A REPORT
TO THE

ARIZONA LEGISLATURE

Performance Audit Division
Performance Audit

Arizona Department
of Administration
Department Should Complete Personnel Reform Implementation
and Strengthen Workforce Planning State-wide

September • 2015
Report No. 15-108

Debra K. Davenport
Auditor General

The 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 Judy Burges, Chair

Representative John Allen, Vice Chair

Senator Nancy Barto
Senator Lupe Contreras
Senator David Farnsworth
Senator Lynne Pancrazi
Senator Andy Biggs (ex officio)

Representative Regina Cobb
Representative Debbie McCune Davis
Representative Rebecca Rios
Representative Kelly Townsend
Representative David Gowan (ex officio)

Audit Staff
Dale Chapman, Director
Dot Reinhard, Manager and Contact Person
Catherine Dahlquist, Team Leader
Rosa Ellis
Chelsea Oertle

The Auditor General’s reports are available at:

www.azauditor.gov
Printed copies of our reports may be requested by contacting us at:

Office of the Auditor General

2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333

September 3, 2015

Members of the Arizona Legislature
The Honorable Doug Ducey, Governor
Mr. Kevin Donnellan, Acting Director
Arizona Department of Administration
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona
Department of Administration—Personnel Reform Implementation. This report is in response to
an October 3, 2013, resolution of the Joint Legislative Audit Committee and was conducted as
part of the sunset review process prescribed in Arizona Revised Statutes §41-2951 et seq. I am
also transmitting within 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 Administration agrees with the finding
and plans to implement all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
Sincerely,

Debbie Davenport
Auditor General

Attachment

2910 NORTH 44 th STREET • SUITE 410 • PHOENIX, ARIZONA

85018 • (602) 553-0333 • FAX (602) 553-0051

Arizona Department of
Administration—Personnel
Reform Implementation

REPORT HIGHLIGHTS
PERFORMANCE AUDIT

Our Conclusion
The Arizona Department of
Administration (Department) is
responsible for implementing
personnel reform enacted
by the Legislature in
2012. As of May 2015, the
Department has nearly
finished implementing the
three key provisions of
personnel reform. Specifically,
the Department consolidated
seven personnel systems
into the new State Personnel
System (System) and
transitioned the majority
of state employees to
an at-will workforce. The
Department has also largely
implemented the third key
reform provision, to improve
the State’s workforce
management. However, as
part of this third provision,
it needs to complete
updating the classification
and compensation system
(classification system) that
encompasses the System’s
job classes, pay structure,
and job descriptions.
Also, although not part of
personnel reform, to address
future workforce needs, the
Department should take
additional action to promote
and strengthen workforce
planning in the State.

2015
September • Report No. 15-108

Department should complete personnel reform
implementation and strengthen workforce planning
state-wide
Personnel reform enacted to strengthen Arizona’s state government workforce—
In 2012, the Legislature enacted personnel reform to modernize the outdated state
personnel system. As the State’s central human resources authority, the Department
was responsible for implementing personnel reform.
Key personnel reform provisions largely implemented—As of May 2015, the
Department had implemented two key personnel reform provisions and nearly finished
implementing the third key reform provision. Specifically:

• Consolidated

seven personnel
Separate personnel systems merged
systems—Personnel reform merged
into the new State Personnel System
seven separate executive branch
As of September 2012
entities’ personnel systems to
create the System and to increase
Governor's
Secretary of
Department
Office
consistency in managing the State’s
State
of Gaming
workforce. As of June 2015, the
System included approximately
Arizona
34,000 state employees from
State
Office of
Retirement
Tourism
105 state agencies, boards, and
System
State
commissions.

•

Department-

Personnel

Public Safety

System
managed
Personnel
Transitioned to at-will, uncovered
personnel
Retirement
service—Personnel reform shifted a
system
System
majority of the System’s workforce
to at-will, uncovered service to increase employee accountability and productivity.
At-will, uncovered service is an employment relationship where either party may sever
the relationship at any time for any reason other than an unlawful reason. Department
documents show that prior to personnel reform, 21 percent of the workforce was
uncovered as compared to 67 percent of the workforce that was uncovered as of
June 2014.

• Improved workforce management—The Department has also implemented two of
the three areas intended to improve state workforce management. Specifically, the
Department implemented a new performance management system, called Managing
Accountability and Performance (MAP), to increase employee accountability.
Nearly all covered and uncovered employees are required to undergo an annual
performance evaluation using MAP. Additionally, the Department took various actions
to streamline the State’s recruiting and hiring functions, including establishing a
standard employment application and process for employment verification and
reference checking to be used by all system agencies. The Department also helped
88 system agencies implement onboarding to introduce new hires to their positions
quickly.

Department needs to update classification system to fully implement personnel
reform—To fully implement the third key personnel reform provision, the Department
needs to finish updating the state classification system, which includes the System’s job

classes, pay structure, and job descriptions. Although the Department has begun taking steps to implement
the classification system update, including initiating development of an update plan and revising the System’s
information technology position classifications, it needs to finalize and implement the classification system
update plan. As part of this plan, the Department should identify and incorporate classification system best
practices, specify and prioritize the tasks or activities that need to occur to implement the system update, and
identify needed resources and the persons assigned who will be responsible for the plan’s execution. Finally,
the Department should specify who is responsible for monitoring the plan’s implementation to ensure the
update progresses as expected.
Workforce planning critical because many state
employees will soon be eligible to retire—Department
projections show that several state agencies, including
the Department, will have one-third or more of their staff
eligible for retirement by fiscal year 2019 (see table).
Workforce planning can be used to systematically identify
and address an organization’s gaps between current and
future workforce needs to meet the organization’s goals
and strategic direction.

Department projections of state employees
at selected state agencies eligible for
retirement by fiscal year 2019
As of September 2014
Percentage of
employees

State agency
Registrar of Contractors

45%

Department of Gaming

42

Industrial Commission

41

Department needs to develop a workforce plan and Department of Environmental Quality
41
State
Parks
41
continue to encourage state agencies to conduct
40
workforce planning—Although the Department has Lottery Commission
39
developed guidance to assist state agencies’ workforce Department of Revenue
38
planning, the Department has not developed a Department of Agriculture
38
comprehensive internal workforce plan, and state agencies Department of Insurance
State
Land
38
are not required to engage in workforce planning. Therefore,
37
the Department should develop a comprehensive Nursing
35
internal workforce plan and encourage state agencies to Corporation Commission
Small
agencies
35
engage in workforce planning by continuing to provide
Arizona
Game
and
Fish
33
workforce-planning guidance and by providing training.
33
Further, the Department should work with the Legislature Arizona Health Care Cost Containment
System
to statutorily require state agencies to conduct workforce Department of Administration
33
planning. If statute is amended, the Department should
develop and implement policies and procedures that
establish the requirements and guidance for workforce plan development, and periodically monitor state
agencies’ workforce planning efforts.
Recommendations
1. The Department should finalize and implement the classification system update plan. This plan should
include:
Identifying and incorporating classification system best practices;
Specifying and prioritizing the tasks or activities that need to occur; and
Identifying needed resources and persons who will be responsible for the plan’s execution and
monitoring.

