAL EXPENDITURES
BY DIVISION AND EXPENDITURE TYPE
FISCAL YEARS 1 983- 84 THROUGH 1985- 86
( UNAUDITED)
Actual Estimated
1 983- 84 1984- 85
Division
Admini s t r a t i on $ 9,025,400 $ 8,572,100
Col 1 ections 1,589,200 2,222,300
D i r e c t o r ' s O f f i c e 4,069,700 3,519,000
Management Services 347,300 480,400
Property And Special Taxes 2,647,500 9,977,200
Taxation 3,698,800 4,474,800
Taxpayer Services 790,200 1,021 ,700
Tucson Branch 1,853,100 2,537,200
Approved
1 985- 86
Total Oivisions $ 24,021.200 $ 32,804,700 $ 28,059.300
Expen di tures
FTE Posi ti ons
Personal Services $ 1 1,401,700
Employee Re1 ated Expenses 2,444,500
Professional And
Outside Services 3,111,900
Travel - State 218,200
Travel - Out O f State 289,400
Other Operating Expenses 6,112,800
Equipment 41 2,700
Sub t o t a l 10,145,000 8,741,000 9,328,400
Operation Subtotal 23,991,200 25,405,300 28,029,300
Arizona Department
O f Transportatio
Mapping Service 11 1 30,000 30,000 30,000
Omnibus Tax Relief 0 350,000 0
Rail road Tax
Claims Settlement ( I ) 0 7,000,000 0
Property Valuation ( I ) 0 19,400 0
Total Appropriated $ 24,021,200 $ 32,804,700 $ 28,059,300
( 1 ) Special one- time appropriations
Source: State of Arizona Appropriations Report, f i s c a l year 1985- 86
Scope o f Audit
Our f i n a l audit of the Department of Revenue involved work on five
Departmental , management- re1 ated issues t h a t Auditor General s t a f f
i d e n t i f i e d i n the previous four division- speci f i c audits o f DOR. These
issues were as follows:
a Whether employee t r a i n i n g i s s u f f i c i e n t ,
m Whether the Department needs an i n t e r n a l audit function,
m Whether coordination and communication among divisions i s
adequate, and
a Whether Department management has s u f f i c i e n t control over the
Tucson o f f i c e .
I n addition, we addressed the 12 statutory Sunset Factors. Our analysis
o f DOR's performance regarding these 12 factors i s presented on pages 5
through 12.
We also surveyed a l l DOR employees to assess t h e i r attitudes regarding
the qua1 i t y o f training, supervision, management and other aspects of the
agency's work environment. Results o f our survey are summarized on pages
31 through 33.
F i n a l l y , we conducted l i m i t e d work to determine i f DOR has treated
taxpayers equally and f a i r l y , and whether DOR has carried out i t s
auditing, c o l lections and other responsibil i t i e s i n compl iance with law.
Employees reported t h a t the Department has given some cases special
handling and processing p r i o r i t y , and t h a t some cases were improperly
handled. We followed up where possible a1 1 cases s p e c i f i c a l l y i d e n t i f i e d
by employees; however, we could f i n d no evidence that DOR had acted
i l l e g a l l y or improperly.
The Auditor General and s t a f f express appreciation to the Director and
a l l staff o f the Department of Revenue for t h e i r cooperation and
assistance during the course o f our audit.
SUNSET FACTORS
I n accordance with Arizona Revised Statutes ( A. R. S. ) 541 - 2354, the
Legislature should consider the f o l l owing 12 factors i n determining
whether the Department o f Revenue should be continued or terminated.
1. Objective and purpose i n establishing the Department
I n 1973, the Legislature enacted Senate B i l l 1019 which authorized the
establ ishment of the Department o f Revenue. When it became
operational i n 1974, the Department assumed the powers and duties o f
the Department of Property Valuation and the Estate Tax Commissioner,
and certain functions of the State Tax Commission. Currently, the
Department administers a1 1 matters formerly administered by these
e n t i t i e s .
The Department i s responsible f o r the 1 icensing, processing,
c o l l e c t i o n and enforcement o f 13 taxes f o r the State o f Arizona,
including sales and use, individual and corporate income, withholding,
1 uxury, severance, property, estate, fiduciary, and bingo taxes. I n
addition, the Department i s responsible f o r appraising the value o f
1 arge, complex properties i n the State including mines, u t i l i ties,
r a i l roads and p i pel ines. The Department monitors county performance i n
assessing other property.
2. The effectiveness with which the Department has met i t s objective and
purpose and the e f f i c i e n c y w i t h which the Department has operated
We i d e n t i f i e d numerous ways the Department o f Revenue could improve
i t s efficiency and effectiveness. I n t h i s report, we recommend t h a t
DOR improve i t s overall organizational effectiveness through better
Departmental management and control. We found deficiencies i n central
management functions o f training, i n t e r n a l audit and i n t e r d i v i s i o n a l
coordination. I n addition, we found t h a t e f f i c i e n c y
and effectiveness could be improved w i t h i n each o f the divisions we
r e v i ewed .
@ The Taxation Division could increase i t s effectiveness, and
generate up t o $ 18 m i l l i o n i n additional revenue, by increasing
i t s sales tax audit coverage. In addition, audit effectiveness
could be increased if more audits o f large taxpayer accounts were
conducted. S i m i l a r l y , the Taxation Division coul d increase i t s
e f f i c i e n c y by stream1 ining the protest process, which was
cumbersome and i n e f f i c i e n t a t the time o f our audit ( see Report
No. 85- 5, page 37).
o Coll ections efficiency coul d be increased i f c o l l ectors were
provided more accurate and timely information on accounts
receivable. Currently, col 1 ectors do not have a1 1 the information
they need t o take e f f e c t i v e action and, on occasion, have taken
erroneous escalated action. Col 1 ection o f sales, corporate and
w i thhol ding taxes, and bankruptcy accounts, moreover, could be
more effective ( see Report No. 85- 8, page 11 1.
0 Processing e f f i c i e n c y and effectiveness could be improved i f DOR
discontinued i t s practice of r e l y i n g heavily on temporary
personnel. DOR u t i l i z e s a t l e a s t 37 and possibly as many as 60
temporary personnel on a nonseasonal, year- round basis. Several
of these temporaries occupy c r i t i c a l positions i n the processing
area. Further, error rates could be reduced i f the Department
systematically monitored errors, ins ti tuted additional qua1 i ty
control checks, monitored empl oyee performance more c l osely and
monitored the performance o f outside vendors ( see Report No.
85- 9).
0 Efficiency of the Taxpayer Assistance function could also be
improved i f the Department improved phone service, converted more
temporary positions to permanent status and improved written
procedures, t r a i n i n g and supervision ( see Report No. 85- 10).
Currently, DOR's phone u n i t serves 27 percent o r less of the
public demand, and the correspondence u n i t takes an average of 51
days to respond to taxpayer correspondence.
e Finally, the Department could improve the effectiveness of i t s
bingo enforcement program. Additional enforcement tool s such as
audits and more thorough criminal background checks are needed.
Adoption of a mu1 ti tiered 1 icensing system woul d a1 so strengthen
enforcement by a1 lowing DOR to concentrate i t s 1 imi ted resources
on licensees who pose the greatest potential for more serious
probl ems.
