My sister-in-law is Power of Attorney for her 78-yr-old brother in Arizona who had a health crisis and then suddenly went into confusion and dementia. Now that he is mostly recovered physically, back home with caregivers, the dementia remains and He refuses to pay his bills. What steps does his sister need to take to gain control of his savings account?

Take and give a copy of the POA to the bank. Then they can pay the bills.
But, there is an issue, a POA by normal use (you will have to check state law where you are at) can not pay a bill that the person refuses to pay. If you want to be Sally for work Sally did, but the person says not to pay Sally, a POA can not pay a person that the original person tells you not to pay. You can merely pay for a person, if they are not able to pay.

If their mental state is so bad, you may need to go to court and have the court appoint a guardian to pay the bills, a guardian takes over the care and duties of the person when they can not do it themselves.

Agreed, a court appointed guardianship is what you need. Best done with sound legal guidance so consult an attorney.

Was the POA close ended? Did the brother ever revoke it? Assuming the POA is still in force, the sister should be able to use it to be added as a signatory on the bank account.

Otherwise she may have to apply for a conservatorship.