•
•
•

2. The Department should strengthen workforce planning state-wide by:
Developing a comprehensive internal workforce plan;
Continuing to provide workforce planning guidance;
Working with the Legislature to statutorily require state agencies to conduct workforce planning; and
If statute is amended, developing and implementing workforce planning policies and procedures to
guide state agency workforce planning efforts and periodically monitoring these efforts.

•
•
•
•

Arizona Department of
Administration

A copy of the full report is available at:
www.azauditor.gov
Contact person:
Dot Reinhard (602) 553-0333

REPORT HIGHLIGHTS

PERFORMANCE AUDIT

September 2015 • Report No. 15-108

TABLE OF CONTENTS
Introduction

1

Finding 1: Department should complete personnel reform

implementation and strengthen workforce planning state-wide

5

Personnel reform enacted to strengthen Arizona’s state government workforce

5

Key personnel reform provisions largely implemented

5

Department needs to update the classification and compensation system to fully
implement personnel reform

10

Department uses various mechanisms to monitor personnel reform implementation

12

Department should take additional action to strengthen workforce planning

13

Recommendations

17

Appendix A: Methodology

a-1

Agency Response
Tables
1

2

Schedule of revenues, expenditures, and changes in fund balance
Fiscal years 2013 through 2015
(In thousands)
(Unaudited)

3

Department projections of state employees at selected state agencies eligible for
retirement by fiscal year 2019
As of September 2014

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page i

14

Arizona Office of the Auditor General

TABLE OF CONTENTS
Figures
1

Separate personnel systems merged into the new State Personnel System
As of September 2012

6

2

Change in number of covered versus uncovered employees in the System
Fiscal years 2010 through 2014

7

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page ii

Arizona Office of the Auditor General

INTRODUCTION
Scope and Objectives

The Office of the Auditor
General has conducted a
performance audit of the
Arizona Department of
Administration (Department)—
Personnel Reform
Implementation, pursuant to
an October 3, 2013, resolution
of the Joint Legislative Audit
Committee. This performance
audit is the third in a series
of audits conducted as part
of the sunset review process
prescribed in Arizona Revised
Statutes (A.R.S.) §41-2951
et seq, and focuses on the
Department’s implementation
of personnel reform enacted
in 2012.
The first report focused on the
Department’s administration of
the Arizona State Purchasing
Cooperative Program (see
Report No. 14-108). The
second report evaluated the
Department’s management,
support, and oversight of
the state-wide procurement
system (see Report No.
15-102). The fourth and final
report will include responses
to the statutory sunset factors
specified in A.R.S. §41-2954
(see Report No. 15-109).

Department responsible for administering
State Personnel System
The Department has a statutory responsibility to administer the State Personnel
System (System). According to department data, as of June 2015, the System
included approximately 34,000 state employees from 105 state agencies,
boards, and commissions.1 These employees work in broad and diverse
career fields including, but not limited to, information technology, healthcare,
corrections, social services, legal services, administration, engineering, and
finance. State employees provide many critical services to Arizona citizens
including promoting the safety, well-being, and self-sufficiency of children,
adults, and families; maintaining the State’s highway infrastructure; and
enforcing quality standards for the State’s air, land, and water resources.
The Department’s primary personnel administration responsibilities are handled
by its Human Resources Division (Division). The human resources director
manages the Division and its staff. According to department records, as of
June 30, 2015, the Division had 83 filled full-time equivalent (FTE) positions
and 1 vacancy, for a total of 84 FTE allocated to performing personnel
administration responsibilities.2 The Division’s primary responsibilities include:

•

Administering and overseeing the State Personnel System—Division
staff support state agencies in the areas of staffing, performance
management, and workforce planning. Division staff also maintain
the State’s job classification and compensation system (classification
system), which is a categorization of state job positions based on duties
and responsibilities with an established pay range for each classification.
The classification system is used to help attract and retain qualified
candidates by providing salaries that reflect external competitiveness and
individual performance. In addition, division staff develop compensation
strategies, such as sign-on bonuses, that are awarded to certain
employees who are hired into critical or hard-to-fill positions. For example,
a 2014 department advisory recommendation identified accounting and
audit position classifications as critical or hard-to-fill positions because
of their high profile, critical importance, distance in the State’s salaries
from external market salaries, and turnover.3 Division staff also draft and
revise personnel rules, guidance, and policies and procedures applicable

1 Entities that are not part of the State Personnel System include the legislative and judicial branches of state

government, the Arizona Board of Regents, state universities, the Arizona State Schools for the Deaf and the
Blind, the Arizona Department of Public Safety, the Arizona Peace Officer Standards and Training Board, the
Cotton Research and Protection Council, and public corporations, such as the Arizona Commerce Authority.

2 As of June 30, 2015, the Division also had another 28 filled and 8 vacant FTE positions assigned to its benefits

services function. The Division’s benefits unit manages and administers both statutorily required and elective
health benefits and insurance programs to state and university employees, retirees, and their dependents, in
accordance with A.R.S. §§38-651 through 38-671.

3 Pursuant to A.R.S. §41-751, the advisory recommendation provides information concerning the compensation

of state employees and an objective assessment of the job market to the Governor’s Office and Legislature.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 1

Arizona Office of the Auditor General

to state agencies, such as those requiring background and reference checks prior to any
offer of employment to an individual. Finally, the Division operates satellite human resources
offices at large state agencies through the assignment and management of chief human
resources officers at those agencies.1

•

•

Maintaining a personnel administration
infrastructure—The Division maintains
the State’s centralized human resources
information technology infrastructure.
This infrastructure includes the State’s
automated personnel system, named the
Human Resources Information Solution
(see textbox). The Division also maintains
the State’s automated recruiting and hiring
application, Talent Acquisition, through
which state agencies create and post open
positions.

Human Resources Information Solution (HRIS)
HRIS is used for several purposes, including:
Calculating state payroll—All state agencies,
other than the universities, rely on HRIS to calculate
employee payroll, which totaled approximately $2.5
billion in fiscal year 2015.
Tracking employee-specific information—State
agencies use HRIS to track an employee’s position,
salary, leave usage, and performance evaluation
rating; while state employees can track their
paychecks, leave balances, and W-2 information.

Analyzing human resources issues—The Division
Providing various employee services—
uses the information captured in HRIS to analyze the
The Division provides a number of services
State’s workforce, compensation levels, and budget
to state employees. For example, the
projections.
Division provides training for all state
Source: Auditor General staff summary of department documents.
employees through the Arizona Learning
Center and supports a career center that
offers services such as resume writing and interviewing techniques to current and former
state employees who have been affected by layoffs. The Division also oversees a travel
reduction program that provides rideshare and telework opportunities for state employees
in Maricopa County. Additionally, the Division manages the Governor’s Office of Equal
Opportunity, which processes state employee equal employment opportunity complaints
alleging discrimination or harassment.

In addition, as the State’s central human resources authority, the Division had a role in facilitating
the implementation of personnel reform legislation enacted in 2012, aimed at modernizing the
State’s outdated personnel system (see pages 5 through 13 for additional discussion of the
Department’s implementation of personnel reform).

