Examiners: Lots of audit work at Utah liquor agency

Auditors have looked at only a fraction of how the state runs its liquor monopoly — despite years of financial examinations that have detailed incompetent management at the alcohol-control agency, Auditor General John Schaff said on Friday.

"An audit team could survive in this agency for quite a while," Schaff told liquor commissioners while discussing the latest critical audit of the Utah Department of Alcoholic Beverage Control (DABC). "There's a lot of work here."

In officially delivering their report to the board, auditors said senior DABC managers routinely rigged bids and split millions of dollars of invoices to avoid state procurement laws.

The legislative audit, released last month to state lawmakers, was prompted by complaints involving business transactions, totaling $370,000, between the department and a company owned by the son of former executive director Dennis Kellen.

"I'm disappointed with Kellen's leadership," said liquor commissioner Jeffrey Wright. "How could I not be? Boards do have to rely on the honesty and integrity of their directors."

Auditors said Kellen did not declare a conflict of interest when contracts were awarded to his son's company Flexpak, possibly violating state law. The Attorney General's Office has launched an investigation into the matter.

Kellen, 68, who resigned in August, had worked at the agency for more than 30 years and had been director since 2007. He has not returned repeated calls for comment.

Commission Chairman Richard Sperry on Friday said the first inkling that senior managers were not disclosing information to the board occurred earlier this year in a separate audit. In that report, auditors said a package agency in the Ogden Valley town of Eden had lost $300,000, but managers allowed the liquor outlet to continue operating, without notifying commissioners.

Scaff said an ongoing audit is looking at how the department is managing its 100 other package agencies, but there's been no examination of the 41 state-run liquor stores — which bring in the bulk of revenue. For instance, last year sales for package outlets totaled about $16 million, compared with liquor store revenue of nearly $281 million.

For years, however, state examiners have raised concerns about managers artificially splitting invoices. But the makeup of the liquor-control board changes periodically as members' terms expire, and no one has taken action, auditors told commissioners, who are charged with overseeing the $300 million department.

DABC Executive Director Francine Giani, asked by the governor to "clean up the mess" at the department, has questioned whether a part-time citizens' board meeting once a month can effectively manage the agency.

When Giani took over the reins in August, commissioners called her into a closed meeting to complain about her management style. But someone forgot to turn off the intercom, effectively broadcasting the discussion, which was reported earlier by The Salt Lake Tribune.

On Friday, commissioners released a video of the closed-door September meeting, in which chairman Sperry told Giani that by law, she was to report to the board, not to the governor.

Giani retorted that she would not be intimated by threats for her job, saying, "With all due respect, Dr. Sperry, I've gotten into a lot bigger fights with people a lot bigger than you."

Sperry said Friday that any relationship issues with Giani have been resolved.

Giani had signed a waiver that prompted commissioners to release tapes of the closed meeting over Sperry's objections.

"I got my butt kicked," Giani said. "But I don't do closed meetings, and my butt has healed."

Gov. Gary Herbert has said the troubled liquor agency could be absorbed into the Department of Commerce, which Giani also directs.

dawn@sltrib.com

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