3. The extent to which the Department has operated within the public
interest
The Department of Revenue's responsibility to administer and enforce
Arizona's tax laws serves the public interest by generating and
collecting revenue essential to the operation of State government.
Generally, the Department has operated w i t h i n the public interest by
administering tax laws fairly, equitably and i n compliance w i t h law.
In our audits of the Department, however, we identified ways DOR can
better assure fair and equitable administration of i t s duties. A
qual ity control review u n i t should be established in the Taxation
Division to ensure the qual ity and consistency of Department audits,
and to minimize the opportunity for employee abuse ( see Report
No. 85- 5, page 29). In addition, the Department needs to establish an
internal audit u n i t to improve controls over assets and ensure uniform
compliance w i t h Departmentwide policies and procedures ( see Report
No. 85- 9, page 3 7 ) .
4. The extent to which rules and regulations promulgated by the
Department are consistent w i t h the Legislative mandate
The Attorney General ' s Office is responsible for reviewing agency
rules and determining i f they are consistent w i t h statute. The
Department has attempted t o involve the Attorney General ' s Office
early i n the rul e- making process by sending prel iminary drafts of
Department rules t o the Attorney General's Office for review and
comment, and by i n v i t i n g representatives from the Attorney General's
Office t o attend informal monthly meetings i n which new rules are
discussed. The Attorney General Is Office a1 so reviews Department
rules through the formal c e r t i f i c a t i o n process required by law.
5. The extent t o which the Department has encouraged input from the
public before promulgating i t s rules and regulations and the extent t o
which it has informed the public as t o i t s actions and t h e i r expected
i m ~ a c to n the ~ u b l i c
The Department i s currently involved i n a major i n i t i a t i v e t o revise
i t s administrative r u l e s . According t o the Director of the
Department, DOR rules i n the past have too often been restatements o f
statutory language and have not provided the interpretations and
c l a r i f i c a t i o n needed t o assist taxpayers. The Department has
attempted t o involve the public i n i t s rule- making process by mailing
hearing notices t o t a x p r a c t i t i o n e r s , organizations and others
interested i n i t s rules.
According t o the Department Director, DOR has also kept taxpayers and
the publ i c informed o f other s i g n i f i c a n t changes. It has met with tax
practitioners, publ i shed a news1 e t t e r and issued press re1 eases
informing the public o f changes i n law or procedures. The Department
has also mailed notices t o taxpayers with tax forms advising of
changes impacting t h e i r business a c t i v i t y .
6. The extent t o which the Department has been able t o investigate and
resolve complaints t h a t are w i t h i n i t s j u r i s d i c t i o n
Our review o f the Taxpayer Services Division found t h a t the Department
has not been able to respond t o taxpayer problems and i n q u i r i e s i n a
timely manner. The Department i s not providing adequate phone
service, and response t o taxpayer correspondence i s slow and
i n e f f i c i e n t . Although DOR has taken some steps t o address t h i s
problem, f u r t h e r action i s necessary ( see Report No. 85- 10, Page 7).
To improve service to taxpayers, the Department established an
Ombudsman ' s o f f i c e i n December 1 984. The Ombudsman intervenes i n
taxpayer cases that are referred by the D i r e c t o r ' s o f f i c e or the
Office o f the Governor, or received d i r e c t l y from the public. The
Ombudsman's o f f i c e has been able t o respond i n a more timely manner t o
taxpayer problems due t o i t s use o f more experienced personnel and i t s
1 i g h t e r work load.
7. The extent to which the Attorney General, or any other applicable
agency o f State government has the authority t o prosecute actions
under enabl ina 1 eai s l ation
The Attorney General has authority under Department statutes to
prosecute criminal tax violations. This authority was c l a r i f i e d and
enhanced with the enactment o f H. B. 2336, which redefines v i o l ations
and strengthens penalty provisions. However, t h i s b i l l does not take
e f f e c t u n t i l June 30, 1986.
8. The extent to which the Department has addressed deficiencies i n i t s
enabl ing statutes which prevent it from f u l f i l l i n g i t s statutory
mandates
The Department proposes 1 egi s l a t i on each year t o address statutory
problems and improve the administration o f Arizona's tax laws. Major
pieces o f l e g i s l a t i o n proposed and enacted during the 1985 l e g i s l a t i v e
session include the f o l l owing.
e HB 2010 - provides t h a t additional information must be included
on A f f i d a v i t s of Legal Property Value, including downpayment and
finance information i f the value o f the property exceeds 5
percent o f the t o t a l price.
e HB 2071 - amends several provisions governing bingo regulation,
lowers the game p r i z e l i m i t s , allows special games, provides
Department i n v e s t i g a t o r s w i t h 1 i m i ted peace o f f i c e r status, and
a1 1 ows the Department to require addi ti onal record keeping.
HB 2336 - amends and consolidates the administrative procedures
used by the Department f o r sales, use, severance, luxury and
income taxes. The b i l l redefines v i o l a t i o n s and strengthens
penal ty and enforcement provisions.
During the 1984 session, l e g i s l a t i o n proposed by the Department and
enacted by the Legislature included the following.
HB 2009 - provided t h a t the Director o f the Department could
organize the Department as deemed necessary t o maximize
efficiency and effectiveness i n administering and col 1 ecting
taxes.
a SB 1067 - amended the sales tax statutes t o allow a process of
factoring t o calculate sales tax l i a b i l i t y .
9. The extent to which chanaes are necessarv i n the laws o f the
Department t o adequately comply with the factors l i s t e d i n the Sunset
- Law
Our review of the Department indicated t h a t statutory changes are
needed i n two areas: ( 1) Provisions governing the imposition o f
withholding tax penal t i e s need t o be amended ( see Report No. 85- 8,
page 151, and ( 2 ) statutes related t o bingo regulation and enforcement
need t o be amended to permit a m u l t i t i e r e d licensing system ( see
Report No. 85- 10, page 30).
10. The extent t o which the termination of the Department would
s i g n i f i c a n t l y harm the publ i c heal thy safety or we1 fare
Termination o f the Department of Revenue would have a detrimental
impact on publ i c health, safety and we1 fare. Receipt o f State tax
monies would decrease and tax monies would not be deposited with the
State treasurer i n a timely manner. This could jeopardize the
provision o f essential State health and safety related services t h a t
depend on State funds f o r t h e i r continued operations. I n addition,
termination of DOR would eliminate enforcement and compliance programs
that are needed to ensure that all taxpayers pay their fair share of
the tax burden.
11. The extent to which the level of regulation exercised by the
Department i s appropriate and whether less or more stringent levels of
regul ation woul d be appropriate
For the most part, this factor does not apply because the Department
of Revenue i s not a regulatory agency. In the case of bingo
regulation, however, our review determined that regulation and
enforcement needs to be strengthened to protect the public more
effectively from the potential for financial abuse and other criminal
activity ( see Report No. 85- 10, page 24).