Budget
As shown in Table 1 on page 3, the Division’s operating budget primarily consists of monies
paid by state agencies for division services. Between fiscal years 2013 and 2015, the Division’s
total revenues decreased from approximately $15.9 million to approximately $13.3 million.
The Division’s total expenditures also decreased, from nearly $14.1 million to approximately
$13.2 million. The decrease in total expenditures was primarily a result of a decrease in other
1 As of September 2014, the state agencies assigned chief human resources officers were the Arizona Health Care Cost Containment

System; and the Arizona Departments of Administration, Agriculture, Child Safety, Corrections, Economic Security, Emergency and
Military Affairs, Environmental Quality, Health Services, Juvenile Corrections, Revenue, Transportation, and Veterans’ Services.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 2

Arizona Office of the Auditor General

Table 1:

Schedule of revenues, expenditures, and changes in fund balance
Fiscal years 2013 through 2015
(In thousands)
(Unaudited)

Revenues
Charges for services
Other
Total revenues
Expenditures and transfers
Personal services and related benefits
Professional and outside services1
Travel
Other operating2
Equipment
Indirect costs3
Total expenditures
4

Transfers
Total expenditures and transfers
Excess (deficit) of revenues over expenditures and transfers
Fund balance, beginning of year
Fund balance, end of year

2013

2014

2015

$ 15,856.8
5.0
15,861.8

$ 13,407.3
62.2
13,469.5

$ 13,298.7
18.6
13,317.3

6,722.1
767.2
18.1
6,224.6
122.0
204.5

7,089.6
1,054.3
4.5
4,142.0
54.1
209.2

7,656.7
1,576.3
9.5
3,659.5
32.9
305.7

14,058.5
580.3
14,638.8

12,553.7
1,413.5
13,967.2

13,240.6
907.6
14,148.2

(497.7)
2,526.5
$ 2,028.8

(830.9)
2,028.8
$ 1,197.9

1,223.0
1,303.5
$ 2,526.5

1 According to the Department, the amount increased between fiscal years 2013 and 2015 because a training program was initiated

in accordance with A.R.S. §41-743(B)(5).

2 Amount decreased substantially in fiscal year 2014 primarily because the State restructured its debt on the building in which the

Division is located thereby lowering the Division’s building rental charge.

3 Amount consists of administrative and support services costs that the Department allocates to its various divisions.
4 Amount includes transfers to other department divisions but primarily comprises transfers to the Personnel Division Fund in

accordance with A.R.S. §41-750.

Source:

Auditor General staff analysis of the Arizona Financial Information System (AFIS) Accounting Event Transaction File and the AFIS
Management Information System Status of General Ledger-Trial Balance screen for fiscal years 2013 through 2015.

operating expenditures, which are used to cover costs such as building rent, software support and
maintenance, and risk management insurance. According to the Department, the State restructured
its debt on the building in which the Division is located, substantially lowering the Division’s fiscal year
2014 building rental charge. In contrast to the decrease in total expenditures, the Division’s spending
on personal services and related benefits, its largest expenditure category, increased between fiscal
years 2013 and 2015, from more than $6.7 million to nearly $7.7 million. The Division’s fund balance
was $1.2 million as of fiscal year 2015.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 3

Arizona Office of the Auditor General

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 4

Arizona Office of the Auditor General

FINDING 1
Although the three key
personnel reform provisions
are largely implemented,
the Arizona Department of
Administration (Department)
should take additional steps to
finish implementing personnel
reform and it also should
strengthen workforce planning
state-wide. In 2012, the
Legislature enacted personnel
reform to modernize the State
Personnel System (System).
The Department implemented
two key provisions to
consolidate several executive
branch personnel systems
into the new System and
to transition the majority of
state employees to at-will
service. The Department also
has largely implemented
the third key provision of
personnel reform to improve
the State’s workforce
management. However, as
part of this provision, it still
needs to complete updating
the classification and
compensation system that
encompasses the System’s
job classes, pay structure,
and job descriptions. In
line with best practice, the
Department is monitoring
the implementation of
personnel reform using
various mechanisms, including
gathering stakeholder
feedback. Finally, although
not part of personnel reform,
to address future workforce
needs, the Department should
develop a comprehensive
internal workforce plan and
take additional action to
promote and strengthen
workforce planning in the
State.

Department should complete personnel
reform implementation and strengthen
workforce planning state-wide
Personnel reform enacted to strengthen Arizona’s
state government workforce
In 2012, the Legislature enacted state personnel reform to support former
Governor Janice K. Brewer’s objective to modernize the outdated state
personnel system. According to Governor Brewer’s Office’s documents, the
prior state personnel system consisted of rules and regulations, adopted
many years prior, which served a valuable purpose at the time it was adopted,
but subsequently made it difficult to effectively manage the state workforce.
Further, the documents indicate that the prior system’s emphasis on job
security rewarded longevity over performance and potentially resulted in
the retention of low-performing employees and the State’s best employees
leaving the state workforce. Through personnel reform, a new state personnel
system was created to support the State’s ability to attract, hire, and retain
high-performing employees.

Key personnel reform provisions largely implemented
As the State’s central human
resources
authority,
the
Department was responsible
for implementing personnel
reform. As of May 2015, the
Department had nearly finished
implementing the three key
provisions of personnel reform
(see textbox). Specifically, the
Department has implemented
the provisions to consolidate
state personnel systems and
transition to an at-will workforce.
In addition, the Department
has largely implemented the
provision focused on improving
the management of the State’s
workforce.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 5

Three key provisions of personnel
reform
Consolidate personnel systems
(see page 6)
Transition to an at-will workforce
(see pages 6 through 8)
Improve workforce management
(see pages 8 through 11)

•
•
•

Implement new performance
management system
Streamline recruiting and hiring
Update state classification and
compensation system

Source:

Auditor General staff
department documents.

summary

of

Arizona Office of the Auditor General

Consolidation of personnel systems and transition to at-will workforce
implemented—The Department has implemented two key provisions of personnel reform
to strengthen the State’s workforce. Specifically:

•

Consolidated personnel systems—In September 2012, personnel reform legislation
merged seven previously separate executive branch entities’ personnel systems,
including the department-managed system, to create the State Personnel System (see
Figure 1). According to documents published by former Governor Brewer’s Office,
consolidation of these separate personnel systems would increase consistency in
managing the State’s workforce. For example, as opposed to agencies operating seven
different personnel systems with
potentially different requirements, Figure 1: Separate personnel systems merged
into the new State Personnel System
state agencies must adhere to the
As of September 2012
Department’s personnel statutes,
rules, and state-wide policies
Governor's
under the new System. Additionally,
Secretary of
Department
Office
consolidation resulted in efficienState
of Gaming
cies by eliminating redundant
processes. For example, the
Arizona
State
Office of
Department implemented a
Retirement
Tourism
state-wide employee performance
System
State
management process, which all
Personnel
DepartmentPublic Safety
state agencies within the System
System
managed
Personnel
personnel
Retirement
are required to use. Therefore,
system
System
state agencies no longer have
to maintain their own employee Source: Auditor General staff review of department documents.
performance management system.

