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Although the Utah Department of Alcoholic Beverage Control is doing a good job of keeping track of small, privately run liquor outlets but commissioners should conduct independent audits to ensure the state's alcohol monopoly is effectively managed, legislative auditors said in a report released Thursday.
The audit was prompted after the Eden package agency left taxpayers with $300,000 in unpaid bills. Typically, package agencies are located in resorts and small towns and are run by private contractors. Some 35 package agencies, such as the Eden outlet, operate on consignment.
Supporters pushing for privatization of Utah's $300 million monopoly point to package agencies as a model for turning over retail sales to the private sector.
Auditor supervisor Brian Dean told members of the Legislative Audit Subcommittee that five other package agencies were frequently short on payments to the state from January 2007 to April of that year. Shortages averaged $6,000, but the DABC took no immediate action to resolve the problems. Dean also said in an earlier audit that staffers had failed to notify the board of mounting losses at the Eden outlet until after the agency closed in July 2010.
To keep the board better informed, Dean said commissioners should put an internal audit division in place that reports directly to them. Currently, department auditors report to their supervisors, who in turn report to the five-member board.
The DABC had an internal audit division nearly a quarter century ago, but that division was disbanded, Dean said.
The recommendation to reinstate an internal audit division comes on the heels of consultant recommendations that the department also implement a business plan. That suggestion by Salt Lake City-based Bonneville Research came three years after the DABC embarked on a $35 million liquor store expansion project, which added 40 percent more retail space for heavy beer, wine and distilled spirit sales. Lawmakers paid $100,000 for the study.
Department Executive Director Francine Giani said that since the latest audit the DABC now requires package agencies to submit quarterly bank statements, which allows the department to conduct informal audits to determine any shortages in reimbursements to the state and to quickly "identify red flags." On-site audits are being conducted twice annually.
Board chairman Richard Sperry, who was not present at the meeting, sent a letter saying that last August, the board's ability "to provide oversight was nullified after the department was reorganized three weeks into my tenure as chair."
Giani, appointed director last summer, on Thursday told lawmakers that said she agrees with recommendations that the board implement an internal audit division, adding that under her tenure, "I have been more transparent with the board than any other director."
Sperry and Giani, who also is director of the Department of Commerce, have exchanged angry words over whether she is to report to the board or the governor.
Gov. Gary Herbert has said he would prefer to see the troubled DABC moved into the department, but Sen. John Valentine, R-Orem, is pushing for a strengthened version of the current system with an independent commission overseeing the agency.
On Thursday, Sen. Ross Romero, D-Salt Lake City, noted that the Thursday session was the second legislative hearing on the DABC in which Sperry has not appeared. Concerns have been raised over the part-time board's ability to oversee such a large state agency.
Said Sperry in an email: "The Legislative Audit Subcommittee meetings are scheduled on short notice without considering the availability of commission members. The scheduling issue is compounded by the fact that auditors prohibit the commission from receiving any information about the audit before the subcommittee meeting. Therefore, it is impossible for the commission to provide any meaningful input about the audit during the meeting."
Sperry also said part-time boards "are the norm for every major business and nonprofit organization in the world. Board members are typically professional individuals with very busy schedules. If a board is appropriately structured and adequately empowered it yields optimal governance and oversight."