Arizona Department of Liquor Licenses and Control Performance Audit - Report No 09-08

Az Auditor General

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A REPORT
TO THE
ARIZONA LEGISLATURE
Performance Audit Division
Performance Audit and Sunset Review
Arizona Department of
Liquor Licenses
and Control
August • 2009
REPORT NO. 09-08
Debra K. Davenport
Auditor GeneralThe Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Senator Thayer Verschoor, Chair Representative Judy Burges, Vice-Chair
Pamela Gorman Tom BooneSenator John Huppenthal Representative Cloves Campbell, Jr.
Senator Richard MirandaRich CrandallRebecca RiosKyrsten Sinema
Senator BBoobb BBuurrnnss (ex-officio) Representative KKiirrkk AAddaammss (ex-officio)
Audit Staff
Melanie M. Chesney, Director
Dale Chapman, Manager and Contact Person
Robin Hakes, Team Leader
Shannon Strumpfer
Cheya Wilson
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • [phone]
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
STATE OF ARIZONA
OFFICE OF THE DEBRA K. DAVENPORT, CPA WILLIAM THOMSON
AUDITOR GENERAL DEPUTY AUDITOR GENERAL
AUDITOR GENERAL
August 24, 2009
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Jerry A. Oliver, Sr., Director
Arizona Department of Liquor Licenses and Control
Transmitted herewith is a report of the Auditor General, A Performance Audit and Sunset
Review of the Arizona Department of Liquor Licenses and Control. This report is in
response to an October 5, 2006, resolution of the Joint Legislative Audit Committee. The
performance audit was conducted as part of the sunset review process prescribed in
Arizona Revised Statutes §41-2951 et seq. I am also transmitting with this report a copy of
the Report Highlights for this audit to provide a quick summary for your convenience.
As outlined in its response, the Arizona Department of Liquor Licenses and Control agrees
with all of the findings and plans to implement all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on August 25, 2009.
Sincerely,
Debbie Davenport
Auditor General
Attachment

th2910 NORTH 44 STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • [phone] • FAX [phone]

SUMMARY
The Office of the Auditor General has conducted a performance audit and sunset
review of the Arizona Department of Liquor Licenses and Control (Department)
pursuant to an October 5, 2006, resolution of the Joint Legislative Audit Committee.
This audit was conducted as part of the sunset review process prescribed in Arizona
Revised Statutes (A.R.S.) §41-2951 et seq.
The Department regulates the manufacturing, distribution, and sale of liquor in the
State. The Department reported issuing or renewing more than 15,000 liquor licenses
in fiscal year 2008, primarily for restaurants, bars, beer and wine stores, and liquor
stores, but also to producers, wholesalers, and sponsors of special events and
festivals. Besides issuing licenses, the Department also conducts investigations to
ensure licensees are complying with state liquor laws. These investigations include
responding to complaints and police reports, conducting routine visits to determine
compliance with state laws, and conducting covert investigations to check for such
violations as selling or serving alcohol to underage patrons. Additionally, the
Department imposes penalties, such as fines or license suspensions or revocations,
against licensees who violate state liquor laws.
The audit focused on the Department’s investigations approach, its processes and
practices for taking disciplinary action against licensees who violate state liquor laws,
and its process for issuing new quota liquor licenses for bars, beer and wine bars,
and liquor stores.
Department has improved investigative approach, but
additional steps needed (see pages 13 through 21)
Although the Department has improved its investigative approach, it should take
additional steps to further improve its investigations. Auditors observed officers
during their shifts and identified the following:
 During the shifts observed, officers spent a significant portion of their shift driving
around looking for licensed establishments to visit, traveling back and forth
Office of the Auditor General
page ibetween the opposite ends of their assigned areas during the same shift, and
passing numerous licensed establishments without stopping. Each officer’s
area has hundreds of licensees. Time spent driving decreases the amount of
time available to visit licensees.
 After conducting a covert investigation, officers do not identify themselves
unless they find a violation, nor does the Department notify the licensee that an
investigation was conducted. Research indicates that active, visible law
1enforcement is a way to deter licensees from violating liquor laws. Seventy-five
percent of the investigative activities on the shifts auditors observed were covert
investigations. If licensees remain unaware that investigations have taken place,
the Department does not realize any deterrent effect from its investigations.
In response to auditors’ findings and to staff reductions brought on by fiscal year
2009 budget cuts, the Department is pursuing a new investigations approach.
Among other things, this approach centralizes officers but retains an investigative
presence throughout the State, revises officers’ schedules, and establishes a more
visible presence by requiring officers to conduct additional routine inspections. This
revised approach should enhance the Department’s enforcement presence.
However, several additional steps can further enhance this approach. Specifically, the
Department should develop and implement policies and procedures that incorporate
guidance for prioritizing officer workloads and effectively planning investigation shifts.
Additionally, the Department should notify licensees about the results of all
investigations, including covert investigations, and conduct follow-up investigations
of licensees who have seriously or repeatedly violated state liquor laws.
The Department should also improve the way it collects, analyzes, and uses data to
support its investigative activities. Although the Department collects a variety of
information related to its investigative activities, some of this information is inaccurate
and incomplete. This includes inaccurate and incomplete information recorded on
officer weekly activity logs and entered into the Department’s database. As a result,
the Department cannot track who has been investigated or what types of
investigations are being conducted and does not have the information to determine
investigative priorities and activities. The Department is in the process of
implementing a new information system, which it anticipates will improve
investigation tracking and analysis. However, to ensure the information within this
system is accurate, complete, and useful, the Department should establish and
implement additional policies and procedures for collecting, entering, analyzing, and
using the information.
1 Wagenaar & Tobler, 2006
State of Arizona
page iiDepartment should take stronger action against repeat
and serious violators (see pages 23 through 31)
Research indicates that strong enforcement actions can help deter liquor law
violations and lessen the negative effects of the inappropriate and illegal use of
alcohol. The Department has established policies to help guide its enforcement
actions, and for the most part, it follows these policies. However, when auditors
examined a sample of enforcement cases the Department processed from 2004
through 2008, they found that the Department deviated from penalty guidelines
about one-fourth of the time without providing required explanation. This is an
improvement from the previous performance audit conducted in 1998, which found
that disciplinary actions deviated from penalty guidelines approximately two-thirds of
the time. Nonetheless, the Department still needs to follow its policy of stating the
reasons for such deviations.
Several of the Department’s enforcement policies and practices weaken
enforcement efforts over repeat and serious violators. Specifically:
 Incomplete penalty guidelines lead to inconsistent discipline—The Department
has established penalty guidelines that outline penalties for 75 offenses, but 59
other offenses lack such guidelines. Inconsistent penalties can result for
offenses not included in the guidelines. For example, the Department imposed
a $375 fine for one licensee and a $1,000 fine for another licensee for first-time
violations of a statuto