•

Transitioned system employees to at-will,
At-will, uncovered service is an
uncovered service—As of September
employment relationship where either
party to the relationship may sever the
2012, personnel reform shifted a majority of
relationship at any time for any reason
the System’s workforce to at-will, uncovered
other than an unlawful reason, such as
1
service (see textbox). According to
harassment or discrimination. At-will
legislative, gubernatorial, and department
employees are also referred to as
documents, transitioning the state workforce
“uncovered” employees.
to uncovered service was intended to
Source: Arizona Revised Statutes (A.R.S.) §41-741.
increase employee accountability and
productivity. According to gubernatorial documents, disciplining and terminating poorly
performing employees could be difficult and time-consuming under the past personnel
system. Pursuant to A.R.S. §41-742, after September 29, 2012, all new hires to state
positions, state employees in attorney and information technology positions, supervisors,
and employees at a pay grade of 19 or above became uncovered employees. In addition,
employees who were not otherwise required to remain covered were able to voluntarily
elect to become uncovered. Uncovered employees and employees who volunteered

1 Certain state employees, including correctional and law enforcement officers, retained “covered” employment status, meaning they

have the right to appeal dismissals, suspensions of more than 80 working hours, or involuntary demotion to the State Personnel Board
or the Law Enforcement Merit System Council, respectively. Uncovered employees do not have appeal rights to the State Personnel
Board.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 6

Arizona Office of the Auditor General

to become uncovered prior to the legislation’s effective date were also eligible for one-time
retention payments of 5 percent of their base salary starting in October 2012 through June
2013.1 Department documents showed that prior to personnel reform, 21 percent of the
workforce was uncovered. However, as of June 30, 2014, the most recent figures available,
the Department reported that the System included approximately 34,000 active employees,
67 percent of which were uncovered (see Figure 2).
Figure 2: Change in number of covered versus uncovered
employees in the System1
Fiscal years 2010 through 2014
35,000
30,000
25,000
20,000

Covered
Uncovered

15,000
10,000
5,000
0
2010

2011

2012

2013

2014

1 This figure includes all system employees, including law enforcement officers, correctional

officers, and community corrections officers, which are required to be covered positions.
Employees in positions identified as temporary or working less than .25 full-time equivalent
(FTE) have been excluded from this figure.

Source:

Auditor General staff summary of information included in Arizona Department of
Administration. (2014). State of Arizona workforce report: 2014. Phoenix, AZ.

Although these two key provisions were implemented with legislation, the Department took
several actions to facilitate the implementation. Consistent with best practice, the Department
developed implementation and milestone plans that included the components of reform—major
milestones and key dates, tasks, and responsible entities. Throughout implementation,
the Department provided frequent e-mail communications to agency officials on what to
expect from consolidation and moving to at-will service. In addition, the Department held
trainings on managing change at state agencies for employees and supervisors interested
in receiving support during the transition. The Department also launched a publicly available
personnel reform Web site to inform stakeholders about personnel reform legislation, key
dates, implementation and transition activities, and rule-making information. Further, the
1 Laws 2013, Ch. 1, §131, annualized and made permanent the retention payment for uncovered employees.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 7

Arizona Office of the Auditor General

Department provided public notice and two opportunities for comment on proposed rules.
The Department received comments on the draft rules from agency management, agency
human resources representatives, and both supervisory and nonsupervisory employees.
Finally, the Department hired a private firm to develop and deliver in-person training for all
system agency managers and supervisors on the new State Personnel System. Training
topics included the purpose of personnel reform, importance of performance reviews, and
the meaning of at-will employment.

Changes to improve management of state workforce largely implemented—
As of May 2015, the Department has also implemented two of the three areas intended
to improve the management of the State’s workforce, which is the third key provision of
personnel reform. Specifically:

•

Implemented a new performance management process—The Department
implemented a new automated performance management system, called Managing
Accountability and Performance (MAP), to meet personnel reform’s requirement to
increase employee accountability through a new performance management process.
Through MAP, state employees are evaluated using a standardized set of behavior-oriented
competencies in state-wide and agency/division-specific categories. Each competency is
accompanied by standards that exemplify behavior that meets or exceeds expectations,
as well as descriptions that represent behavior needing improvement. Nearly all covered
and uncovered employees are statutorily required to undergo an annual performance
evaluation using MAP.1 Department data indicated that as of August 11, 2015, 79 percent
of system employees who were required to receive an evaluation in fiscal year 2015 had
a completed evaluation.2 Under the previous personnel system, uncovered employees
were not required to have an annual performance evaluation. Consistent with best
practice, personnel reform documents report that the performance management process
is the foundation for recognizing top performers and providing performance-based raises
and awards.3
In addition to planning for the changes to move to the new performance management
system and regularly communicating to system personnel how this change will affect
them; e.g., annual evaluation requirement, the Department took several other actions to
implement the new performance management process. For example, the Department
involved various stakeholders in defining the performance evaluation competencies.
The Department also developed a MAP administrative manual with guidance for state
employees and supervisors on the performance evaluation process, which facilitates
employee-supervisor dialogue about performance requirements, expectations, and
results. Additionally, the Department trained state agency supervisors on how to conduct
effective performance evaluations, including information about performance management
principles, performance planning, setting expectations with employees, monitoring

1 Employees in political appointment positions, listed in A.R.S. §41-742(F), are excluded from annual performance evaluations

guidelines. Although performance appraisals are not required for employees in political appointment positions, appraisals may be
required for political appointments at the discretion of the agency head or appointing authority in the case of a board or commission.

2 Department officials reported that an additional 2,457, or 8 percent, of system employees who should have had completed evaluations

in fiscal year 2015 had evaluations in some form of completion status as of August 11, 2015.

3 United States Government Accountability Office. (n.d.). Best practices and leading practices in human capital management. Retrieved

from http://www.gao.gov/key_issues/leading_practices_in_human_capital_management/issue_summary. Pulakos, E.D. (2004).
Performance management: A roadmap for developing, implementing, and evaluating performance management systems. Alexandria,
VA: The SHRM Foundation.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 8

Arizona Office of the Auditor General

performance and providing feedback, and conducting formal performance reviews. Further,
the Department established a performance management workgroup comprising department
staff and state agency representatives to continuously gather feedback and follow up with
state agencies on how the performance evaluation system is working. Finally, as an additional
accountability mechanism, the Department revised supervisors’ performance evaluations
to include an assessment of whether they completed their subordinates’ performance
evaluations.

•

Streamlined the State’s recruiting and hiring—Consistent with best practice and to meet
personnel reform’s requirement to simplify and streamline the State’s recruiting and hiring
functions, the Department established a standard employment application and a process
for employment verification and reference checking to be used by all system agencies.1
Additionally, a department official reported that the Department has helped implement
onboarding at 88 agencies as of July 2015. According to best practice, onboarding is the
process of introducing new hires to the social and performance aspects of their positions
quickly.2 To bolster recruitment, the Department also developed rules, policies, and
procedures for allowing agencies, subject to department approval, to reimburse travel and
moving expenses associated with interviewing and relocating out-of-state candidates. For
example, the policy states that if a very small number of candidates were available and willing
to interview, the agency can reimburse their transportation or other travel expenses.
The Department has also taken other actions to streamline the Department’s recruitment
and hiring. Although not part of personnel reform legislation, the implementation of the
Department’s automated recruiting and hiring software application, Talent Acquisition (TA),
further supports efforts to simplify and streamline the process by providing the standard
employment application online and allowing applicants to complete and submit it to the State
online. Additionally, TA facilitates state agency hiring personnel’s ability to easily and quickly
track an applicant’s interviews and references and capture information on his/her education,
certifications, and skills. This capability was not available in the prior recruiting and hiring
system. The Department also formed a TA workgroup, comprising department staff and state
agency representatives, to periodically gather feedback and follow up with state agencies
on how the TA system is working. In addition, the Department developed and provided
implementation guidance documents to state agencies, including a job offer letter template
and job posting language to be used during the personnel reform transition.

