Arizona Department of Revenue: Public Service Value Model

The project used an analysis generated from the Accenture Public Service Value Model to help form a foundation for the agency's strategic planning process, performance measurement and performance management.

Arizona Department of Revenue's (AZ DOR) mission is to administer tax laws fairly and efficiently for the people of Arizona. The agency has an annual operating budget of $58.5 million and approximately 1,000 employees. In 2002, in need of an agency-wide transformation, AZ DOR partnered with Accenture in a multiyear value-based project, the Business Reengineering/Integrated Tax System (BRITS), to reengineer key agency processes and implement Accenture's integrated tax system. At approximately the same time as the agency contracted Accenture, the governor appointed a new agency director, J. Elliott Hibbs. Director Hibbs is a firm believer in performance measurement and agency planning, and quickly redefined AZ DOR's strategic planning process. As the agency's business partner, Accenture sought to find a way to link the performance improvements from the BRITS project with the agency's mission and the strategic goals of the new director.

In need of a framework to link the BRITS project with the agency's new focus, AZ DOR became the ideal candidate for a US pilot of the Accenture Public Service Value (PSV) Model (patent pending). Accenture's PSV Model aims to help agencies strike the right balance between competing pressures to increase citizen outcomes and operate cost effectively. The model hypothesizes that those agencies delivering improved outcomes and cost effectiveness over time can become high-performance government agencies.

The BRITS project is a benefits-funded agreement (paid from increases in revenue) between AZ DOR and Accenture. The contract was designed as a fiscally responsible way to accomplish the BRITS mission: To service the needs of our customers and stakeholders by redesigning and restructuring the Department of Revenue and its supporting systems. These two motives underpinning BRITS—improved service for stakeholders and fiscal responsibility—align perfectly with the public service values stressed by PSV (outcomes and cost effectiveness).

Tactics Employed
Accenture teamed with AZ DOR for the pilot PSV analysis in the spring/summer of 2003. The analysis focused on AZ DOR performance from fiscal years 1996 to 2002. Based on Director Hibbs' positive feedback and willingness to help refine the framework, Accenture tested the model at other Revenue clients and returned to Arizona in the fall of 2003 to complete a follow up analysis with a more polished analytical approach.

The model, created by Accenture Revenue industry experts, and validated by clients and the US Federation of Tax Administrators (FTA), focuses on the four key outcomes for state revenue agencies: maximizing tax revenue, maximizing compliance rates, minimizing taxpayer burden and maximizing responsiveness to taxpayers.

These four outcomes represent a balance of a revenue agency's statutory responsibilities and citizens' expectations for service delivery. Agency performance for these four outcomes is measured by using a series of metrics that indicate the agency's ability to deliver on a specific outcome. For example, the PSV score for the maximizing taxpayer responsiveness outcome is measured by using a series of metrics that measure the quality of AZ DOR's processing and problem resolution capabilities, such as the cycle time for income tax refunds, the abandoned call rate, and the resolution time on taxpayer correspondence cases.

Using the Revenue industry model as the starting point, the key project activities for the Arizona Department of Revenue PSV project included:

• Tailoring and weighting the PSV Excel-based model to reflect the current focus of AZ DOR. As a result of the state of Arizona's current fiscal challenges, the tax revenue and compliance outcomes were weighted more heavily (at 60 percent) than the service-oriented outcomes (at 40 percent). In addition to weighting the outcomes, the model was adjusted to reflect the available historical data which AZ DOR could provide for the analysis.
  
  
• Collecting historical data to measure performance for the metrics included in the model. In this phase of the project, FY03 data was added to the previous version of the PSV analysis. Also, using our PSV experience from other Revenue clients, the Accenture team added several new metrics to the model and refined some of the existing metrics.
  
  
• Providing insight on external and internal factors, which influenced agency performance. This activity was driven by AZ DOR employees. They used their experience with the department to provide Accenture with invaluable insight on the historical context for metric and outcome trends.
  
  
• "Running" the PSV model to assess performance for the identified PSV industry outcomes, metrics and level of cost effectiveness. This phase of the project represents the culmination of the prior project activities. The Accenture team built a Microsoft Excel-based PSV model, which calculates scores based on the metric and outcome weightings and historical data.
  
  
• Analyzing PSV results to explain changes in the client's performance over the life of the analysis (fiscal years 1996 to 2003). An in-depth understanding of the department's recent history informed the analysis.
  
  
• Identifying areas of agency strength and making recommendations for future improvements.

The Accenture team presented key findings from the FY03 PSV analysis to AZ DOR leadership in January 2004. Findings from the analysis aligned with the key changes in AZ DOR's recent history, including:

• FY 97-99: During this period, there was a shift in the organizational culture under a prior AZ DOR director. The department's emphasis on a team–based environment and customer orientation, at the expense of more fundamental DOR functions, led to a decline in outcomes and cost effectiveness.
  
  
• FY 99-01: AZ DOR's efforts to gear up for Y2K compliance led to increased automation, decreased taxpayer burden, and improved taxpayer responsiveness.
  
  
• FY 03: Under new Director J. Elliott Hibbs, the combination of multiple factors, including a reduced budget, the Revenue Enhancement and Tax Amnesty programs, and continued improvement in reducing taxpayer burden led to value creation.
  
  

In addition to illustrating the impact of agency changes on value creation for Arizona taxpayers, the PSV project highlighted some key findings that the department could use to form future agency decisions, including:

1. Resources Drive Outcomes. Arizona Department of Revenue experienced its highest levels of PSV outcomes in 1996 and 1997. Not coincidentally, these are the two years in the analysis time period when AZ DOR had the highest adjusted expenditure per taxpayer and the most employees.
   
   
2. Improving Cost Effectiveness. AZ DOR is capitalizing on limited resources to deliver an impressive level of outcomes. The department's PSV cost effectiveness score has improved each year since 1999, reaching its high point in 2003. The improving cost effectiveness trend indicates that AZ DOR is delivering a strong level of outcomes with their limited resources.
   
   
3. Compliance Gap: Growth in actual taxpayers for AZ DOR is not keeping pace with the growth in the potential taxpaying population, especially for corporate and individual taxpayers. The increasing gap in actual vs. expected taxpayers is resulting in declining voluntary revenue (as a percentage of overall economic growth in the state).
   
   

PSV will play a key role in AZ DOR's future, serving as the agency's foundation for strategic planning, performance measurement and performance management. As next steps, the PSV team is currently working with AZ DOR to create a PSV tool that the agency will be able to use to help justify budget requests from the state and make investment and resource allocation decisions. Moreover, the PSV tool will remain an integral piece of the BRITS project, serving as the one key indicator of how this reengineering effort creates value for Arizona taxpayers.

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