The Arizona Auditor General conducted a performance audit of the Arizona Department of Revenue. The audit, which found that the Department is hindered by ineffective IT leadership processes and should prepare for the planned replacement of its primary IT system. The report was crafted in response to an October 3, 2013, resolution of the Joint Legislative Audit Committee.
The performance audit was conducted as part of the sunset review process prescribed by Arizona statute.
According to the Auditor General’s Office, the Department’s primary IT system, called the Business Reengineering/Integrated Tax System (BRITS), “was not adequately implemented and is cumbersome to use. Since the first phase of BRITS was implemented in 2004, the system has required and continues to require many improvements and remains difficult to modify.
The audit found that in fact, as of April 2014, nearly 1,300 improvements were needed to BRITS and other department IT systems. These needed improvements have resulted in inefficiencies and inconveniences for both the Department and taxpayers.
In addition, the audit found:
The Department lacks IT capabilities that other states have used to improve effectiveness and efficiency. These capabilities range from enhanced electronic filing (e-filing) of tax returns to data-driven approaches for selecting which returns to audit and the best way to collect taxes owed to the State. For example:
• Limited e-filing and inefficient paper processing — The Department offers e-file for individual income tax, transaction privilege tax (TPT), and withholding tax, but the Department does not offer e-file for corporate income tax or luxury tax. Additionally, the e-file rate for the TPT is far less than the rate of paper-filed returns. The Department explained that this rate is likely low because the TPT e-file process is cumbersome and inconvenient, but that the implementation of statutory TPT reform will streamline the process. Additionally, the Department has not implemented optical and/or intelligent character recognition to electronically capture handwritten or typed information on paper-filed tax returns. Instead, the Department relies on temporary employees to manually process the information from these returns.
• Ineffective processes for selecting audits and collecting delinquent taxes — The Department has not fully leveraged data analytics tools that would help select more effective leads for taxpayer audits and prioritizing and managing collections cases.
Instead, the Department largely relies on manual or inefficient processes that could result in the State receiving less money from audits and collections.
Department’s IT struggles reflect ineffective IT leadership processes—Specifically, the Department has not established effective IT governance and management processes for making and carrying out IT decisions. The Department had established an IT Steering Committee (Committee) comprising department leadership that met to
review the status of IT projects and system maintenance, but had not formally established the Committee’s purpose or committee members’ responsibilities. In addition, although the Department had developed IT-related strategic plans, these plans lacked action steps and performance measures, and did not assign responsibility for achieving
the action steps.
Without these processes, we observed that the Committee had difficulty making decisions and often made decisions in response to IT demands, crises, or challenges; and that committee members were frustrated in their decision making by limited project understanding, poor communication, and uncertainty as to who was ultimately responsible
for decision making.