In addition to these efforts, the Department established various regulations, policies, and
procedures to improve the management of the state workforce. For example, the Department
established rule and policy to enhance the oversight of employees placed on paid administrative
leave. Under the rule and policy, state agencies must report to the Department if an employee is
placed on administrative leave during an investigation of alleged wrongdoing if the administrative
leave totals 80 hours or more. State agencies must report to the Department on a weekly basis
thereafter until the administrative leave is terminated. These reports should provide information on
the reason for, and status of an employee’s administrative leave, including the administrative leave
start and anticipated end dates. Further, department approval is needed if administrative leave
exceeds 30 days. Prior to this change, the Department did not monitor how long an employee
1 Victorian Public Sector Commission. (2015). Best practice recruitment and selection toolkit. State of Victoria, Australia.
2 Bauer, T.N. (2010). Onboarding new employees: Maximizing success. Alexandria, VA: The SHRM Foundation.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 9

Arizona Office of the Auditor General

would remain on administrative leave. The Department also developed rule and policy
to help ensure that certain disciplinary actions are appropriate by requiring that agencies
obtain department review of suspensions over 80 hours, demotions, and dismissals prior to
implementing the adverse action.

Department needs to update the classification and
compensation system to fully implement personnel reform
The Department needs to complete its work on the state classification and compensation
system (classification system) to fully implement the third key personnel reform provision—
improving workforce management. The classification system includes the System’s job classes,
pay structure, and job descriptions. According to the Department, at the end of fiscal year 2015,
there were approximately 4,100 classifications within the State Personnel System. However, only
about 2,300 classifications were being used by state agencies; i.e., had at least one employee
assigned to the classification. According to department documents, the state-wide classification
system had not undergone a comprehensive update in the 40 years it had been in place. In
addition, department staff reported that some state agencies were inappropriately using the
classification system to address compensation issues. For example, according to department
staff, outdated salary ranges in the classification system have resulted in some state agencies
hiring candidates to fill a higher classified position than they are qualified for in order to offer
competitive compensation. According to a department official, despite the intent to do so, the
Department has been unable to allocate the resources needed to fully update the classification
system while implementing the other areas of personnel reform.
The Department has begun taking steps to plan and implement the classification system update.
According to a department planning document, as of March 2015, the Department had initiated
development of a classification system update plan, which included identifying the objectives of
the update effort, analyzing state agencies use of position classifications, reviewing some states’
approaches to structuring their classification systems, and considering options for implementing
the update. However, a department official reported in June 2015 that the plan had yet to be
finalized and that there were still several outstanding items that needed to be addressed as part
of the plan.
In addition to developing an implementation plan, the Department has updated the information
technology (IT) position classifications in the system. This classification area was selected
because of the importance of IT to the operation of state programs and services. To revise the
IT position classifications and salary ranges, department staff reported that they collaborated
with the State’s IT community, state agency workgroups, and the state agency Chief Information
Officer Council and conducted compensation research. According to a department document
and staff, the revisions expanded the IT classifications from 5 broad, general classifications to
75 new, specific IT classifications with updated, market-based salary ranges. A department
recruiter reported that having the updated IT classifications has made it easier to attract qualified
IT candidates due to the specific position descriptions that make the positions more searchable
via internet search engines.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 10

Arizona Office of the Auditor General

Given the importance of an effective classification system, the Department should complete its
classification system update. An effective classification system is an important component of
workforce management. Best practices and publications indicate that an effective classification
system can help with recruiting and retaining skilled employees and encourage uniformity and equity
in the classification of positions by providing a common reference across agencies.1 Therefore, the
Department should finalize and implement a classification system update plan. As part of this plan,
the Department should identify and incorporate classification system best practices. For example,
the U.S. Government Accountability Office (U.S. GAO) identified eight key attributes of a modern,
effective classification system (see textbox). In addition, the plan should specify the tasks or activities
that need to occur to implement the system update, prioritize work on the tasks or activities, and
establish time frames for the completion of these tasks or activities. The plan should also identify
needed resources and the persons assigned who are responsible for the plan’s execution. Finally,
the Department should specify who is responsible for monitoring the plan’s implementation to
ensure the update progresses as expected.
Attributes of a modern, effective classification system
Internal equity—Employees with comparable qualifications and responsibilities for their respective
positions are assigned the same grade level.
External equity—Employees with comparable qualifications and responsibilities are assigned grade
levels and pay ranges comparable to the external sector.
Transparency—A comprehensible and predictable system that stakeholders can understand.
Flexibility—The ability to modify the system to meet agency needs and mission requirements within a
uniform framework.
Adaptability—The ability to conduct a periodic, fundamental review of the entire classification system
that enables it to evolve as the workplace and workforce change.
Simplicity—Enables interagency mobility and comparisons, with a rational number of occupations
and clear career ladders with meaningful differences in skills and performance, and can be costeffectively managed and maintained.
Rank-in-position—Classifies positions based on mission needs and hires individuals with those
qualifications.
Rank-in-person—Classifies employees based on their skills and abilities.
Source:

Auditor General staff summary of United States Government Accountability Office. (2014). Federal workforce. Human capital
management challenges and the path to reform. Washington, DC.

1 United States Office of Personnel Management. (n.d.). Frequently asked questions: Classifications. Washington, DC. Treasury Board of

Canada Secretariat. (2008). Classification modernization for the EC group. Ottowa, Canada. United States Government Accountability Office.
(2014). Federal workforce. Human capital management challenges and the path to reform. Washington, DC.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 11

Arizona Office of the Auditor General

Department uses various mechanisms to monitor personnel
reform implementation
The Department uses various mechanisms to monitor the implementation of personnel reform.
Best practice indicates that monitoring, review, and evaluation processes are an important
component of policy implementation because they allow leadership to assess implementation
progress, identify and address problems, and determine the ongoing relevance and priority
of the policy initiative.1 Specifically, by measuring, evaluating, and considering feedback from
stakeholders about the new policy or program, organizations can review and make adjustments
as needed to ensure their objectives are met. The Department has monitored the implementation
of personnel reform using various mechanisms. Specifically:

•

Stakeholder feedback—The Department solicits and evaluates stakeholder feedback
on personnel reform processes through workgroups, individual state agency meetings,
and surveys. As previously mentioned, the Department formed workgroups to evaluate
the new recruiting and hiring and performance management systems (see page 9).
Workgroup feedback led to modifications to simplify and streamline the MAP process.
Department management also periodically meets with individual state agencies to discuss
their human resources operations and administration, and to offer support and guidance.
The Department also administers surveys aimed at gathering feedback on its services
and processes, including human resources, from state agencies and the Department’s
customers. For example, in January 2015, the Department surveyed several state agencies
regarding where the Department could improve its agency support processes and legal or
regulatory requirements. Based on the responses received, the Department took several
actions, including removing the requirement that the Department review appointments of
uncovered employees to positions of grades 25 and above and instead delegating it to
agencies, thus streamlining the process.