12. The extent to which the Department has used private contractors in the
performance of i t s duties and how effective use of private contractors
coul d be accompl i shed
The Department of Revenue is using several private contractors to
assist the agency i n carrying out its responsibil i ties. Two temporary
personnnel agencies are under contract to provide hourly staffing i n
processing, taxpayer services, 1 icensing and other areas. The
Department also util izes two other companies to provide off- site data
en try services to suppl emen t the Department' s own resources during
peak seasons. A software design company has been used to provide
temporary programming staff. To assist i t s Coll ections Division, DOR
has hired a private collection agency to collect out- of- State
accounts. Finally, the Department has hired a private consultant to
facilitate internal work groups and to train Department staff i n group
facil i tation.
Our review of the Department's processing operations determined that
management and control of data entry and other vendor contracts i s
weak and needs to be improved. In two cases, the Department has been
overcharged for services rendered by outside contractors ( see Report
No. 85- 9, page 29).
11
FINDING
THE DEPARTMENT OF REVENUE CAN IMPROVE DEPARTMENTAL MANAGEMENT AND CONTROL
Several indicators suggest the need f o r overall management and control
improvements w i t h i n DOR. Our audit i d e n t i f i e d deficiencies i n certain
central management responsibil i t i e s and functions i n c l u d i n g t r a i n i n g ,
i n t e r n a l audit and i n t e r d i v i s i o n a l coordination. I n addition, the
Department needs t o ensure t h a t the Tucson o f f i c e follows uniform
p o l i c i e s and procedures.
Central Management
) unctions Should B'e Improved
Departmental performance coul d improve i f DOR took steps t o a1 1 e v i a t e
deficiencies i n some central management functions. DOR personnel do not
receive adequate t r a i n i n g t o perform t h e i r tasks accurately and
e f f i c i e n t l y . I n addition, because the Department 1 acks an i n t e r n a l audit
function, it cannot ensure t h a t i n t e r n a l c o n t r o l s are present or working
effectively. Contributing a1 so t o reduced effectiveness and efficiency,
DOR' s various divisions do not a1 ways coordinate or comrnuni cate
s u f f i c i e n t l y w i t h each other.
Training I s Inadequate - Better t r a i n i n g could help t o improve DOR
empl oyees ' performance, accordi ng t o other Auditor General reports as
well as employee survey respondents. Although DOR has recently increased
t r a i n i n g e f f o r t s , it needs t o make an even greater commitment t o training.
Auditor General s t a f f found several exampl es of i n s u f f i c i e n t t r a i n i n g and
reported these i n other 1985 DOR audit reports. The audit report of the
DOR Taxation Division and Hearing Office noted t h a t DOR could
s i g n i f i c a n t l y increase revenue if, among other improvements, management
upgraded staff training. This report states t h a t some DOR auditors may
n o t c u r r e n t l y have s u f f i c i e n t t r a i n i n g t o hand1 e a u d i t s o f complex
accounts. The report also notes t h a t better t r a i n i n g programs are needed
t o ensure t h a t audit resources are e f f i c i e n t l y and e f f e c t i v e l y u t i l i z e d .
( see Report No. 85- 5, page 10 and pages 16 through 19). DOR's
Collections Division a1 so suffers from inadequate t r a i n i n g , which impairs
DORIS a b i l i t y t o emphasize the most productive accounts ( see Report No.
85- 8, page 28).
Likewise, i n the Department's processing function, Auditor General staff
found t h a t high error rates have been due p a r t l y t o a lack o f employee
t r a i n i n g programs ( see Report No. 85- 9, Finding I, pages 5 through 14).
F i n a l l y , we noted t h a t substandard performance i n the Taxpayer Services
Division has been exacerbated by i t s lack o f a comprehensive t r a i n i n g
program ( see Report No. 85- 10, pages 13 through 15).
These findings were substantiated by the results o f our survey o f DOR
employees.* Almost h a l f o f a l l respondents stated t h a t they did not
receive sufficient t r a i n i n g p r i o r t o beginning t h e i r current work
duties. Respondents working i n the Taxation, Collections, Taxpayer
Services and Tucson Divisions were most adamant about the need f o r
i n i t i a l job training, with 56, 63, 45 and 40 percent, respectively,
i n d i c a t i n g t h a t t h e i r p r i o r t r a i n i n g had been inadequate. Further, more
than 56 percent of the survey respondents working i n the Collections
Division indicated t h a t they received inadequate i n- service training.
Table 2 itemizes the survey's t r a i n i n g question responses by DOR's
divisions as well as for the Department as a whole.
* We surveyed a l l DOR employees i n March 1985. For a summary of survey
results, see pages 31 through 33. Our survey i s intended t o support
other research we conducted as well as point out areas of concern t h a t
DOR should review. The r e s u l t s are not, however, intended t o
represent a l l DOR employees' opinions but only the opinions of those
who responded t o the survey. Therefore, survey results should be
interpreted with caution.
TABLE 2
EMPLOYEE OPINION OF INITIAL AND IN- SERVICE TRAINING
Question Agree Disagree No Opinion
" I received s u f f i c i e n t t r a i n i n g
p r i o r t o beginning my current duties. "
Division: Taxation 31 . O% 56.3% 12.7%
Coll ections 28.5 62.5 8.9
Taxpayer Services 41.7 45.0 13.3
Administration 48.1 36.7 15.2
Property 51.5 27.3 21.2
Tucson Office 53.3 40.0 6.7
Department Average 39.9% 47.0% 12.7%
" I receive adequate t r a i n i n g f o r
my needs. "
Division: Taxation 50.7% 36.6% 12.7%
Col 1 ections 33.6 56.2 8.8
Taxpayer Services 59.3 35.6 5.1
Administration 63.8 26.3 10.0
Property 54.6 30.3 15.2
Tucson Office 66.6 33.3 0.0
Department Average 54.3% 36.1 % 9.5%
Source: Auditor General survey o f DOR employees ( See Other Pertinent
Information, page 27, f o r f u r t h e r d e t a i l . )
Respondents coriented heavily i n the survey about the inadequacy o f the
t r a i n i n g they receive. One empl oyee wrote, " ( There's) never enough time
t o t r a i n - but there's always enough time t o do something over." I n a
s i m i l a r vein, another respondent said, " Most times a job i s done f i r s t ,
then you f i n d o u t how things should have been done." Another stated,
" Many errors which e x i s t are due t o ( unqualified and) untrained
personnel . "
DOR's commitment to t r a i n i n g has only recently increased. Prior to
December 1984, DOR's t r a i n i n g u n i t consisted o f only one trainer.
Currently the u n i t empl oys f i v e trainers, i n c l uding one Training Director.
The new t r a i n i n g u n i t has been able to accomplish p a r t o f i t s t r a i n i n g
goals. It has developed and implemented a core curriculum, which
includes sections on, f o r example, DOR's tax philosophy and i t s computer
system. I n addition, the u n i t has established a t r a i n i n g advisory group
t o a s s i s t i n common Departmental t r a i n i n g needs.
However, due a t l e a s t i n p a r t t o a l a c k o f resources, many o f DORIS
basic, d i v i s i o n - s p e c i f i c t r a i n i n g needs are not being met. A1 though the
Department Director agrees t h a t there i s a need f o r more and b e t t e r
t r a i n i n g throughout the agency, the Training Director indicated t h a t she
w i l l need a minimum o f three or four additional t r a i n e r s t o complete
DOR's d i v i s i o n a l t r a i n i n g needs i n 3 years once needed resources are i n
place. Additional c l e r i c a l s t a f f and equipment woul d a l s o be needed.
