Auditors have identified at least two dozen problems with the way the Department of Alcoholic Beverage Control (DABC) operates Utah's liquor warehouse and retail store system.
Those "weaknesses" put the multimillion-dollar system at risk of internal and external theft, product spoilage and misappropriation of funds, according to the report, "The Department of Alcoholic Beverage Control Financial Account Review Related to Certain Aspects of Internal Control."
State Auditor John Dougall told the state liquor commission Tuesday that while the audit revealed "opportunities for improvement," the DABC's new executive director, Salvador Petilos, and his management team have "welcomed our findings and already made some of the necessary changes."
Lawmakers called for more internal auditing of the DABC after a string of scandals hit the department in recent years, including one that forced the resignation of the department's director.
The recently released financial audit is the first of three that the DABC will receive in the coming months, supervisor Rebekka Wilkinson told the commission.
She said since May 2013, auditors have been looking at the financial side of the department, examining inventory and accounting procedures at 11 of the 44 full retail stores as well as the massive storage warehouse in Salt Lake City. In addition, "secret shoppers" were sent in to make purchases or returns and check on security measures.
Among the findings:
• Shipping trailers containing thousands of dollars' worth of booze were found unlocked or in unsecured parking areas without fencing.
• Shipments regularly arrive at retail stores with the trailer refrigeration turned off, which can result in product spoilage.
• Diesel-fueled refrigeration units were allowed to run for extended periods of time, even over entire weekends, raising concerns about fuel costs and pollution from idling.
• Several retail stores are not adequately staffed, requiring managers to operate cash registers. This arrangement creates an "improper separation of duties" and increases "the risk of misappropriation of funds," the audit states.
• During several visits, secret shoppers were allowed to make liquor returns without providing receipts, filling out proper forms or showing identification.
• In six purchase visits, secret shoppers were able to freely access employee-only bathrooms and other restricted areas. Monitoring access to bathrooms helps deter shoplifting, the audit stated.
• Retail stores need to improve customer service. During 32 visits, secret shoppers were not greeted or offered assistance. "In addition to being a good customer-service practice, greeting customers and offering assistance can help deter shoplifting," the report noted.
The audit did not include amounts of theft in the system.
Dougall said that the unsecured shipping trailers were the biggest concern. During their visit, auditors were "able to open each trailer and take photographs of its contents," he said. They were also able to enter the yard unimpeded.
Auditors immediately contacted the alcohol department about the concern.
Within days, the company that transports products from the warehouse to retail stores was using padlocks on all trailers, Petilos said. Also, since the auditors' visit, fences have been installed to keep out trespassers.
Not all the problems have been solved and the department still has work to do either creating and implementing procedures or providing better training on existing policies, he said.
"We really look at the state auditors as partners who can help us improve our department and regain some of the trust we had lost in the past," Petilos told the commission.
Commissioners said they welcomed the audit findings and the collaboration between the two departments.
"In any $300 to $400 million business you're going to find places that need improvement," said commissioner Jeff Wright.