•

Management reports—The Department developed various management reports to
monitor performance management and recruiting and hiring. One report tracks compliance
with the annual employee performance evaluation requirement. According to the report,
only 66 percent of state employees received a performance evaluation from their supervisor
in fiscal year 2014.2 To help ensure supervisory staff comply with the annual performance
evaluation requirement, their performance evaluation plans include an assessment of their
efforts to monitor and evaluate their subordinate staff and provide feedback. The Department
also granted state agencies the ability to run the tracking reports themselves to facilitate
self-monitoring of compliance with the annual performance evaluation requirement. Several
management reports are also available to monitor various aspects of the recruiting and
hiring process; for example, the length of time to complete the hiring process. A department
recruiter reported that she uses these reports to help her identify the most effective sources
for connecting qualified information technology candidates with the State; for example, the

1 Australian National Audit Office. (2014). Successful implementation of policy initiatives: Better practice guide. Commonwealth of

Australia. Bhuyan, A., Jorgensen, A., & Sharma, S. (2010). Taking the pulse of policy: The policy implementation assessment tool.
Washington, DC: United States Agency for International Development.

2 According to a department official, at least 26 agencies had not completed entering their performance evaluation results into MAP by

the date the report was run.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 12

Arizona Office of the Auditor General

State Job Web page or LinkedIn. The recruiter indicated that she runs a report monthly to track
sourcing trends and provides the information to department management.

•

Audits and reviews—The Department also conducts audits and reviews to assess state
agencies’ compliance with personnel reform changes. For example, department staff assessed
whether state agencies complied with the requirement to obtain department review of
disciplinary actions prior to the agencies taking these actions. The Department also reviewed
agencies’ compliance with the requirement to monitor, and report to the Department, staff
who have been on administrative leave, i.e., paid leave, for more than 80 consecutive hours.
These reviews allowed the Department to gauge whether state agencies were implementing
personnel reform changes appropriately or whether additional action was needed to bring the
agencies into compliance. For example, the review of compliance with the requirement that the
Department review dismissals, demotions, and suspensions of more than 80 working hours
found no instances of noncompliance, but made recommendations regarding documentation
and data to increase review efficiencies and provide sufficient monitoring and tracking to ensure
these adverse actions are receiving appropriate review and scrutiny.

•

Performance indicators/measures—The Department tracks several performance indicators/
measures to monitor personnel reform implementation. In November 2012, the Department
established a mechanism to track key personnel reform indicators such as the number of
disciplinary actions submitted for department review, including dismissals, demotions, and
suspensions of more than 80 working hours. Department management uses this mechanism
to monitor whether implemented personnel reform provisions are operating as expected.
In addition, the Department tracks and publicly reports performance measures focused on
personnel reform’s objective to attract, hire, and retain a quality workforce, such as the number
of state employees in uncovered service. The move to uncovered service was expected to result
in a more accountable and productive workforce because low-performing employees could be
more easily dismissed from state service. Another measure looks at the difference in average
salaries between state employees and the labor market. The Department reported that the
difference in average salaries between state employees and the labor market was 18 percent in
fiscal year 2014. Reducing the gap between the two improves the State’s ability to recruit and
retain employees. Finally, the Department measures the percentage of poor-quality hires; i.e.,
employees who leave state service within the first 6 months. The Department reported that the
percentage of poor-quality hires decreased from 15.8 percent in fiscal year 2013 to 13.6 percent
in fiscal year 2014. A declining or low rate may indicate that the State’s hiring process is effective
in attracting and hiring candidates well-suited for the position.

Department should take additional action to strengthen workforce
planning
In addition to completing the implementation of personnel reform, the Department should take steps
to develop a workforce plan and strengthen state agencies’ workforce planning efforts. Workforce
planning supports an organization’s efforts to make decisions about how best to structure the
organization and deploy the workforce (see textbox on page 14). Strengthening state agencies’
workforce planning efforts is critical because the Department projects that several state agencies
Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 13

Arizona Office of the Auditor General

will have one-third or more of their
Workforce planning is a systematic process for
staff eligible for retirement by fiscal
identifying and addressing the gaps between current
year 2019. Although the Department
and future workforce needs to meet the organization’s
provides state agencies with workforce
goals and strategic direction.
planning resources, it has not
Succession planning is an integral part of workforce
developed a comprehensive internal
planning, and helps to ensure an ongoing supply
workforce plan and state agencies are
of qualified staff to fill leadership and other key
not required to undertake workforce
positions.
planning. Therefore, the Department
Source: United States Government Accountability Office. (2013).
Securities and Exchange Commission: Improving personnel
should take steps to strengthen
management is critical for agency’s effectiveness.
workforce planning state-wide by
Washington, DC.
developing a comprehensive internal
workforce plan, providing guidance and training to state agencies on how to conduct effective
workforce planning, and working with the State Legislature to statutorily require state agencies
to conduct workforce planning.

Department projects many state employees will soon reach retirement
eligibility— Department
data projects that many state Table 2: Department projections of state employees
at selected state agencies eligible for
employees will be eligible for
retirement by fiscal year 20191
retirement in the next 5 years. As
As of September 2014
shown in Table 2, several state
Percentage of
agencies will have one-third
employees
State agency
or more of their staff eligible
45%
for retirement by fiscal year Registrar of Contractors
42
2019, according to department Department of Gaming
41
projections. For example, 39 Industrial Commission
41
percent of Arizona Department Department of Environmental Quality
of Revenue (ADOR) employees State Parks
41
and 33 percent of Arizona Lottery Commission
40
Health Care Cost Containment Department of Revenue
39
System (AHCCCS) employees
Department of Agriculture
38
are projected to be eligible for
Department of Insurance
38
retirement by fiscal year 2019.
38
Similar to other state agencies, State Land
37
both of these state agencies Nursing
35
and their workforces provide Corporation Commission
2
35
critical state services. ADOR Small agencies
administers and collects state Arizona Game and Fish
33
taxes and other revenue, which AHCCCS
33
totaled more than $13 billion in Department of Administration
33
fiscal year 2014; and AHCCCS 1
The Department’s projections include all regular, active State Personnel
administers
the
State’s
System employees. Eligibility for retirement is based on years of service and
age criteria established by the State’s retirement systems.
Medicaid program, providing
medical
programs
and 2 Small agencies are those with less than 50 active employees.
services to a client population Source: Auditor General staff summary of information included in Arizona
Department of Administration. (2014). State of Arizona workforce report:
of approximately 1.7 million
2014. Phoenix, AZ.
Arizona residents as of July 1,

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 14

Arizona Office of the Auditor General

2015.1,2 Overall, the Department projected that approximately 27 percent of system employees will
be eligible for retirement by fiscal year 2019.3