Such additional resources, a t an annual cost o f approximately $ 1 51,000,*
would be a c o s t - e f f e c t i v e investment f o r the State. Although the effects
of the lack o f t r a i n i n g cannot be precisely quantified, two functions
affected by a lack o f t r a i n i n g - auditing and c o l l e c t i o n s - involve
m i l l i o n s o f d o l l a r s i n State revenues. I n both functions, however, many
staff c u r r e n t l y 1 ack adequate t r a i n i n g f o r auditing and c o l l ecting the
larger, more complex accounts. If additional t r a i n i n g were funded and
DOR audited and collected only two or three more o f i t s l a r g e s t accounts,
the t r a i n i n g costs would be more than recovered.**
DOR Needs I n t e r n a l A u d i t - Though DOR i s charged with handling the vast
m a j o r i t y o f t h e S t a t e ' s revenue ( t o t a l i n g about $ 2.2 b i l l i o n i n 1983- 84),
the Department has no central ized i n t e r n a l a u d i t function. According to
the Director, DOR requested funding f o r an i n t e r n a l a u d i t group i n a
previous budget, but the Legislature denied the request and the
Department never requested i t again. Whi 1 e the Department Director
agrees t h a t DOR needs an i n t e r n a l audit function, he stated t h a t
DOR's p r i o r i t y i n the
* I n addition, the T r a i n i n g D i r e c t o r s t a t e d there would be a one- time
equipment purchase o f about $ 1 4,000. ** As an example, the average audit assessment on DOR's l a r g e s t sales tax
accounts i s more than $ 126,000 per account.
past several years has been the col 1 ection of revenues. Consequently,
DOR has not pursued the issue since the aforementioned budget request.
An internal audit function would provide an independent review of
compliance w i t h DOR's internal controls and an evaluation of those
controls to determine their appropriateness. Such a review and
evaluation would ensure that revenue- handling abuses were minimized and
detected. In the 1985 audit of DOR's processing function, for example,
Auditor General staff found weaknesses in internal control s over receipt
handling in three areas i n which revenues could have been lost or
stolen. The audit a1 so disclosed weaknesses in the controls over
personnel who have access to DOR's data processing system ( see Report
No. 85- 9, pages 35 through 41 ). These weaknesses could be detected
internal ly i f DOR maintained an internal audit group.
Likewise, an internal audit function would review whether DOR's policies
and procedures are being carried out uniformly by all employees in all
divisions. Currently, there are seven areas w i t h i n the Department that
handle receipts, and each of these follows different procedures for
receipts handling. I t would be the responsibility of an internal audit
section to review these procedures and identify unnecessary
inconsistencies.
A t least 11 other states' revenue departments provide for internal
audit.* Our 1985 report on the processing function ( mentioned
previously) describes Utah's internal audit function. Utah, a state w i t h
a staff size and operating budget similar to Arizona's, employs three
internal auditors who report directly to the commission chief. The goals
of the unit are to test compliance with established procedures. The u n i t
accompl ishes this by performing operational audits of departmental
functions, conducting special investigations of departmental personnel i n
* Auditor General staff surveyed 12 western states and five other states
based on DOR staff recommendations. The states included California,
Col orado, Hawaii , Idaho, Iowa, Kansas, Minnesota, Missouri, Montana,
New Mexico, South Carol ina, Oklahoma, Oregon, Texas, Utah, Washington
and Wyoming. Colorado, Idaho, Oklahoma and Wyoming did not respond to
our survey. Of the remaining 13, all b u t Hawaii and Montana had
internal audit functions.
17
which violations of state s t a t u t e s a r e a t issue, testing all automated
and manual tax processing sys tems, and reviewing automated data
processing programs. Another internal audit function described i n the
report is that of the Internal Revenue Service ( see Report No. 85- 9, page
38).
DOR' s Divisions Operate Independently - DOR's several divisions do not
always coordinate their related a c t i v i t i e s or communicate we1 1 w i t h each
other, according to Auditor General research and survey results. This
lack of coordination and communication results i n such problems as
incompl ete taxpayer monitoring and unnecessary processing del ays.
Although DOR is attempting to improve the situation, management could be
more aggressive i n its attempts to address this problem.
Inadequate coordination and communication between divisions negatively
impacts taxpayer monitoring, and b i l l ing and processing time1 iness. The
foll owing case examples i l l ustrate these problems.
Case One
A bingo licensee was recently convicted of felony charges i n
connection w i t h his bingo operation. Since these charges involved
receiving large sums of money i l l e g a l l y , i t i s likely that the
licensee never claimed these receipts on his income tax returns.
However, the bingo Investigative Supervisor did not attempt to
contact the Taxation Division's compl iance u n i t regarding the
matter. The Investigative Supervisor stated that he did not
communicate this information to the compl iance u n i t because the
compliance u n i t had not acted on a previous similar case.
Case Two
In January 1985, forms used to transmit payments from the Collections
Division to DOR's main office were slightly modified. The
Collections Division was not informed of the impending change and had
just received a shipment of 10,000 old forms. Collections discovered
that the forms had been modified only a f t e r several of them were
rejected by DOR's main office and returned w i t h taxpayer checks
attached.
Case Three
As noted i n our 1985 a u d i t r e p o r t o f DOR's Taxation Division and
Hearing Office, Taxation Division auditors make amendments t o
protested assessments without n o t i f y i n g the Audit Services Section or
the Hearing Office o f the protest. Consequently, a taxpayer i n
protest could be b i l l e d i n error. In fact, 396 protested income
audit cases were put on b i l l i n g .
Respondents t o a survey o f DOR employees conducted by the Auditor General
a1 so indicated t h a t DOR needs t o improve communication and coordination
among i t s various divisions. A1 though most respondents ( 62 percent)
indicated t h a t they were famil i a r with the Department's organizational
structure and the tasks performed by i t s divisions, 43 percent f e l t t h a t
the tasks were not l o g i c a l l y organized by division. Also, 40 percent o f
the respondents be1 ieved cooperati on between t h e i r individual sections
and the other sections they worked with was unsatisfactory, and 51
percent indicated t h a t DOR's divisions did not coordinate we1 1 with each
other. Among the divisions, respondents from Taxation, Col lections and
the Tucson o f f i c e f e l t most strongly t h a t tasks were not organized
l o g i c a l l y and t h a t coordination was a problem. Table 3 l i s t s the
survey's coordination question responses f o r DOR and i t s various
divisions.
TABLE 3
EMPLOYEE OPINION OF DORIS ORGAN1 ZATIONAL
STRUCTURE AND COORDINATION
Question
" I am f a m i l i a r with the organizational
structure o f DOR and the tasks performed
by the various divisions."
Division: Taxa ti on
Col 1 ections
Agree Disagree No Opinion
Taxpayer Services 58.3 36.7 5.0
Administration 72.6 22.5 5.0
Property 72.7 15.2 12.1
Tucson Office 50.5 36.6 13.3
Department Average 61 .7% 28.8% 9.5%
" DORIS tasks are 1 ogical ly organized
among the divisions."
