Audit Finds Problems Managing Alcohol Warehouse Contract

North Carolina’s state-run wholesale and retail liquor distribution agency poorly managed its outside warehouse contract for over a decade, leading to $11.3 million in additional costs, a state audit determined Thursday.

State Auditor Beth Wood’s office released a performance review of the Alcoholic Beverage Control Commission’s contract with a Maryland-based company paid to run ABC warehousing. The liquor comes from licensed distillers and is held before getting shipped to local ABC stores for sale. The company, LB&B Associates Inc., criticized the report’s findings later Thursday.

The audit’s authors found the commission — usually a three-member panel appointed by the governor and employing an administrator — failed by approving contract price increases for LB&B 13 years in a row that exceeded the maximum allowed in the contract. The contract’s annual increase is capped based on certain North Carolina wage and motor fuels price changes.

The contract cost was $8.3 million for the year ending June 30, 2017 and $77.7 million in total for the 13 years ending on that date, according to Wood’s office.

The commission didn’t explain why the price increases were approved repeatedly, “but the commission offered that it had little to no resources dedicated to monitoring the contract,” the report’s authors wrote. Still, they added, the commission “is responsible for the prudent use of public funds and for obtaining services at the lowest possible costs.”

The commission also violated state purchasing policy by approving contract renewals longer than three years without getting approval from a state contract office, the report said.

Wood’s office also found the state could have saved $2.1 million over seven years if unnecessary space at a Clayton warehouse wasn’t leased. It cited a 2017 report by LB&B that said only 23 percent of the space in Clayton is allocated for regularly listed liquor. No monitoring of the warehouse contract also meant the state missed $297,537 in fees over two years, the report said.

But in a separate written response from LB&B, the company said it was disappointed by the final report and contends Wood’s office got things wrong. LB&B said state law doesn’t require the ABC Commission to follow the state’s purchasing and contract procedures, and the contract price increases “were more than reasonable and in the best interests of the state.”

The scope and magnitude of the contract services has soared since 2004, with total sales growing during the period from $520 million to over $1 billion, LB&B said.

“To expect a contractor to perform these greatly increased services with no (or very limited) price increases over a 13-year period is unreasonable,” the statement said. It also said 80 percent of the Clayton warehouse “is at full utilization on a regular basis.”

In a response attached to the audit, current Commission Chairman A.D. “Zander” Guy said he accepted the state auditor’s findings but noted most of the time covered occurred before he was chairman. Guy said current and future contracts will be reviewed carefully and that measures will be put in place to strictly administer the LB&B contract, which expires in 2021. It will be put out for public bid in 2020, he wrote.

Bob Hamilton, the commission administrator since late 2014, worked his last official day last week, according to Agnes Stevens, named as his replacement. Stevens said Thursday she had no comment on Hamilton’s departure, citing personnel matters as confidential.

Audit Finds Problems Managing Alcohol Warehouse Contract

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