Department provides workforce planning resources, but does not have a
workforce plan and state agencies are not required to undertake workforce
planning—Although the Department has developed guidance and tools to assist state
agencies with workforce planning, the Department itself has not developed a comprehensive
internal workforce plan and state agencies are not required to engage in workforce planning.
Specifically, the Department provides various resources to support state agencies’ workforce and
succession planning efforts. For example, the Department updated its workforce and succession
planning guidance in 2013, which provides planning tools addressing staff recruitment, retention,
development, and knowledge transfer, and an example of a succession planning assessment
for identifying key positions. The Department is also piloting a new software tool that will provide
state agencies with information about their employees’ potential to fulfill the roles of higher-level
positions within the agency, and identify what further professional development these employees
may need to help ensure that the right people are in the right positions in the future. Finally, the
Department is implementing a professional development program, Leadership Arizona, to support
and develop state employees to become future state agency leaders.
Despite providing these resources and the importance of workforce planning, the Department
has not developed a comprehensive internal workforce plan, nor are state agencies required
to undertake workforce planning. As shown in Table 2 on page 14, by fiscal year 2019, the
Department projects that one-third of its employees will be eligible for retirement. Although
the Department has not created a comprehensive internal workforce plan, it has utilized the
above-described workforce planning resources, identified its key positions, and determined the
short-term and long-term solutions to fill such positions in the future. Additionally, Arizona state
agencies are not required to conduct workforce planning and a department official reported that
many state agencies have indicated that they do not have the time to dedicate to workforce or
succession planning. Auditors interviewed four state agencies that indicated in budget planning
documents that they had some level of interest in workforce or succession planning. Although
two of these state agencies reported that they were undertaking workforce planning using tools
tailored to meet their agencies’ needs, the other two state agencies indicated they were not
developing workforce plans due to limited time and resources. Finally, although the Department is
implementing a professional development program to develop future state agency leadership, the
Department does not provide training to state agencies on workforce planning.

Department needs to develop a workforce plan and continue to encourage state
agencies to conduct workforce planning—Consistent with best practices and other
states, the Department should develop a comprehensive internal workforce plan and continue
to promote workforce planning to state agencies, including pursuing legislation to require state
agencies to develop workforce plans. According to the U.S. GAO, workforce and succession
planning help to mitigate the potential loss of institutional knowledge, skills, and expertise due to

1 Arizona Department of Revenue. (2014). 2014 Annual Report. Phoenix, AZ.
2 Arizona Health Care Cost Containment System. (2015). AHCCCS population highlights July 2015. Phoenix, AZ.
3 Arizona Department of Administration. (2014). State of Arizona workforce report: 2014. Phoenix, AZ.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 15

Arizona Office of the Auditor General

retirements and help ensure leadership continuity.1 The U.S. GAO reports that management
should consider how best to retain valuable employees, plan for their eventual succession,
and ensure continuity of needed skills and abilities. Auditors identified two other states,
Georgia and Texas, which require state agencies to conduct workforce planning as part
of their strategic planning processes. Specifically, Texas law requires that state agencies
conduct a strategic staffing analysis and develop a workforce plan to address these agencies’
critical staffing and training needs, including the need for experienced employees to impart
knowledge to their potential successors.2 Georgia law requires that each state agency
develop a workforce plan as a component of state agencies’ statutorily required strategic
plans.3 The Georgia Governor’s Office of Planning and Budget’s Web site provides guidelines
and a strategic planning worksheet to assist state agencies in completing their strategic plans.
A portion of the worksheet is dedicated to workforce planning, and asks state agencies to
identify any workforce gaps that may impede their achievement of their mission or strategic
goals, and report on the critical positions and job families that they find most difficult to fill,
develop, and retain.
Therefore, because of the number of state employees who will become eligible for retirement
by fiscal year 2019 and the importance of workforce planning to ensure the continuity of
knowledge, skills, expertise, and leadership in the State’s workforce, the Department should
take action to strengthen workforce planning state-wide. Specifically, the Department should
develop a comprehensive internal workforce plan. Additionally, it should encourage state
agencies to engage in workforce planning by continuing to provide workforce planning
guidance and by also providing training to state agencies on how to conduct workforce
planning. Consistent with best practice recommendations for effective workforce planning, this
training should cover how to retain valuable employees, plan for their eventual succession, and
ensure continuity of needed skills and abilities. Finally, the Department should work with the
Legislature to statutorily require state agencies to conduct workforce planning. In proposing
this legislation, the Department should work with the Legislature to determine what workforce
planning requirements should be addressed in statute, including how often state agencies
should conduct workforce planning and specifying any review responsibilities. If statute is
amended to require state agencies to conduct workforce planning, the Department should
develop and implement policies and procedures that establish the requirements and guidance
for the development of state agencies’ workforce plans, including the minimum requirements
for what these plans should include and the frequency with which state agencies should
update their plans. Workforce planning guidance the Department has already developed may
provide helpful information for developing the policies and procedures. Additionally, if statute
is amended, the Department should periodically monitor state agencies’ workforce planning
efforts.

1 United States Government Accountability Office. (2013). Securities and Exchange Commission: Improving personnel management

is critical for agency’s effectiveness. Washington, DC. United States Government Accountability Office. (2013). Social Security
Administration: Long-term strategy needed to address key management challenges. Washington, DC.

2 Texas Government Code §2056.0021 and §2056.002.
3 Official Code of Georgia §45-20-1 and §45-12-177.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 16

Arizona Office of the Auditor General

Recommendations:
1.1. The Department should complete the state-wide classification system update by finalizing and
implementing a classification system update plan. This plan should:
a.

Identify and incorporate classification system best practices;

b.

Specify the tasks or activities that need to occur to implement the system update, prioritize
work on the tasks or activities, and establish time frames for the completion of these tasks
or activities;

c.

Identify needed resources and the persons assigned who are responsible for the plan’s
execution; and

d.

Specify who is responsible for monitoring the plan’s implementation to ensure the update
progresses as expected.

1.2. The Department should develop a comprehensive internal workforce plan to mitigate the
potential loss of institutional knowledge, skills, and expertise due to retirements.
1.3. The Department should encourage state agencies to engage in workforce planning by:
a.

Continuing to provide workforce planning guidance; and

b.

Providing training to state agencies on how to conduct workforce planning. This training
should cover how to retain valuable employees, plan for their eventual succession, and
ensure continuity of needed skills and abilities.

1.4. The Department should work with the State Legislature to statutorily require state agencies to
conduct workforce planning. In proposing this legislation, the Department should work with
the Legislature to determine what workforce planning requirements should be addressed in
statute, including how often state agencies should conduct workforce planning and specifying
any review responsibilities.
1.5. If statute is amended to require that state agencies conduct workforce planning, the Department
should develop and implement policies and procedures that establish the requirements and
guidance for the development of state agencies’ workforce plans, including the minimum
requirements for what these plans should include and the frequency with which state agencies
should update their plans.
1.6. If statute is amended to require that state agencies conduct workforce planning, the Department
should periodically monitor state agencies’ workforce planning efforts.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page 17

Arizona Office of the Auditor General

APPENDIX A
This appendix provides
information on the methods
auditors used to meet the
audit objectives.
This performance audit was
conducted in accordance
with generally accepted
government auditing
standards. Those standards
require that we plan and
perform the audit to obtain
sufficient, appropriate
evidence to provide a
reasonable basis for our
findings and conclusions
based on our audit objectives.
We believe that the evidence
obtained provides a
reasonable basis for our
findings and conclusions
based on our audit objectives.
The Auditor General and
staff express appreciation to
the Arizona Department of
Administration’s (Department)
acting director and staff
for their cooperation and
assistance throughout the
audit.