Division: Taxation 18.0% 57.0% 25.0%
Coll ections 32.8 56.4 10.9
Taxpayer Services 33.4 30.0 36.7
Administration 43.8 27.6 28.8
Property 31.3 31.3 37.5
Tucson Office 30.0 56.7 13.3
Department Average 31.2% 42.9% 25.9%
" DOR's divisions coordinate
well with each other."
Division: Taxation
Collections
Taxpayer Services 28.4 41.6 30.0
Admi n i s t r a ti on 43.8 37.5 18.8
Property 30.3 42.5 27.3
Tucson Office 30.0 56.6 13.3
Department Average 26.9% 51 . O% 22.1 %
" There i s cooperation between my
section and other sections we work with. "
Division: Taxation 45.8% 43.0% 11.1%
Col 1 e c t i ons 40.7 59.3 0.0
Taxpayer Services 48.4 40.0 11.7
Administration 63.8 27.5 3.0
Property 69.7 27.3 3.0
Tucson Office 43.6 43.3 13.3
Department Average 51.2% 40.4% 8.4%
Source: Auditor General survey o f DOR employees ( See Other Pertinent
Information, page 27, f o r f u r t h e r d e t a i l . )
20
DOR i s making efforts to improve communication and coordination between
its divisions. According to the Director, these efforts range from an
employees' newsletter to Departmental reorganization for the purpose of
providing greater effectiveness and efficiency. One notable effort is
the Department's implementation of task forces, which are designed to
develop and update procedures for DOR's various functions. These task
forces bring staff from different sections and divisions together because
the Director be1 ieves probl ems are best solved by DOR' s own empl oyees. *
DOR a1 so has initiated " problems and i ssues papers, " wherein empl oyees
are encouraged to submit papers describing problems in the Department.
DOR Needs To Ensure Uniform
Policies And Procedures In Tuscon
DOR also needs to strengthen control of its Tucson office to ensure
uniform policies and procedures throughout DOR. The Tucson office serves
as a separate, independent division within DOR even though i t performs
many of the same functions as the various divisions located in Phoenix.
There are both advantages and disadvantages to this arrangement.
Regardless of the organizational structure, however, DOR should
strengthen control over the Tucson o f f i c e ' s a c t i v i t i e s to el iminate
possible differences in policies and procedures between Tucson and the
rest of DOR.
Tucson Operates As A Branch Office - The Tucson office i s a separate
division performing substantially the same functions as the main DOR
office in Phoenix. Like Phoenix, the Tucson office handles tax
collections, audits, taxpayer assistance and 1 icensing, b u t these
* DOR's task force effort began w i t h the implementation in March 1985 of
the Administration Organization Design Task Force. I t s initial goal
was to analyze and develop procedures w i t h i n the Income Processing
Section of the Administration Division, moving then t o other
processing areas and finally to other divisions. The task force
effort is ongoing, and task forces for all tax- related areas have been
scheduled.
functions are not supervised by the Coll ections, Taxation and Taxpayer
Services divisions i n Phoenix.* Instead, these functions are managed by
Tucson ' s Assistant Director who i s comparabl e i n authority t o Phoenix's
Divisional Assistant Directors.
Tucson has been a separate d i v i s i o n since March 1984. Before that time,
the Tucson o f f i c e was under the authority and control o f the Taxation
Division. That arrangement, according t o the Department Director, was
unsatisfactory because the Tucson o f f i c e received l i t t l e guidance from
the Phoenix office. The D i r e c t o r a l s o said the o f f i c e did not r e a l l y fit
under Taxation or any other s i n g l e d i v i s i o n , since it performs a variety
of functions t h a t cross d i v i s i o n a l 1 ines.
The Tucson o f f i c e represents a substantial portion o f DOR's work force
and responsibility. Currently about 110 DOR s t a f f are employed i n Tucson
and are responsible l a r g e l y f o r DOR functions i n the southern part o f the
state.
Advantages And Disadvantages O f Current Arrangement - The separation of
the Tucson o f f i c e as a d i v i s i o n has resulted i n both favorable and
unfavorable impacts. Tucson now has better access t o DOR management, and
it has been i n some cases more innovative than Phoenix. However, the
separation has also resulted i n some inequities i n work load
d i s t r i b u t i o n , i n e f f i c i e n c i e s and differences i n operating procedures.
Tucson's separate divisional status has been advantageous i n some
respects. The o f f i c e has d i r e c t access t o DOR management i n Phoenix
through i t s Assistant Director, who i s able t o communicate d i r e c t l y with
the Department Director regarding a1 1 aspects o f Tucson's operation. The
Tucson Assistant Director can therefore a l e r t the Director to any special
problems a r i s i n g due t o i t s physical distance from Phoenix headquarters.
I n addition, organizational separation has a1 1 owed the Tucson office some
* Tucson a1 so has Bingo and Property Tax Sections, but these are
supervised by Phoenix's Bingo Section and Property Tax Division,
respectively.
f l e x i b i l i t y t o innovate, with apparent success i n some cases. For
example, i n 1984 Tucson successfully established an assessment desk t o
expedite c o l l e c t i o n of monies owed as a r e s u l t o f audits.
Tucson's d i v i sional status has produced some negati ve effects, however.
Phoenix operations appear t o have much heavier work loads than do the
same operations i n Tucson. For example, i n early 1985 the average
c o l l e c t o r i n Tucson was responsible f o r approximately one- fourth t o
one- third the number of accounts f o r which Phoenix collectors were
responsible. Likewise i n Tucson ' s Taxpayer Services Unit, empl oyees
appear t o handle only about o n e - f i f t h the correspondence cases t h a t
Phoenix Taxpayer Services empl oyees handle ( see Report Number 85- 1 0, page
33).
Other inefficiencies have resul ted from the Tucson o f f i c e ' s separation.
For example, record systems are duplicated between the two 1 ocations, and
no centralized DOR data base exists f o r information items such as l i e n s
f i l e d and number and dates o f audits conducted. Also r e s u l t i n g i n
inefficiency, the corporate audit function i s s p l i t between the two
locations. The two o f f i c e s thus spend substantial time negotiating who
w i 11 be assigned which out- of- State 1 ocations f o r corporate audits, when
t h i s function coul d be c e n t r a l l y control 1 ed by one a s s i s t a n t d i r e c t o r .
Perhaps the most important disadvantage, though, i s the d i fference i n
procedures between the Phoenix and Tucson offices. For exampl e, during
our a u d i t o f the Collections Division, we noted differences i n
c o l l ections procedures between the Phoenix and Tucson offices. These
differences coul d have resulted i n the unequal treatment o f taxpayers
( see pages 30 and 31 o f Report No. 85- 8).
