PHOENIX, AZ – The Arizona Auditor General has issued a report finding that the controversial Arizona State Board of Barbers allegedly gave licenses to applicants without ensuring they met all requirements. The Auditor General concluded that the Board “has not fully met its statutory objective and purpose in several areas, including licensing, inspections, fee-setting, and cash handling.”
The Board of Barbers will be consolidated with the Arizona State Board of Cosmetology to create the Barbering and Cosmetology Board effective January 1, 2022 as a result of the passage of House Bill 2029 sponsored by Rep. John Kavanagh this past legislative session. Both boards have been sources of controversy on and off over the years.
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The Board of Barbers is supposed to regulate the barbering industry by issuing licenses to individuals and establishments, conducting inspections, resolving complaints, and providing information to the public about the status of licensees.
The Auditor General found that the Board:
Did not inspect barber shops and schools annually in calendar years 2019 and 2020, as required by rule; did not consistently take disciplinary action to address statute and rule violations identified during inspections in those years; and used an inspection form that did not address all statute and rule requirements. Specifically A.R.S. §32-304(B)(2) authorizes the Board to inspect the premises of any barber establishment during business hours, and AAC R4-5-107(B)(2) requires the Board to inspect each establishment’s premises at least once per calendar year.
However, Board staff did not inspect most licensed establishments annually in calendar years 2019 and 2020. According to Board-provided documentation, staff inspected at least 280 barber establishments in calendar year 2019 and at least 62 barber establishments in calendar year 2020, although there were 1,850 licensed establishments as of February 2021. Additionally, staff conducted these inspections only within the greater Phoenix area and not in other areas of the State. For example, as of February 2021, there were 266 licensed establishments in Tucson and 16 licensed establishments in Flagstaff, but staff did not inspect any of these establishments in calendar years 2019 and 2020.
Board staff cited 2 factors that contributed to their inability to complete more inspections: the lack of a dedicated inspector and, for calendar year 2020, the COVID-19 pandemic. Specifically, Board staff reported that the Board does not have a full-time inspector and that the Executive Director and Assistant Director complete inspections in addition to their other duties. Additionally, Board staff reported they stopped conducting routine inspections in April 2020 in response to the COVID-19 pandemic.
However, we also found that the Board lacks a systematic inspection process, supported by policies and procedures, such as a risk-based inspection approach, to determine when licensed establishments should be inspected and for tracking and monitoring completed inspections. Recommended practices indicate that implementing a risk-based approach to regulation helps regulators prioritize their limited resources to focus on high-risk entities to identify and address instances of noncompliance.
According to recommended practices, regulators should also monitor entities that are determined to be low risk, such as by conducting inspections of a random sample of lower-risk entities, to help ensure that all entities are subject to review. Using a risk-based inspection approach would allow the Board to focus its staff resources on establishments where there is some indication of risk, such as a complaint or historical violations, or establishments that have not been inspected in some time. If the Board adopted a risk-based approach, it would need to revise its rules to no longer require all barber establishments to be inspected annually.
Board staff stopped presenting inspection violations to the Board for its consideration and determination of potential disciplinary actions at its bimonthly Board meetings held between May 2020 and March 2021.
Although Board staff explained that they did not provide inspection violations to the Board because of the limited number of inspections performed in calendar year 2020, staff had still identified multiple violations in these inspections that could have been presented to the Board for potential disciplinary action. Board staff resumed presenting inspection violations to the Board for potential disciplinary action at the May 2021 Board meeting, which included violations from inspections performed after March 2021 and 1 inspection from calendar year 2020. Additionally, the Board lacks policies and procedures that direct staff when to present inspection violations to the Board for its review and consideration of potential disciplinary action.
Board staff used an inspection form that is missing multiple areas that have statutory and rule requirements, and for several areas that are included, the form does not provide guidance to Board staff on what specifically should be reviewed during an inspection. For example, AAC R4-5-302(A) requires barber shops to have 2 separate covered receptacles—1 for garbage and hair and 1 for soiled reusable towels— but the inspection form does not list receptacles as items to inspect. Additionally, A.R.S. §32-325(C) and AAC R4-5-404(A) outline specific equipment that each barber school should provide to students or have to operate, such as instructional furnishings, locker spaces for students, and a student library, but the inspection form does not direct Board staff to inspect for these items.
Further, for some areas the Board’s inspection form includes, it does not provide guidance regarding the specific requirements to monitor and check during an inspection. For example, the inspection form has a checkbox to indicate that Board staff should review each barber’s workstation and sanitizer, but it does not specify the requirements for these items and what should be reviewed. According to Board staff, they should ensure the sanitizer is present and clean and that the workstation is clean and free of all nonbarbering items, such as food. However, without this guidance specified on the inspection form, compliance with statutory and rule requirements may not be properly assessed, especially by new or inexperienced inspectors.
The Board consists of 5 members appointed by the Governor for 5-year terms. In fiscal year 2021, the Board was allocated 4 full-time equivalent staff positions. The Board does not receive any State General Fund appropriations.
The Board’s revenues consist primarily of licensing fees. However, the Auditor General found that the Board “has not evaluated the appropriateness of its fees.
“The Board’s application, licensure, and examination fees are set forth in rule, and according to Board staff, the fees have not been revised since at least calendar year 201,” noted the Auditor General. “However, the Board lacks fee-setting policies and procedures for evaluating the appropriateness of its fees to help ensure they are commensurate with the costs of its regulatory activities. Government fee-setting standards and guidance state that user fees should be based on the costs of providing a service and reviewed periodically to ensure they are based on these costs.”
The Auditor General found that the Board “has not adequately protected cash receipts, placing public monies at risk of loss or theft:
“The State of Arizona Accounting Manual (SAAM) requires agencies to implement multiple cash-handling controls and safeguards, including segregating the cash-handling and cash recording functions, such as opening the mail in the presence of another person, not authorizing staff who handle cash to also issue licenses, and limiting access to cash. Further, the SAAM requires bank accounts to be reconciled monthly.
Because cash receipts are susceptible to loss or theft, it is critical that the Board adequately control and safeguard these monies.”
Although the Board has an agreement with the Arizona Department of Administration Central Services Bureau to perform some cash-handling and accounting services on its behalf, Board staff also process a large amount of checks/money orders that the Board receives through the mail. We identified several areas where the Board’s cash-handling procedures do not align with the SAAM. Specifically, the Board reported that it:
- Has not appropriately segregated cash-handling duties. Specifically, the Board does not have 2 Board staff open the mail together, and the Board staff who open the mail also prepare the bank deposits and are authorized to issue renewal licenses.
- Has not limited access to cash because all Board staff have access to the safe.
- Has not monthly reconciled cash receipts to the number of licenses issued to help ensure all cash receipts are accounted for and match the number of licenses issued.
The Board’s inadequate procedures exposed it to an increased risk of loss or theft, although we did not identify any instances of loss or theft.