Methodology
Auditors used various methods to study the issues in this report. These methods
included reviewing applicable statutes and rules, and department policies
and procedures; interviewing department staff; and reviewing information
from the Department’s Web site. Auditors also reviewed information from
the Department’s fiscal years 2016 through 2020 strategic plan and the
Arizona Governor’s Office of Strategic Planning and Budgeting’s Fiscal Years
2014-2016 Master List of State Government Programs. In addition, auditors
observed department meetings with state agencies’ chief human resources
officers.
Auditors used the following specific methods to meet the audit objectives:

•

To assess the Department’s implementation of personnel reform,
auditors reviewed statutory and administrative rule changes; legislative
and gubernatorial summary documents addressing the purposes and
objectives of personnel reform; the Department’s implementation planning
and communication documents; and department performance measures.
In addition, auditors reviewed literature and best practices for recruiting
and hiring; classification and compensation; performance evaluation;
and policy implementation.1 Auditors also interviewed department human
resources staff and staff from state agencies to gather their feedback on
the implementation of personnel reform.

•

To assess the Department’s efforts to undertake workforce planning
and its support of state agencies’ workforce planning efforts, auditors
interviewed department staff and reviewed department documents.
Additionally, auditors reviewed statutes and strategic planning documents
from two other states.2 Finally, auditors interviewed four state agencies
about the tools, strategies, and resources they use to conduct workforce
and succession planning.3

•

To obtain information for the report introduction, auditors reviewed
department-prepared documents relating to its responsibilities, functions,
and staffing. Auditors also compiled and analyzed unaudited information
from the Arizona Financial Information System (AFIS) Accounting Event
Transaction File for fiscal years 2013 through 2015, and the AFIS
Management Information System Status of General Ledger-Trial Balance
screen for fiscal years 2013 through 2015.

1 Citations for the literature used by auditors are included throughout the report.
2 These states were Georgia and Texas.
3 Auditors selected state agencies based on the information reported in the 2014 and 2015 issues of the State

of Arizona: The Master List of State Government Programs and State Agencies’ Five Year Strategic Plans, which
indicated that these state agencies had identified workforce and/or succession planning as a critical issue.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page a-1

Arizona Office of the Auditor General

•

Auditors’ work on internal controls focused on the Department’s implementation of
personnel reform, including department monitoring and review mechanisms, to ensure
personnel reform continues to meet the State’s needs. Auditors’ conclusions on the
sufficiency of internal controls are reported in Finding 1. Computerized system information
was not significant to auditors’ objective; therefore, auditors did not conduct test work on
information system controls.

Arizona Department of Administration—Personnel Reform Implementation • Report No. 15-108
Page a-2

Arizona Office of the Auditor General

AGENCY RESPONSE

AGENCY RESPONSE

Douglas A. Ducey

Kevin Donnellan

Governor

Acting Director

ARIZONA DEPARTMENT OF ADMINISTRATION
OFFICE OF THE DIRECTOR
100 NORTH FIFTEENTH AVENUE  SUITE 401
PHOENIX, ARIZONA 85007
(602) 542-1500

August 28, 2015
Ms. Debra K. Davenport, CPA
Auditor General
Office of the Auditor General
2910 North 44th Street, Suite 410
Phoenix, AZ 85018
Re:

Performance Audit – Personnel Reform Implementation

Dear Ms. Davenport:
The Arizona Department of Administration (Department) has reviewed the draft of the recent
performance audit of Personnel Reform Implementation provided by your office. As requested,
the Department’s written response is detailed below.
Finding 1 – Although the three key personnel reform provisions are largely implemented,
the Arizona Department of Administration (Department) should take additional steps to
finish implementing personnel reform and it also should strengthen workforce planning
state-wide.
Recommendations:
1.1.

The Department should complete the state-wide classification system update by finalizing
and implementing a classification system update plan. This plan should:
a. Identify and incorporate classification system best practices;

Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.

Ms. Debra K. Davenport, CPA
August 28, 2015
Page 2
b. Specify the tasks or activities that need to occur to implement the system update,
prioritize work on the tasks or activities, and establish time frames for the completion
of these tasks or activities;
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
c. Identify needed resources and the persons assigned who are responsible for the plan’s
execution; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
d. Specify who is responsible for monitoring the plan’s implementation to ensure the
update progresses as expected.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
1.2.

The Department should develop a comprehensive internal workforce plan to mitigate the
potential loss of institutional knowledge, skills, and expertise due to retirements.

Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
1.2.The Department should encourage state agencies to engage in workforce planning by:
a. Continuing to provide workforce planning guidance; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
b. Providing training to state agencies on how to conduct workforce planning. This
training should cover how to retain valuable employees, plan for their eventual
succession, and ensure continuity of needed skills and abilities.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.

Ms. Debra K. Davenport, CPA
August 28, 2015
Page 3
1.4.

The Department should work with the State Legislature to statutorily require state
agencies to conduct workforce planning. In proposing this legislation, the Department
should work with the Legislature to determine what workforce planning requirements
should be addressed in statute, including how often state agencies should conduct
workforce planning and specifying any review responsibilities.

Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
1.5.

If statute is amended to require that state agencies conduct workforce planning, the
Department should develop and implement policies and procedures that establish the
requirements and guidance for the development of state agencies’ workforce plans,
including the minimum requirements for what these plans should include and the
frequency with which state agencies should update their plans.

Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
1.6.

If statute is amended to require that state agencies conduct workforce planning, the
Department should periodically monitor state agencies’ workforce planning efforts.

Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Thank you for the opportunity to respond to the audit. We will continue to work with your office
as we move toward our six month status update.
Sincerely,

Kevin Donnellan
Acting Director

Performance Audit Division reports issued within the last 18 months
14-101

Arizona Department of Economic Security—Children Support Services—Transportation
Services

14-102

Gila County Transportation Excise Tax

14-103

Arizona State Board of Dental Examiners

14-104

Arizona Office of Administrative Hearings

14-105

Arizona Board of Executive Clemency

14-106

State of Arizona Naturopathic Physicians Medical Board

14-107

Arizona Department of Child Safety—Children Support Services—Emergency
and Residential Placements

14-108

Arizona Department of Administration—Arizona State Purchasing Cooperative Program

15-101

Arizona Department of Child Safety—Child Abuse or Neglect Reports, Substantiation Rate,
and Office of Child Welfare Investigations

15-102

Arizona Department of Administration—State-wide Procurement

15-103

Arizona Medical Board—Licensing and Registration Processes

15-104

Arizona Department of Transportation—Motor Vehicle Division

15-105

Arizona Department of Revenue—Use of Information Technology

15-CR1

Independent Review—Arizona’s Child Safety System and the Arizona Department of Child
Safety

15-CR1SUPP Supplemental Report to the Independent Review—Arizona’s Child Safety System and the
Arizona Department of Child Safety
15-106

Arizona State Retirement System

15-CR2

Independent Operational Review of the Arizona State Retirement System’s Investment
Strategies, Alternative Asset Investment Procedures, and Fees Paid to External Investment
Managers

15-107

Arizona Sports and Tourism Authority

Future Performance Audit Division reports
Arizona Department of Administration—Sunset Factors
Arizona Foster Care Review Board