The DOR Director stated he perceives the advantages o f Tucson's
d i v i s i o n a l separation t o outweigh the disadvantages, and plans t o keep
the office as a separate division. However, because o f t h e o f f i c e ' s
distance from Phoenix, i t s separation from other DOR divisions doing
s i m i l a r work, i t s autonomy by v i r t u e of i t s separate d i v i s i o n a l status,
and the lack o f ongoing independent review o f i t s operation, the
opportunity and r i s k exists f o r the o f f i c e t o deviate from departmental
policies, procedures and methods o f operation without t i m e l y management
2 3
know1 edge. Therefore, regard1 ess of the organizational structure, COR
shoul d be concerned about mai n t a i n i ng control over the Tucson o f f i c e ' s
a c t i v i t i e s , p o l i c i e s and procedures.
CONCLUSION
DOR could take several steps t o improve overall management and control o f
the Department. Several central management areas, training, i n t e r n a l
audit, and i n t e r d i v i s i o n a l coordination are d e f i c i e n t . I n addition, DOR
management should strengthen control over i t s Tucson office.
RECOMMENDATIONS
The Department o f Revenue shoul d consider the f o l 1 owing.
1. Increasing emphasis on departmentwide t r a i n i n g t o ensure t h a t a l l
d i v i s i o n employees are adequately trained. Such a program should be
establ ished and implemented w i t h i n 3 years t o minimize additional
revenue losses. This may require a request f o r additional funding
from the Legislature.
2. Establ ishing an independent i n t e r n a l audit function that answers
d i r e c t l y t o the D i r e c t o r ' s office ( see also Report No. 85- 9, page 38).
3. Pursuing greater i n t e r d i v i s i o n a l coordination through a more
aggressive commitment on the p a r t o f top management.
4. Improving the accountability o f control over the Tucson o f f i c e by:
a) Establishing an i n t e r n a l a u d i t function ( see Recommendation 2);
b ) Ensuring t h a t the Tucson o f f i c e i s subject t o review by the
audit review q u a l i t y control u n i t we recommend i n Report NO.
85- 5, pages 29 through 32; and
OTHER PERTINENT INFORMATION
During the course of our audit, we developed additional agencywide
information pertinent t o the Department o f Revenue ( DOR) through a survey
o f Department empl oyees .
Empl oyees I den ti f ied Both
Organizational Strengths And Weaknesses
Results o f our survey revealed a mixture o f attitudes regarding the
Department's work environment. Empl oyees viewed several organizational
dimensions favorably, such as goals and objectives, j o b s a t i s f a c t i o n ,
supervision and equipment. However, other aspects of the work
environment, including organizational structure and coordination, job
environment, and management and t r a i n i n g were rated unfavorably or weak.
Survey Method01 ogy
We surveyed a1 1 Department empl oyees to determine empl oyee attitudes
toward the Department's work environment. The survey instrument,
consisting o f 27 statements* which employees rated and several open ended
questions, was mailed i n March 1985 t o 1,080 permanent, temporary and
former Department employees. Three hundred and f i f t y responded, f o r a
response rate o f 32 percent. O f these 350 respondents, 236 were permanent
empl oyees , 56 were temporary empl oyees, and 58 were former empl oyees.
Survey questions were grouped i n t o s i x major areas o f concern: ( 1 ) Goals
and Objectives, ( 2) Organizational Structure and Coordination, ( 3)
Management, ( 4) Supervision, ( 5) Equipment and Training, and ( 6) Job
Satisfaction and Job Environment. Results of the survey were analyzed
Departmentwide and f o r each o f the Department's major divisions: Taxation,
Coll ections, Taxpayer Services, Administration, Property and the Tucson
o f f i c e .
* Several o f these statements were adapted from an organizational
c l imate survey administered i n 1981 by the Arizona Department of
Transportation, Transportation Planning Division.
Goals And Objectives - In general, the respondents believe that the
Department's goals and objectives are adequately stated, and they
understand how their job relates to other work a t DOR. More than 60
percent of the respondents who expressed an opinion Departmentwide agree
that DOR's goals are clearly stated. However, this means that nearly 40
percent were concerned about Department goal s. On the favorable side,
nearly 80 percent of the respondents be1 ieve they know how their job f i t s
in w i t h other work outside their divisions ( see Figure 1).
Supervision - Generally, the survey respondents were also pleased w i t h the
supervision they received. More than 70 percent of the respondents have
confidence i n their supervisors' knowledge and abil i ties to perform their
jobs. In addition, more than 75 percent of the respondents gave favorable
ratings to Department supervisors ' practice of 1 e t t i ng empl oyees know what
i s expected of them, while more than 70 percent of the respondents be1 ieve
they were treated w i t h courtesy and respect by their superiors. Of the
respondents who expressed an opinion, almost 60 percent agree that their
supervisors have enough authority and support from superiors to make the
necessary decisions and perform their jobs well. In spite of this, more
than 40 percent of the respondents believe that their supervisors did not
have the authority and support needed from their superiors. tdoreover,
while 56 percent of respondents w i t h an opinion agreed that they were
getting enough information and guidance about how to do their assignments,
44 percent disagreed ( see Figure 2 ) .
Job Satisfaction - In general, the respondents from the six divisions are
satisfied w i t h their jobs at DOR and feel free to talk w i t h a supervisor
if they have a complaint. More than 65 percent of the survey respondents
agree that they are satisfied with the job they have at DOR, while close
to 70 percent believe that i f they have a complaint to make, they can
freely talk to a supervisor or superior ( see Figure 3 ) .
Equipment - According to most respondents, the Department supervisors see
to i t that employees have the proper equipment to carry out their work.
More than 60 percent of the survey respondents across the six divisions
agree that the equipment provided by their supervisors i s adequate for
completing t h e i r dai ly assi gnments . However, more than 30 percent were
d i s s a t i s f i e d with the adequacy o f the equipment provided by supervisors
( see Figure 4).
Organizational Structure And Coordination - According t o survey
respondents, DOR's tasks are not 1 ogical ly organized among the divisions
o f Taxation, Collections and the Tucson o f f i c e , and these divisions do not
coordinate well with other related sections. O f those surveyed who
expressed an opinion, more than 75 percent o f the respondents i n Taxation,
63 percent of the respondents i n Collections, and 65 percent o f the
respondents from the Tucson office do not believe t h a t DOR tasks are
l o g i c a l l y organized among the various divisions. I n addition, nearly
two- thirds of these same respondents indicated t h a t DOR's divisions do not
coordinate well with each other ( see Figure 5). This i s discussed i n more
d e t a i l i n the Finding o f t h i s report ( see page 18).
Job Environment - Survey respondents were generally s p l i t on whether DOR's
working environment was conducive t o employee productivity. On the who1 e,
more than one- half o f the respondents across the s i x divisions do not
believe t h a t t h e i r work environment i s favorable f o r carrying out t h e i r
work. The division i n which t h i s was most evident was Collections, where
more than 50 percent o f the respondents indicated that t h e i r work
environment i n h i b i t e d t h e i r p r o d u c t i v i t y ( see Figure 3).
Management - I n addition, respondents expressed concerns about top
management. More than 70 percent o f the survey respondents agreed t h a t
they do not receive enough information from upper- 1 eve1 management. This
was most evident i n the Collections Division and the Tucson o f f i c e .
Similarly, respondents indicated a lack o f confidence i n the fairness and
honesty o f management. This was indicated most by respondents i n the
Collections Division and the Tucson o f f i c e , where approximately two- thirds
of the respondents be1 ieve t h i s t o be true. I n addition, respondents
generally believe t h a t management does not l i s t e n t o the recommendations
o f i t s employees. This was most evident i n the Collections Division,
where more than 75 percent o f the respondents believed t h a t management
does not 1 isten to them.
Because survey returns were anonymous and many lacked detail, we were
unable to follow up on specific concerns i n this area. However, our
review of the Department also revealed that overall management of the
Department, including interdivisional coordination and communication,
needs to be improved ( see Figure 6). Some of the changes and improvements
we recommend may address some employee concerns about top management ( see
Finding, page 13).
Training - Finally, more than half the respondents w i t h an opinion f e l t
they do not receive the training they need before beginning their work.
This response was most prevalent i n the divisions of Taxation and
Coll ections, where 65 percent of the respondents who expressed an opinion
be1 ieve that before they began their work assignments sufficient training
was not provided ( see Figure 4). For further discussion of this problem,
see page 14.
FIGURE 1
GOALS AND OBJECTIVES FavVoerrayb le UnfaVveorrya ble
I understand how my job View View
r e l a t e s t o other jobs in I i
my section
I know how my job f i t s in I - I
with other work a t DOR
I understand the goals of
my section
The goals of DOR a r e c l e a r l y
stated
FIGURE 2
Very
SUPERVISION Favorabl e
View
Very
Unfavorable
View
My supervisor l e t s me know what
i s expected of us
I do get enough guidance or
information about how to do my
assignments
My supervisor has enough authority
and support from superiors to
make the necessary decisions and
perform his/ her job well
i have confidence i n my superiors'
knowledge and a b i l i t i e s to perform
their job
I am treated with courtesy and
respecc by my superiors - I 4
FIGURE 3
JOB SATISFACTION Very Very
AND JOB ENVIRONMENT Favorabl e Unfavorable
If I have a complaint to make, View View
I feel free to talk to the I e I
supervisor or superior
i \ In general, I am satisfied with
the job I have a t DOR I I 1. I II 1
My work environment is
conducive to my productivity I I i
DOR's grievance procedures are
I I adequate for handling my I problems or complaints \.
FIGURE 4
I i
Very
EQUIPMENT AND TRAINING Favorabl e
My supervisor sees to i t that View
4
Very
Unfavorabl e
View
we have the things we need to ,
do our work i
I have the right equipment to
do my work I 1
I receive adequate training
for my needs 1 I I I
I I 1
I received sufficient training h srior t o beginning my current ,
1 I I
I I auties
FIGURE 5
ORGANIZATIONAL STRUCTURE FavVoerrsyb l
, AND COORDINATION View
Very
Unfavorabl e
View
There is cooperation
between my section and I A I
other sections we work with 1 i r 1
I am familiar with the
organizational structure of t I
DOR and the tasks performed I
by the various divisions \ I
DOR's tasks are logically
organized among the 1
various divi sions
DOR's divisions coordinate
well with each other 1 t
J I
FIGURE 6
Very
MANAGEMENT Favorable
View
Very
Unfavorable
View
Management listens to the
recommendations of qualified
staff personnel
We do receive enough information
from top management I
Management encourages us to /
make suggestions for improvements I , I
here
I have confidence in the fairness
and honesty of management
' danagement 1 istens to our
suggestions and complaints
~ ARIZQMA
DEPARTMENT OF
REVEMIUE %
J. Elliott Hibbs Bruce Babbitt
Director Governor
September 26, 1985
Mr. Douglas R. Norton
Auditor General
2700 North Central
Phoenix, Arizona 85003
Dear Mr. Norton:
We generally agree with the finding and recommendations contained in
your performance audit on agency- wide issues. To present a balanced
review of the Department's performance over this period, however, the
progress we have made also deserves highlighting.
Substantial improvement has occurred in the Department's operations.
Our productivity has increased dramatically, we have brought fairness
to Arizona's property tax system, our enforcement program has
generated tens of millions of new dollars in annual revenues, and our
processing systems have progressed from calculators and tally sheets
to electronic registers and computer systems.
Specifically, the following are worth noting:
- Assessments per auditor ( 1979-' 85) have increased from
about $ 430,000 to more than $ 930,000. More
significantly collections per auditor have tripled from
less than $ 200,000 to more than $ 600,000.
- Collections of past due taxes per collector ( 1982-' 85)
have jumped from about $ 160,000 to more than $ 800,000.
- We have advanced from only two computerized processing
systems to six.
- We instituted a simple math and data check for sales
tax returns that captures over $ 10 million annually in
previously undetected underpayments of these taxes.
Mailing address ( Capitoll:
1700 W. Washington
Phoenix. AZ 85007
Other locations:
Phoenix Uptown
5555 N. 7th Avenue
Tucson
402 W. Congress
Page Two
Mr. Douglas R. Norton
September 26, 1985
- Since the Department has been reorganized, we have been
able to identify and tackle problems more
expeditiously. For example, our Taxpayer Services
Division is only approximately two years old. Four to
five years prior to its development, letters would get
lost or go unanswered. Now we know our inventory and
are seeking better ways to respond timely. We have
greatly reduced the volume and the backlog through
problem prevention.
- In response to the Legislature ' s mandates, we have
taken direct actions to achieve fair property
valuations by training county appraisers, developing
assessment standards, and issuing directives on
uniformity of values.
- Processible refunds were issued starting January 7th
this year - earlier than ever - with an average
turnaround of ten days to two weeks until the peak hit
on April 15th. Even with 600,000 income tax returns
hitting at the peak, more than 99% of all refund
returns were processed within ten weeks.
These are just a few of the remarkable advances made by this
Department, but the key question is: " Where are we headed?"
The state's recent fiscal crisis forced us to rapidly assimilate this
growth of people and computerization of systems, putting primary
emphasis on revenue enforcement. We succeeded in these efforts. Then
we began turning our energies to improving the quality of service for
the taxpayer. Last year we instituted two task forces to identify
improvements for taxpayer assistance and processing. This year we
will have five task forces: collections, audit, taxpayer assistance
and two in processing.
We have improved tremendously and we are going to continue by
stressing quality of performance. Your audit has pointed out some
deficiencies. We will implement your staff's findings where
appropriate and this should help us to further our goals and meet our
objectives. We are a dynamic agency which has some problems, but the
Revenue Department consists moreover of people who have dramatically
improved Arizona's tax processing, tax collections, and tax fairness.
These people have earned recognition and they deserve it.
Sincerely,
ARIZONA DEPARTMENT OF REVENUE
J Elliott Hibbs
Director
DEPARTMENT OF REVENUE COMMENTS
AUDITOR GENERAL
PERFORMANCE AUDIT - AGENCY- WIDE
Finding: The Department of Revenue can improve departmental
management and control.
Audit Recommendation 1: Increasing emphasis on departmentwide
training to ensure that all division employees are adequately trained.
Such a program should be established and implemented within three
years to minimize additional revenue losses. This may require a
request for additional funding from the legislature.
DOR RESPONSE:
WE HAVE GONE FROM ZERO DAYS OF CLASSROOM TRAINING IN 1980 TO AN
EQUIVALENT OF 2,415 DAYS OF TRAINING IN FY ' 84- 85. EVEN MORE NEEDS TO
BE DONE AND WE HAVE REQUESTED THAT THE LEGISLATURE FUND FOUR
ADDITIONAL TRAINERS FOR FY ' 86- 87.
Audit Recommendation 2: Establishing an independent internal audit
function that answers directly to the Director's Office.
DOR RESPONSE:
WE CONCUR AND HAVE ASKED THAT THE LEGISLATURE FUND AN INTERNAL AUDIT
UNIT IN OUR FY ' 86- 87 BUDGET REQUEST.
Audit Recommendation 3: Processing greater interdivisional
coordination through a more aggressive commitment on the part of top
management.
DOR RESPONSE:
WE HAVE ALREADY DONE THIS THROUGH TASK FORCES, EMPLOYEES' NEWSLETTER,
REORGANIZATION OF DEPARTMENTAL FUNCTIONS, TOWNHALLS, SCHEDULED
SUPERVISORS MEETINGS AND EMPLOYEE " PROBLEMS AND ISSUES PAPERS." ALL
OF THESE ARE ON- GOING AND WE WILL CONTINUE TO IMPROVE UPON THEM.
Audit Recommendation 5: Improving the accountability of control over
the Tucson Office by: ( a) establishing an internal audit function;
( b) ensuring that the Tucson Office is subject to review by the Audit
Review Quality Control Unit we recommend in Report No. 85- 5; and ( c)
coordinating more closely between the Tucson and Phoenix Offices to
equalize workloads and ensure uniformity of policies and procedures.
Page Two
DOR RESPONSE:
WE HAVE REQUESTED FUNDING FOR INTERNAL AUDITORS FROM THE LEGISLATURE
AND ALL DOR AUDITS WILL BE SUBJECT TO REVIEW BY OUR AUDIT REVIEW
QUALITY CONTROL UNIT. TUCSON WILL REMAIN A SEPARATE DIVISION.
WHENEVER ANY SIGNIFICANT DISCREPANCY IN POLICIES AND PROCEDURES
ARISES, WE ELIMINATE IT. TUCSON PARTICIPATES IN OUR TASK FORCES AND
IN THE PROMULGATION OF AGENCY- WIDE POLICIES AND PROCEDURES. WORKLOAD
UNEQUALIZATION IS NOT A CASE OF ONE DIVISION HAVING INSUFFICIENT WORK
TO KEEP IT BUSY. IT IS SIMPLY THE SITUATION WHEREBY ALL DIVISIONS
HAVE MORE WORK THAN THEY CAN HANDLE BUT SOMETIMES ONE DIVISION'S
OVERLOAD IS GREATER THAN THE OVERLOAD OF ANOTHER DIVISION.
AUDITOR GENERAL SURVEY
OF
DEPARTilENT OF REVENUE EMPLOYEES
DOR WORK ENVIROMKENT
The following is a l i s t of statements designed to
s o l i c i t your opinion on aspects of the DOR work
environment. Please circle the number which most
c l o s e l y corresponds to your opinion or perception
( 1 = agree most strongly t o 5 = disagree most
strongly). Please feel free t o comment further on
the back page or attach additional pages.
1. I understand horv my job relates to other jobs
i n my section.
L. Management does 3ot listen to the recommendations
of qua1 ified staff personnel.
3. If I have a com~ laint to make, I feel free t o t a l k
to a supervisor or superior.
4. My supervisor sees to i t that we have the things
we need to do our jobs.
5. There i s cooperation between my section and other
sections we work with.
6. In general, I am satisfied with the job I have
at DOR.
7. I am familiar with the organizational structure
of DOR and the tasks performed by the various
di vi si ons.
3. DOR's tasks are logically organized among the
various divisions.
9. I know how my j o b f i t s i n with other work in DOR.
10. I understand the goals of my section.
11. The cjcals o f DC2 are clearly stated.
I ? I 0
I L . L :; dve observed insrances were taxpayers were
given z; ecial treatcent by 0% because o f wtio
they were.
13. lly supervisor lets us know w h a t i s expected of us.
14. Ve do f i o i receive enough information from top
rnanagernent.
15. Managenent encourages us to make suggesiions for
improvements here.
16. I have confidence in the fairness and honesty
of management.
17. DOR's divisions coordinate well w i t h each other.
18. 1 do not get enough guidance or information about
how t o do my assignments.
19. I have the right equipment to do my work.
20. Management ignores our suggestions and complaints.
21. My supervisor has enough authority and support from
superiors to make the necessary decisions and
perform h i s/ her job we1 I .
22. OOR's grievance procedures are adequate for hand1 i ng 1 2 3 4 5
my problems or complaints.
23. I have confidence in my supervisor's knowledge and 1 2 3 4 5
a b i l i t i e s t o perform his/ her job.
24. I receive adequate training for my needs. 1 2 3 4 5
\ 25. I received sufficient training prior to beginning 1 2 3 4 5.
my current duties.
26. My work environment i s conducive to ny productivity. 1 2 3 4 5
27. I am treated w i t h courtesy and respect by my superiors. 1 2 3 4 5
BACKGROUIID INFORf, IATIOEI
Please circle the appropriate response. All information will be considered
conf i denti a1 .
1. 1 ama Permanent Full- time employee
Pemanent Part- time
Temporary, full - time or part- time
Former empl oyee
Other ( please specify)
2. If you are a former employee, what was the reason ( or reasons) you l e f t DOR?
3. I work i n the f o l l o w i n g d i v i s i o n :
*
Administrative ( I n c l u d i n g Processing) Taxpayer Services , , Taxati on
Property Tucson Office Col 1 e c t i ons
4. I have worked with DOR
0- 3 months 4- 6 months 7- 1 2 months 1- 2 years 2- 5 years more than 5 years
5. ( OPTIONAL) t;? y job t i t l e i s
Please attach additional pages i f the space provided i s i n s u f f i c i e n t t o answer
questions 1 - 5. Again, your responses are anonymous and w i l l be c o n f i d e n t i a l .
1. What do you consider your biggest problem on. the job?
2. Do you have any s p e c i f i c suggestions f o r ways DOR may improve i t s
performance? Please indicate the section( s) o r u n i t ( s ) t o which these
suggestions apply. Improvements may be i n the following areas:
Pol i c y or Procedural Chanaes
Additional Equipment or Resources
Training
- 2. ( Continued)
Changes i n Organizational Structure
Other
3. Do you feel DOR has encouraged cooperation and communication with the
Auditor General ' s staff during thi s audi t?
Yes No
If no, please indicate how cooperation was discouraged?
4. Are DOR'S actions and decisions fair and equal for all individual and/ or
business taxpayers?
Yes No
1
If no, do you believe the unfair treatment was improper or illegal? What .
was the nature of the improper treatment and approximately when did i t
occur?
Who authorized the action ( you may give the position - e. g. " my
supervisor" or the name of the individual if you prefer).
a
Please indicate any other details you can recall surrounding these
occurrences.
5. If you would care to add further to any of the above comments or provide
additional information, please write in the space below, on the back
page, or attach additional pages.